With China's regulatory crackdown, where will the miners go?

Author: Jasmine

Original title: "Two hands" reach out to the source of Bitcoin

As China plans to exit its Bitcoin mining industry, some North American companies and capital are beginning to stir.

The total computing power of Bitcoin has once again declined, falling by 19% in half a month. There is no doubt that China's regulatory punch is working.

On May 21, the Financial Stability and Development Committee of the State Council (hereinafter referred to as the "Financial Committee") clearly stated that it would "crack down on Bitcoin mining and trading activities," and the action soon began in northern China. On the 25th, the Development and Reform Commission of the Inner Mongolia Autonomous Region issued a draft for soliciting opinions on the "Eight Measures to Resolutely Crack Down on and Punish Virtual Currency "Mining" Activities."

After Bitcoin mining, which relies on electricity, became industrialized, the saying that "Chinese miners control Bitcoin computing power" has been circulating for many years. Last month, a paper published in Nature Communications by scholars from the Chinese Academy of Sciences and Tsinghua University quantified this saying: Chinese miners account for more than 75% of the Bitcoin network computing power.

The paper states that without any policy intervention, China's annual energy consumption for Bitcoin blockchain is expected to generate 130.5 million metric tons of carbon emissions in 2024, which will exceed the combined annual greenhouse gas emissions of the Czech Republic and Qatar.

Such consequences are obviously contrary to the "carbon neutrality" and "carbon peak" goals proposed by my country this year. In May, policy intervention came quickly. China's Bitcoin miners will face a choice: shut down or migrate?

At the decision-making moment, Musk, who had "changed his attitude" towards Bitcoin some time ago, came again. The founder of Tesla called on miners around the world to use clean energy for mining through social media to help the sustainable development of Bitcoin.

As China plans to exit its Bitcoin mining industry, some North American companies and capital are beginning to stir.

The goal of "carbon neutrality" is clear, and Bitcoin mining will be eliminated

According to OKLink data on May 26, the total computing power of the Bitcoin network dropped to 145 EH/S, a 19% drop from this year's peak of 180 EH/S in half a month. The last major decline in computing power started on April 16, when it dropped from 168 EH/S to 136 EH/S in about a week, becoming the lowest point since the beginning of the year.

BTC's total network computing power has dropped again this year

Honeycomb Finance compared the data from the same period last year and found that May 26 last year was also the lowest point of the whole network computing power for the whole year, which was only 90.35EH/s. The peak of computing power last year was on October 17, reaching 146.47EH/s, which is actually the lower level of the whole network computing power this year. It can be seen that in one year, as the price of BTC is high, the computing power is constantly increasing.

Bitcoin miner Li Ang (pseudonym) analyzed that in normal times, some mining farms migrated from north to south in April and May, and thermal power mining turned to hydropower mining in preparation for the flood season. "This year's decline in computing power is related to the migration. In addition, in April this year, BTC soared to $64,000 per coin, and the difficulty of mining on the entire network is also increasing. Generally, inefficient mining machines will exit the computing power market, which will also lead to a decline in the computing power of the entire network."

For miners, the favorable flood season in southwestern regions such as Sichuan and Yunnan has become an uncertain factor this year, and the uneasy atmosphere brought about by tightened supervision is hanging over their heads.

On May 21, after the State Council Financial Committee’s meeting clearly stated that it would “crack down on Bitcoin mining and trading activities,” policy news from Inner Mongolia began to spread in the mining circle.

On May 25, the "Eight Measures of the Inner Mongolia Autonomous Region Development and Reform Commission on Resolutely Crackdown on and Punishment of Virtual Currency "Mining" Behavior (Draft for Comments)" (hereinafter referred to as the "Draft for Comments") was released to the public.

The "Draft for Comments" specifically mentions the requirements of the 51st meeting of the Financial Committee of the State Council on cracking down on Bitcoin mining and trading, and specifies specific measures for soliciting opinions, including holding accountable industrial parks, data centers, self-contained power plants that provide sites for "mining", and entities that engage in "mining" (big data centers, cloud computing companies, communications companies, Internet companies, Internet cafes, etc.); referring illegal activities such as money laundering and illegal fundraising in the form of virtual currency to relevant departments; adding "mining" companies and personnel to the blacklist of untrustworthy persons; and transferring public officials who participate in virtual currency "mining" or provide convenience and protection for it to the disciplinary inspection and supervision authorities for handling.

As early as February this year, the Inner Mongolia Development and Reform Commission issued the "Several Guarantee Measures to Ensure the Completion of the 14th Five-Year Plan Energy Consumption Dual Control Targets (Draft for Comments)", planning to comprehensively clean up and shut down virtual currency mining projects and withdraw all of them by the end of April.

The dual control target of energy consumption in the "14th Five-Year Plan" refers to strict control of high-energy-consuming and high-emission projects. This year, Chinese government departments have proposed the goals of carbon peak and carbon neutrality, and the timetable is becoming clearer and clearer. Since April, many provinces and cities across the country, including Guangxi and Liaoning, have been implementing the "dual control" task, and various localities have introduced various measures, and Bitcoin, which relies on electricity production, has hit the gun.

On April 6, a paper titled "Policy Assessment of Carbon Emissions and Sustainability of China's Bitcoin Blockchain Operations" was published in Nature Communications. This paper, written by scholars from the Chinese Academy of Sciences and Tsinghua University, has attracted the attention of Chinese and even overseas media.

The paper points out that without any policy intervention, China's annual energy consumption of the Bitcoin blockchain is expected to peak at 296.59 terawatt hours in 2024, generating 130.5 million metric tons of carbon emissions, which will exceed the total annual greenhouse gas emissions of the Czech Republic and Qatar. A data in this paper has once again put Chinese miners on the cusp of the storm, "Chinese miners account for more than 75% of the Bitcoin network's computing power."

The paper uses mining pool computing power data. Indeed, judging from the teams of mining pool companies, Chinese entrepreneurs are behind the F2P Fish Pool, AntiPool Ant Pool, Poolin CoinIn Mining Pool, etc., which have a relatively large computing power ratio. Some industry insiders pointed out that this does not explain the geographical distribution of specific miners' computing power. In addition, some domestic mines have adopted clean energy or electricity consumption for mining according to local policy requirements.

Sichuan is the most typical region for power consumption. Since last year, Aba, Ganzi, Ya'an and other places in Sichuan have begun to build consumption demonstration parks to dispatch surplus electricity to load points with power demand. Many big data companies have emerged in some parks. According to industry insiders, some big data companies in the parks are actually mines, but they have also settled in according to local policy requirements and park regulations.

Under the national "double control" goal, Sichuan's consumption parks also began to limit electricity this year. Before the regulatory requirements for Bitcoin mining were issued, on May 16, a local hydropower consumption demonstration area implemented temporary all-day power restrictions. A few days later, the Bitcoin network's computing power plummeted by 20%.

On May 25, a miner at a mine in a consumption park in Sichuan said, "Today's consumption electricity was supplied on time." Although he is optimistic about mining during the flood season, his tone can't help but reveal helplessness, "Let's take it one step at a time."

Musk "organizes" overseas capital to bet on mining

After China made its position clear on the Bitcoin mining industry, miners had to make a decision before specific implementation policies came into effect: shut down or relocate?

Tesla founder Elon Musk reappeared during the wait-and-see moment. On May 25, Musk said on social media that he was in contact with crypto mining companies in North America and called on miners around the world to use clean energy to mine in order to help Bitcoin develop sustainably.

Mike Saylor, CEO of MicroStrategy, a U.S.-listed company, confirmed Musk's move. He said on social media that he hosted a meeting on May 24 and North American mining companies have agreed to form a Bitcoin Mining Council to increase energy consumption transparency and accelerate sustainable activities worldwide.

MicroStrategy and Tesla are both listed companies that hold Bitcoin. According to media reports, eight institutions attended the meeting, including Argo Blockchain, Blockcap, Core Scientific, Galaxy Digital, Hive Blockchain, Hut 8 Mining, Marathon Digital Holdings and other companies. These institutions decided to establish an organization to standardize the disclosure of energy consumption and seek to achieve the goal of renewable energy mining.

In fact, mining with clean energy is not new. In April 2021, Bitcoin mining company Gryphon Digital Mining stated that its Bitcoin mining business will use 100% clean energy. At that time, the company revealed that there are at least three global companies that use clean energy to mine Bitcoin, including ArgoBlockchain in the UK and Neptune Digital Assets in Canada, both of which are listed companies.

This year, the price of Bitcoin is high, and the market is called "institutional bull", and the source of large-scale institutional capital is precisely American companies such as Grayscale Fund, MicroStrategy and Tesla. When the outside world believes that Chinese miners control most of the source of Bitcoin production, overseas capital and companies have revealed their ambition to get a piece of the pie. China's iron fist of supervision has created a good opportunity.

Foundry USA, located in North America, has long been targeting the Chinese mining industry. The mining pool announced in April this year that it had reached a cooperation with BitDeer, a digital asset mining ecosystem service provider. BitDeer was previously well-known in the industry for selling cloud computing power, and its investor is Bitmain, a giant Bitcoin mining machine manufacturer.

In his speech, Foundry CEO Mike Colyer said, "We welcome BitDeer Group, the global leader in cloud mining, to become the first Asian institutional client of the Foundry USA mining pool." The news of the cooperation was posted on the official blog of Foundry USA, which shows how much importance it attaches to Asian customers.

BTC hashrate share of each mining pool

Mike Colyer has always hoped that the Foundry USA mining pool's computing power share can enter the top five. Previously, he stated publicly that North America has a sound infrastructure, cheap electricity, and good compliance, and predicted that North America will become the next preferred place for mining. According to data from BTC.com on May 26, the current 24-hour computing power share of the mining pool is only 1%, ranking 13th. The top three are F2Pool, Biyin and AntPool, accounting for 25.7%, 13.3% and 12.4% respectively.

In fact, not only capital and enterprises in Europe and the United States have set their sights on Bitcoin mining, but Kazakhstan, next door to China, also has a Bitcoin mining industry. A mining farm called Enegix found a domestic blockchain media through a social platform last year, hoping to introduce the mining industry in Kazakhstan to Chinese miners. It is reported that the Bitcoin hash rate from the country's mining farms accounted for 6.17% of the world's total that year, second only to China, the United States and Russia.

Some miners have posted pictures on WeChat Moments, showing that some mining machines are being packaged and shipped to Kazakhstan. As China's regulation tightens, some industry practitioners have begun to receive olive branches from Russian mining companies.

From trading to mining, Bitcoin's "de-Sinicization" has gradually become a reality. The only thing that has not changed is that this network is still running 10 years after its birth. Satoshi Nakamoto, who created it, has disappeared, but it seems to be getting more and more stubborn.