Death knell for Chinese crypto miners? Rigs on the move after gov’t crackdown
Some analysts think China’s government is trying to get rid of its crypto miners. Its stop-and-raid inspections in the mining area of Xinjiang, the country’s far-western region, suggest that Beijing is putting an end to its tacit approval of crypto mining.
The country’s central bank has warned that mining used to be a “pillar of the economy” but now resembles a “so-called Frankenstein monster” as “individual miners have become big, unregulated and detached from reality”. The central bank also warned that “the use of cryptocurrencies [is] highly speculative and risky”. China’s clampdown, which includes a ban on crypto-related fundraising and trading, has already led to a significant global drop in the price of bitcoin and other cryptocurrencies.
On July 5, the People’s Bank of China (PBOC) released a statement banning cryptocurrency trading to protect consumers. On July 12, the local authorities in the city of Yunnan, known for its massive crypto mining farms, issued the first evacuation notice in the country. The locals have reportedly decided to sell their mining rigs, which are now on their way to the second largest crypto mining haven, the city of Guiyang in Guizhou Province.
When it comes to China, few things are crystal clear, and the recent crackdown on cryptocurrency mining is no exception. The State Council’s Committee on Financial Stability and Development stated on 21. In May, China announced that it would halt bitcoin mining (BTC) due to financial risks, leading the South China Morning Post to declare that China’s place at the center of global bitcoin mining was disappearing. We see the cryptocurrency market heading down the path of decycling – first in trading and now in computing capacity, based on a series of tougher measures Beijing took last week against cryptocurrencies and bitcoin mining, Wang Huang, an associate professor of blockchain at Xi’an Jiaotong University and a member of the OECD’s Expert Advisory Committee on Blockchain Policy, told the publication. But maybe not. Darin Feinstein, founder and executive chairman of Blockcap, one of the largest cryptocurrency miners in North America, is not convinced that bitcoin mining in China, the current global mining hub, is over. China made a similar announcement in 2017, he told Cointelegraph, explaining further: After that announcement, another company I founded, Core Scientific, entered into numerous contracts with Chinese mining companies to help them transfer some of their miners to the United States. None of these agreements were ever implemented, and all of these miners are still mining in China today. However, three mining companies – BTC.TOP, Huobi and HashCow – have announced the closure of their mainland shops. Bill Bishop, an expert on China, said in his newsletter Sinocism that the government’s eight measures against mining activities in the Inner Mongolia region have been severe and that it will now be much harder to believe that this is only a temporary restriction and that things will return to normal relatively soon. Other provinces and regions, including Sichuan and Xinjiang, could follow suit. No one can say for sure what is going on behind the scenes in China, as Ms. Feinstein notes, but the question is worth asking: What’s really behind the latest (apparent) restriction on cryptocurrency mining and why now? Is it only a question of avoiding financial risks, as the government says, or can energy/environmental considerations also play a role? Will Chinese mining operations now move abroad and, if so, where might new mining centers for cryptocurrencies emerge? Finally, is this another signal that the energy-intensive proof-of-confidence protocols used in bitcoin and other cryptocurrencies are becoming increasingly problematic in a world plagued by environmental problems?
Threat to existing systems?
Control over monetary policy and the financial system is important to the central government, and bitcoin poses a threat to that, Ethan Vera, chief operating officer of Luxor Tech, told Cointelegraph in the wake of the new restrictions on mining, adding: Bitcoin is cementing its place in the world and proving to be a valuable store of value for people all over the world. It threatens the old systems. Yu Xiong, vice-dean of international at the University of Surrey and chair of the business analysis department at the Surrey School of Business, cites environmental concerns as the main reason for the restrictions. Countries such as China, which have expressed a desire to become carbon neutral at some point – in China’s case by 2060 – are now under increasing pressure to stay away from emissions-intensive sectors. Bitcoin mining is an area that can be easily sacrificed domestically without much cost, Xiong told Cointelegraph. Why now? Bitcoin has been rising too fast lately, which has affected the behavior of many investors, Xiong said, adding: In general, governments want the sector to grow intelligently, not radically, so something had to be done. However, according to Xiong, this does not necessarily mean the end of mining on the continent. As a result, this sector could become a regulated industry. From an economic standpoint, they’ve already made money on this round, so they’ll leave now, wait for the price to drop and then come back, he says. It is too early to talk about the real impact of the Deputy Prime Minister’s remarks, Vera said, adding: Several hundred megawatts of electricity demand passed our desk this week. He also stated: Miners in Inner Mongolia and Xinjiang have turned to international suppliers in an effort to obtain their mining equipment immediately. Some mining companies in Sichuan have started to transfer some of their operations abroad to spread geopolitical risks.
Are environmental considerations justified?
Vera suggested that concerns about the energy consumption and carbon footprint of mining cryptocurrencies could be used as a scapegoat, while Feinstein said the environmental issue was nuanced. In the Sichuan region, for example, most of the electricity is renewable and comes from a large number of renewable hydroelectric plants. These plants have a huge surplus of electricity during the rainy season in China, as the cost of electricity is almost zero. Elsewhere, however, China consumes huge amounts of coal, Feinstein said. I suspect that coal mining areas will be squeezed out of the market to meet national climate targets, while mining companies located where renewables predominate will face fewer restrictions. But we haven’t seen a full document yet, so it’s pure speculation at this point. Winston Ma, associate professor at New York University School of Law and author of Digital Warfare: How China’s technological might is shaping the future of AI, blockchain and cyberspace, told Cointelegraph that environmental considerations were indeed a major factor in imposing restrictions. Although the hydropower used in the Sichuan region is considered clean energy, the Chinese government has committed to energy efficiency targets, which could further limit the expansion of energy-intensive industries such as cryptocurrency mining: Yes, carbon neutrality is an important aspect. A recent study by Chinese scientists found that China’s emissions [from mining cryptocurrencies] would exceed the total annual greenhouse gas emissions of some small countries, such as the Czech Republic and Qatar. However, Feinstein disagrees with the carbon footprint and energy consumption arguments, claiming they are out of context. The total amount of energy produced in the world is 160,000 terawatt/hour. It is energy from every source. The Bitcoin network consumes 120 TWh of this energy. This means that the Bitcoin network consumes 0.00075 of the world’s available energy, or less than one-tenth of one percent. Similarly, carbon emissions from energy consumption when machines are connected to the grid are less than 0.1%, and this figure is falling sharply as more and more mining units switch to renewable energy sources. added Ms Feinstein : There are industries that are criminally responsible for the destruction of our environment and ecosystem, but this is not one of them.
Can North America catch up?
If China restricts cryptocurrency mining, will it replace North America as the regional mining hub, as some have speculated even before the new restrictions? Who else would benefit? According to the Cambridge Centre for Alternative Finance, Bitcoin currently consumes about 110 terawatts per hour per year, and Ethereum adds 44.5 to that – according to Digiconomist – and that’s still excluding other PoW cryptocurrencies, so if a significant portion of these cryptocurrencies are shut down in China, they will have to find a new home. says Vera : North America is poised to take the lion’s share of this electricity demand in the medium term, but will not be able to do so overnight. We expect significant growth in South America, the Commonwealth of Independent States [e.g. Kazakhstan] and northern Europe. If Chinese miners are concerned about future policy, they will slow down their purchases of new equipment, Feinstein said, and those equipment buyers will then turn to the next best customer, which I believe is the United States. Therefore, we should see US miners increase their hash rates. But there are potential obstacles, including the lack of infrastructure companies that can provide the power to run the computers that validate transactions on the cryptocurrency blockchain. With regard to the connection of these machines, it is necessary that […] companies build sufficient infrastructure at a rate that can accommodate these miners. Currently, the demand for miners to connect is greater than the available infrastructure, Feinstein said. Related: North American crypto currency makers prepare to challenge Chinese dominance, Cointelegraph Magazine Kazakhstan and Canada are the areas Chinese miners are talking about these days for a possible relocation, Ma added. But moving is not always as easy as it seems. Chinese miners may face unknown partners, unstable energy supply and unexpected new compliance costs. Add to this the cost of relocation and it is likely that only the largest and most resourceful mining companies will be able to ensure smooth operations. It is important to note that all major bitcoin ASIC manufacturers are based in China, Thomas Heller, co-founder and CEO of bitcoin mining service provider Compass Mining, told Cointelegraph. Bitmain, MicroBT and Canaan are the only three companies offering next-generation ASICs for bitcoin. Heller also stated: If the Chinese government imposes restrictions on ASIC manufacturers, this will have a major impact on the mining industry. Bitmain currently has a facility in Malaysia and MicroBT is exploring a facility in Southeast Asia, and I expect these companies to ramp up their efforts overseas. Elsewhere, Russia and Kazakhstan are favorites for relocating many of the older generation mines because of lower energy costs, Heller said, while North America is more suited to new generation plants. The current shortage of storage space for miners in North America is dire. What does all this controversy say in the long run about bitcoin – and other cryptocurrencies that use energy-intensive verification protocols? Is the sector sustainable in the long term? While we don’t believe that oppression in China has anything to do with the environment, we do think it’s a relevant issue in North America, Vera responded, adding: Western mining companies seeking to tap capital markets to expand production should promote renewable energy or carbon-neutral mining methods to attract capital. Listed mining companies are first in the spotlight and must respond, as we have seen with Greenidge’s purchase of carbon credits and Marathon’s move of the Hardin plant to Compute North. Bitcoin could continue to grow, especially if all mining pools switch to renewable energy sources, Xiong told Cointelegraph. Indeed, the sector has the potential to become a role model for other sectors, i.e. the first sector to decarbonise. Elsewhere, Xiong wrote that regulations and rules should be adopted as soon as possible to standardize the behavior of bitcoin miners and clearly require that only renewable energy sources, such as solar power and hydrogen, be used to mine cryptocurrency.
Can China still play a role in the long term?
Do recent events signify the beginning of the end of China’s dominance in mining cryptocurrencies, estimated at 80% of global capacity, although some believe the figure is lower? In the long run, almost all Chinese mining platforms for cryptocurrencies will be sold abroad, as Chinese regulators tighten controls on mining in the country, BTC.TOP founder Jiang Juoer wrote on his blog, as reported by Reuters. China will cede cryptocurrency processing capacity to overseas markets, including mining pools in Europe and the US. Related: Carbon-neutral bitcoin funds gain popularity as investors seek greener cryptocurrencies Referring to a similar restriction on mining that China announced in 2017, Feinstein told Cointelegraph: I predict a similar result this time as well. These mines will be in operation by 2024, and we can expect another announcement like this. We will see some countries ban bitcoin and mining again for good. If a country could completely ban bitcoin or bitcoin mining, it would only happen once. But perhaps the paradigm has indeed changed. We continue to believe that China will play a long-term role in the mining sector, Vera said. But this development has fundamentally changed Chinese mining companies’ view of domestic risk and will encourage international expansion.Cryptocurrency mining has become big business in China, with almost all of the world’s computing power being harnessed to solve complex mathematical puzzles. But the government has now decided that this activity is illegal, which has led to a mass exodus of miners from the country.. Read more about gpu mining and let us know what you think.