China has opened a new front in its attempt to crackdown on bitcoin within its national borders with a move to eliminate the nation’s massive bitcoin mining industry.
On the orders of a multi-agency task force, regional authorities have been instructed to “actively guide” firms currently mining bitcoin in their region away from the activity, according to documents reviewed by The Financial Times.
The new guidance is of a piece with other recent regulatory moves China has been making as it attempts to limit the reach of the bitcoin industry — like shutting down local bitcoin exchanges and outright banning ICOs. The newly minted push to tamp down on mining issues from the fact that the complex computational task required to “mine” bitcoin uses a fantastic amount of power. As of 2017, electricity demand for bitcoin mining rose to about 20.5 terawatt-hours a year, according to BNEF. That equates to more than half the 38 terawatt-hours of electricity used annually by the world’s biggest miner (as in literal, pull materials out of the ground mining), BHP Billiton Ltd.
In China, miners have flocked to regions where electricity is unusually inexpensive due to coal or hydroelectric power. Xinjiang, Inner Mongolia, Sichuan and Yunnan have been particularly popular. Firms mining bitcoin have also taken to moving to remote locations, not registering a company and engaging in the mildly illegal activity of purchasing electricity directly from power producers rather than grid operators.
How big an effect will the move have? Depends.
China mines a lot of bitcoin — about three-quarters of the world’s supply, according to Liao Xiang, chief executive of Lightningasic, a Shenzhen-based mining operation. And though China has moved aggressively to grab global leadership in a variety of strategic technology segments, including artificial intelligence and robotics, bitcoin apparently is not making the list of things strategically important enough to be a leader in.
Bitcoin mining “consumes a large amount of electricity and also encourages a spirit of speculation in ‘virtual currencies’,” according to the document. The document also notes that mining efforts counteract the government’s attempts to prevent financial risks and to discourage activities that “deviate from the needs of the real economy.”
The order does not call on regional authorities to shut down mining operations directly, but instead to put the squeeze on them by strictly enforcing policies on electricity consumption, land use, tax collection and environmental regulation.
Will it work? That remains to be seen. The thought is that a lot of Chinese mining operations will simply pick up shop and move — because China (according to industry experts) was in any case never an especially suitable location for mining. The nation became such a dominant force because of the well-developed supply chains for computer components used in the mining process.
“The difficulty is that setting up in other countries takes time and capital to build large-scale data centers,” said Mr. Liao. “It needs so much electricity. A typical industrial park doesn’t meet the requirements.”
But what miners mostly need to operate is a cool climate (where computers won’t overheat) and a big supply of cheap power. Iceland is favored, as are Ireland, Eastern Europe, Russia and Canada.
“The overall threat to the sustainability of the global bitcoin network may not be so drastic,” wrote BNEF analysts, including Sophie Lu, in a report.
Lu notes that the computer equipment used to mine bitcoin has a two year life cycle anyway, and the rest of the involved equipment is relatively inexpensive.
The digital currency currently trades at about $13,850, down 29 percent from its record.