The flood season is approaching, but Chinese miners will face greater pressure from regulation and power shortages

Wu said author | Colin Wu

Editor of this issue | Colin Wu

It seems that due to the influence of the content of Nature magazine, various parts of China have begun to receive instructions from Beijing to investigate the high energy consumption of Bitcoin mining. In the context of carbon neutrality, Chinese miners may face greater regulatory pressure in the future.

The annual flood season is approaching, but Chinese miners are facing potential pressure from regulation. Although the Chinese government has been wavering in its attitude towards the crypto mining industry, the pressure this year may be relatively greater. Wu said that the blockchain learned that the southwest and Sichuan regions will face greater pressure due to power shortages, and the northwest region will face greater pressure due to carbon neutrality policies.

Northwest China faces carbon neutrality and high energy consumption issues

On April 7, Nature magazine published a study from Tsinghua University and the Chinese Academy of Sciences, pointing out that China's Bitcoin mining will reach a peak of about 297 trillion watt-hours in 2024 and will produce about 130 million metric tons of carbon emissions. This value exceeds the annual greenhouse gas emissions of all medium-sized European countries (such as Italy or the Czech Republic). The carbon emissions per unit of GDP in the Bitcoin industry far exceed China's average industrial carbon intensity. Bitcoin mining will become an obstacle for China to achieve its carbon neutrality goals.

Wu said that considering the top academic background of Nature magazine, Tsinghua University and the Chinese Academy of Sciences, this paper may have an impact on China's energy decision-making level or even higher.

Going back further, in a document released by the National Development and Reform Commission on February 2, 2021, Inner Mongolia was the only province that had not completed the implementation of the dual control measures and target completion of energy consumption in 2019. On February 25, the official website of the Inner Mongolia Development and Reform Commission announced that in accordance with the work arrangements for dual control of energy consumption, it was required to completely clean up and shut down virtual currency mining projects, and all of them should be withdrawn by the end of April 2021. What is the impact of Inner Mongolia's plan to clear out cryptocurrency mining and its carbon neutrality commitment on the mining industry?

At the second BitDeer "Flood Festival" on April 21, BitDeer Chairman Wu Jihan said that carbon neutrality has a long-term impact on the industry, reducing carbon emissions is a global trend, and the mining industry should not take chances. In addition, China's mining industry and blockchain face a more complex situation. As (Zhou Xiaochuan) previously stated, blockchain finance will always have to answer one question, which is what use it has for the real economy.

Southwest China and Sichuan face power shortages

Although the problem of power shortage during flood season is normal, the power shortage this year may be more severe. Due to the economic recovery after the epidemic and the hot weather, the power load in Sichuan has increased rapidly since May, but the water supply is 30% less than in previous years, the supply of power coal is short and the price of coal is high. Big data users have been temporarily restricted from power supply. On the other hand, a large number of miners have relocated under the strict inspection of Inner Mongolia, which has exacerbated the shortage of power for mining in Sichuan.

On May 16, due to power shortages, power restrictions, inspections and other reasons, Sichuan required the big data center to implement temporary power restrictions, and the computing power of the entire network dropped sharply. According to BTC.com data, as of 9 am on the 17th, Ant Pool fell 17.8%, Binance Pool fell 14.5%, Huobi Pool fell 23.7%, and the rest of the mainstream mining pools fell 6%-8%.

On May 9, the Yunnan Provincial Energy Bureau and the Yunnan Energy Supervision Office also organized a symposium for key power generation companies. The meeting required that all power generation companies should do everything possible to increase the number of days of coal storage, resolutely avoid shutdowns due to lack of coal, strengthen equipment operation and maintenance and personnel reserves, strictly control unplanned shutdowns of units, and communicate and cooperate with local governments, coal supply and transportation companies to form a joint force to ensure stable power supply.

Local governments have begun investigating mining power consumption

As the price of Bitcoin has been rising steadily since the beginning of this year, the public's attention to the industry has increased dramatically. In particular, the recent popularity of altcoins has led to a large number of new users entering the market, and the attention of regulators has also increased significantly. On May 15, Xinhua News Agency published an article criticizing the chaos in the virtual currency market.

According to The Paper, in April, the Beijing Municipal Bureau of Economy and Information Technology issued an “Emergency Notice on Investigating the Situation of Bitcoin and Other Cryptocurrency Mining Businesses in Beijing’s Data Centers”. The notice requires that the relevant situations involving Bitcoin and other cryptocurrency mining in the business carried by Beijing’s data centers be sorted out. All relevant units involved in related businesses should provide feedback on the power consumption of mining business in the past year and the proportion of total energy consumption before 12:00 noon on April 28. The Beijing Economic and Information Technology Bureau responded to The Paper on the afternoon of April 29, saying that the notice was indeed issued by the bureau, and it was mainly sorted out from the perspective of the business types and energy consumption carried by the data center, which is the normal business work of the bureau.

Wu said that similar investigations are still being carried out in various provinces and cities across the country. The data may be submitted to the relevant central departments to decide on the next step. Logically speaking, the most severe action may be to ban all mining activities, but this is unlikely because Bitcoin is defined as a legal virtual commodity and mining itself is not illegal. A more reasonable possibility is to require the gradual closure of related industries from the perspective of high energy consumption. The ideal situation is that decision makers remain open and wait-and-see. But in general, due to the carbon neutrality policy and the "political requirement that high-energy-consuming and high-emission projects that do not meet the requirements must be resolutely taken down," the uncertainty of domestic mining is increasing rapidly.