The Strategist

China is hunting for bitcoin miners

01/19/2018 - 13:55

China intends to put an end to mining of bitcoins in the country due to concerns about excessive electricity consumption and financial risks. A specific working group obliged authorities of the country's provinces to promote stopping of mining by local companies, said the document. Earlier, China has already closed local bitcoins exchanges and has forbidden companies to conduct initial placement of the ICO.

The working group includes the People's Bank of China. The institution did not respond to requests for comments.

Miners create new bitcoins through complex computer operations. However, this process requires large computing power, so it resembles industrial production, rather than high-tech business. Mining bitcoins consumes 0.17% of global electricity in the world, according to Digiconomist. This volume exceeds its consumption in 161 countries. At the same time, about three-quarters of bitcoins in the world are mined in China, says Liao Xiang, general manager of Shenzhen Lightningasic, which is engaged in mining.

 Many of the mining companies work in remote areas of China, and their entities aren't registered. They use cheap electricity in areas that have enough hydroelectric or coal power stations, such as Inner Mongolia, Xinjiang Uygur Autonomous Region, Yunnan and Sichuan. Some of the miners also bypass the country's current rules that prohibit end-users from buying electricity directly from its producers, rather than from electricity network operators.

Beijing, with the help of public investment and industrial policy, is trying to make China a world leader in such strategically important technological sectors as robotics and artificial intelligence. Yet, the position of the authorities in relation to the ministers testifies that they do not consider crypto currency as an important technology worthy of state support. Bitcoin mining "consumes a large amount of electricity and encourages speculation with virtual currencies," the document of authorities says. It also notes that mining undermines activities of regulators to prevent financial risks.

Beijing does not require local authorities to directly prohibit mining. Instead, the government calls for pressure on miners, forcing them to comply with the rules on electricity consumption, land use, taxation and environmental protection.

 Now, Chinese miners are eager to move operations abroad, shifting the farms themselves for mining or selling knowledge. The main conditions for choosing a new location are cheap electricity and a cool climate that helps to prevent overheating of computers. Therefore, the most attractive destinations are Canada, Iceland, Eastern Europe and Russia.

In any case, China was not a particularly suitable place for mining, the industry participants say. The well-developed supply chain of computer components can mainly explain the dominant position of the country. "It is difficult to create transactions in other countries, because it takes time and capital to build large data centers," Liao says. - It takes a lot of electricity. Typical industrial parks do not meet required requirements."