Chinese Bitcoin Miners at the Crossroads

Wandering” is perhaps the “initial gene” engraved in China’s bitcoin mining industry.

It’s May 25, 2021, and Wang Li is wearing a thick medical gown in the international flight terminal, fully armed and waiting to take off.

After all, the overseas epidemic had not yet stabilized, and the large international terminal seemed empty at this time, so no one would leave the country at this time, unless necessary, as in Wang Li’s case.

As a staff member of the famous domestic miner Bitmain, Wang Li did not anticipate that he would one day “ride alone for a thousand miles” to a foreign country, just to find a piece of land suitable for stationing a new mine.

Sitting in the waiting hall, he thought a lot, but couldn’t make sense of it, so he just posted a message in his circle of friends, “Shut down for 16 hours”.

It all started back a few days ago, on an ordinary Friday night.

At 10pm on May 21, the State Council’s Financial Committee announced that it would crack down on bitcoin mining and trading, and resolutely prevent individual risks from being passed on to the social sector. This is the first time the State Council has explicitly cracked down on virtual currency mining.

The news has sent the cryptocurrency community into a tizzy.

If the previous “shutdown of bitcoin mining in Inner Mongolia” could be considered a local action, and the “power outage in Sichuan’s consumption park” could be interpreted as a way to preserve electricity for living production, now bitcoin miners can really only give up their luck and find a solution in advance, waiting for the boots to fall on the ground.

This also means that domestic bitcoin miners are no longer just migratory birds moving back and forth in Sichuan, Inner Mongolia, Xinjiang and other places, they have to sing the wanderer’s song again and look for their own “gypsy” mining sites around the world.

One

Wandering” is perhaps the “initial gene” engraved in China’s bitcoin mining industry.

In China, with its natural resource advantages, bitcoin miners are favored by the abundant hydropower in the Yunnan, Guizhou and Sichuan regions, and the abundant thermal power in Xinjiang and Inner Mongolia.

Like migratory birds that migrate north and south every year, they choose water to live in. Bitcoin miners also chase after the cheapest “electricity”, traveling between Xinjiang, Inner Mongolia and Sichuan during the dry and rainy seasons every year, shuttling between the mountains in the southwest and northwest, looking for hydroelectric power stations on the most turbulent rivers, as well as thermal and wind power stations in the desert Gobi.

The water-abundance period is also considered to be the “gold rush” period for miners. The high water period generally occurs during the rainy season or in the spring when temperatures continue to rise. This is a time when water is abundant in the river and continues for a long time, and the abundant water power brings more and cheaper electricity. For miners, this means lower costs and higher profits.

Zhihu’s “mining director” said about the abundant water period that many miners like this season, hoping to spend less on electricity to make their profits bigger. This year’s water season starts on May 25, and some miners have already shipped their machines to Sichuan to choose their addresses in advance.

However, as the debate over Bitcoin mining polluting the environment continues to unfold, the ESG (Environmental Social and Governance) movement gains popularity, and electricity is in short supply in southern China, state regulators have changed their stance on mining.

On May 25, the Inner Mongolia Development and Reform Commission again issued “Eight Measures to Resolutely Combat and Discipline Virtual Currency Mining” (Draft for Comments), which is based on The eight types of objects are proposed different strategies to combat and discipline.

In Sichuan, where hydropower is abundant, a hydropower consumption industry demonstration zone was built to solve the problem of “abandoned water and electricity”, and several virtual currency mining companies were stationed there. According to Mint, the founder of Wonder Capital, the Sichuan Dissipation Park has now lost power and may not be restored until after the policy is clarified.

Many miners have been forced to shut down as this year’s abundant water period is approaching.

ii

When miners stop running, this change is directly reflected in the arithmetic power.

According to the F2Pool website, in the past two weeks, BTC network-wide arithmetic has dropped from a high of nearly 213EH/s to a low of 125EH/s, a 41% drop.

If you look at the current data from major mining pools, the trend of declining power has also been continuing. According to the BTC.com website, the top five mining pools are all on a downward trend, with the only exception being BTC.TOP, which was ranked 11th and still had a 29% increase on May 27.

Chinese Bitcoin Miners at the Crossroads

May 27 Mining Pool Power Change

Jiang Zhuoer, the founder of Lepit Mining Pool, told Rhythm that their mining farms are mainly located in Xinjiang and Sichuan, and there are no mining farms in Inner Mongolia at the moment, so the Inner Mongolia decommissioning policy has almost no impact on them.

Talking about the power outage in Sichuan’s consumption park, Jiang Zhuoer believes the main reason is that Sichuan has less precipitation this year, and electricity is tight. “But our new models are basically in Xinjiang, Sichuan only Ant S9, Avalon A8 and other older models, and most just taken out of the warehouse, not yet turned on, so the impact is not much.

The other side of the decline in domestic arithmetic power is the increasing arithmetic power of foreign mining pools.

At present, domestic computing power may only account for 50% of the total global computing power. Conversely, U.S. arithmetic has risen to about 12%.

Keep in mind that Chinese arithmetic has previously dominated the global bitcoin mining network. According to the Cambridge Centre for Emerging Finance (CCAF), China accounts for 65.08% of the world’s total mining capacity. This is followed by the United States, Russia, Kazakhstan, Malaysia, and Iran in that order.

Chinese Bitcoin Miners at the Crossroads

China’s share of world arithmetic power in April 2020

This means that the bitcoin arithmetic map is changing. While Chinese arithmetic continues to decline, compliance and capital inflows have allowed North American arithmetic to grow rapidly, with Grayscale’s Foundry USA mining pool quickly moving into eighth place globally from its previous ranking of outside the top ten.

Three

The flow of arithmetic power represents the choice of big miners.

The “big domestic mining owners with their own mining machines are basically seeking opportunities to go abroad while waiting for the policy to be implemented. The largest mining service team in China has sensed the mood of the big miners,” Wang Wenguang, head of the mining business of the Bitty Fawn Group, told Rhythm.

“The current mining revenue is still considerable, so their current status is to dig while waiting for the policy and seeking to go abroad, Wang Wenguang said.

According to multiple verifications by Rhythm, domestic mining companies such as Bitmain, Bit Xiao Deer, and Biddy (a mining service under the Lepit Mining Pool) have all started their plans to leave the country.

Industry insiders close to Bitmain told Rhythm that before Bitmain’s “split”, domestic mining sites were mainly assigned to Zhan Ke Duan (Bitmain’s chairman), and foreign mining sites were assigned to Wu Jihan (Bit Xiao Deer’s chairman). So currently Bitmain’s mines are mainly located in Xinjiang, Inner Mongolia, Sichuan and other places in China.

After the State Council policy was introduced, Bitmain asked mining sales to go overseas to find mining sites and solve domestic problems. “The current batch of sales has gone to North America, the Middle East, Central Asia and other places, fully armed, after vaccination, it is not clear when they can return. the source said.

In addition, Jiang Zhuoer also told Rhythm that the subsequent addition of arithmetic power, he will consider in North America and other places, will not be in the domestic large-scale increase in arithmetic power and mine. At present, his mine has planned a North American sea action.

Four

Where is the way out of the sea? At present, there are mainly two major directions in North America and the Middle East.

Wang Wenguang told Rhythm, in the United States, Canada as the representative of the North American region, the local policy is relatively stable, the legal system is relatively sound, there are many large mining enterprises stationed in the local, but the comprehensive cost of North American mining is too high, the United States also imposed a 25% tariff on Chinese electronic products.

Another relatively cheap option is Kazakhstan. The region has abundant energy resources, is closer to China, has lower labor and construction costs, and has far lower tariffs than the United States. But there is little rule of law, the business environment could be improved and, like China, policy is the biggest risk.

Mint also told Rhythm that in North America, Canada may have more advantages than the U.S. in establishing mines. Canada’s mines are concentrated in Ontario and Quebec, which are rich in natural gas resources and have only a 5 percent tariff.

Currently, there are two types of people who choose to go abroad.

One type is to go abroad directly to build a mine. Wang Wenguang told Rhythm that the cost of building a mine in North America is roughly six to ten times higher than at home due to high local equipment and labor costs. In the cheaper environment of Kazakhstan, the comprehensive cost of building a mine is roughly the same as at home.

Another category is shipping miners out of the country for hosting. But shipping a large number of mining machines out of the country is not an easy task at all.

Mint told Rhythm that the cost of shipping miners overseas includes tariffs, miner shipping costs, O&M costs, labor costs and time costs. For example, it takes as fast as six months to rebuild a mine in Canada, while it only takes half a month at home.

Currently, Chinese miners can leave the country according to the general electronic goods export process, but the door to the miners back home has been closed. Wang Wenguang revealed that China currently does not accept second-hand electronic goods into customs in order to prevent the inflow of electronic waste into the country, and it is very difficult to return the mining machine to China after it has gone out.

In addition, mining as a more emerging industry worldwide, “no other country has as mature a supply chain and infrastructure as China, and maintenance and parts for foreign mines can be more troublesome,” Mint said.

Even though the foreign mining environment is not as mature as China’s, the trend has been to go overseas. Domestic computing power will continue to decline while foreign computing power continues to rise, and this trend is irreversible,” Wang said. Wang Wenguang said.

Mint said that the current move to the sea is a desperate move under the policy changes, and if there are conditions, China is still the first choice for the mining industry.

Five

While mining companies and big miners are pushing against the odds to find a new home abroad, the high cost of going abroad is discouraging hosting mines and small miners.

Those who stayed in the country did not have many options.

Some mine owners have chosen to move further within the country, moving their mines to other low-cost areas such as Xinjiang and Yunnan to wait and see the policy details. Laoji is one of them. He has been operating in the mining circle for many years, with a steady and low-key style, and he thinks he has seen the storm, but he is also confused by this policy change.

The situation this time is completely beyond expectations. When the Inner Mongolia policy was introduced, I wasn’t worried because my mines are in Sichuan and use hydropower. But this time it looks like it’s going to be a big game, and if hydropower mining is also cut across the board, it will be very difficult for miners.

Bewildered, Lao Ji does not have any good solution, but to wait and see.

The company’s machines are physical assets, the initial investment of tens of millions of dollars, which can be casually disbanded, the situation abroad and do not understand, now can only continue to dig while there is still electricity, and wait for the policy to fall into place. Talking about the way back, Lao Ji is quite helpless.

Some people also choose to leave the mining industry, the mining machine will be resold. Before the State Council’s policy was released on May 21, Rhythm found that some miners had already smelled the smell of dramatic changes in the industry through the attitude of the local government and sold their mining farms in their circle of friends.

The change in the mining site also affects the price of mining machines. A senior member of the mining community told Rhythm that most domestic miners were “second hand dealers” before, but with a large number of mine owners relocating and selling their miners, the mining market began to cool down around mid-May, and second hand miners began to drop in price.

However, Jiang Zhuoer is still relatively optimistic about the survival of small domestic miners.

He believes that the current stock of domestic miners can continue to mine if they have the conditions. If the policy is implemented in the future, the worst case scenario is that all domestic mines will be shut down and the miners will flow into the hands of small and medium-sized miners, even family miners.

The company’s main business is to provide a wide range of products and services to the public. Jiang Zhuoer said.

Another important question for domestic miners is when the boots will land? Will the policy be across-the-board or not?

Mint believes that the policy calls for preventing individual risks from being passed on to the social sector. The main products and platforms that will be affected are cloud computing, disguised fundraising, and illegal fundraising mining, with cloud computing platforms likely to face a full-scale purge and various service platforms that provide socialized information also facing overhaul.

“The current bitcoin mines in China’s Sichuan and Yunnan are mainly clean energy mines, using abandoned water to produce electricity, which meets the requirements of China’s carbon neutral policy, and the mining process does not produce any waste water and waste gas, which is very environmentally friendly,” she said. She said.

Mint called for a moderate crackdown on the overheating phenomenon is necessary, but a one-size-fits-all policy is not conducive to regulation, and many industry chains have run underwater, instead making it more difficult to regulate.

Just as this article is about to end, rhythmic circle of friends in the network to reveal new news, “I heard that the big miners were called to a meeting to research, the policy has not yet a broad-brush. The worst thing the miners can do is to dig through the abundant water period.” for the consumption of electricity in Yunnan, Guizhou and Sichuan. The credibility of the news is unknown, but represents the ardent expectations of miners.

This morning, the National Energy Administration Sichuan Regulatory Office held a small-scale research forum on virtual currency mining. As an important province for clean energy mining, Sichuan’s regulatory rules basically telegraph the overall regulatory attitude in the country.

The answer may be revealed as to where Chinese bitcoin miners should go before the crossroads and when their wanderings can stop.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/chinese-bitcoin-miners-at-the-crossroads/
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