Cryptocurrency mining is changing. Do “big energy consumers” also need to be “carbon neutral”?

Previously, on February 25, the Inner Mongolia Development and Reform Commission’s official website announced that in accordance with the work arrangements for dual energy consumption control, it will accelerate the elimination of backward and excess production capacity, emphasizing: "Completely clean up and shut down virtual currency mining projects, and withdraw all of them by the end of April 2021."

In this regard, Zhang Lu, CEO of 360 Computing Power, said in an interview with our reporter that carbon neutrality may force miners to accelerate the elimination of non-clean energy such as coal combustion and turn to idle clean energy such as wind power and hydropower. At the same time, the cost of mining may increase, and small computing power mining machines will be eliminated faster.

How long can thermal power mining last?

At present, domestic mines are mainly distributed in Xinjiang, Yunnan and Sichuan. Among them, Xinjiang mainly relies on thermal power generation. Yunnan and Sichuan mainly rely on hydropower energy. Data shows that the carbon emissions of hydropower per unit of electricity generated are only 1/5 of that of thermal power.

However, hydropower is divided into dry season and flood season, and the electricity price in the dry season is twice as expensive as that in the flood season. According to the flood season data from May to October each year, Sichuan's mining electricity consumption accounts for half of the country, but in the dry season, Xinjiang accounts for more than half of the country's mining electricity consumption.

Under the trend of carbon neutrality, regarding the speculation that "cryptocurrency mining in thermal power areas may be completely withdrawn in the future", Zhang Lu said that at present, we have no way to give a particularly clear conclusion and the impact on the industry. The real game has not yet begun in the industry. For example, in Sichuan, the park power consumption was proposed very early but has not been implemented because there is a game between direct power supply and park power consumption.

"From the first day of our business, we need to consider the value of virtual currency mining and how to operate in compliance." Zhang Lu mentioned that if the electricity itself is not illegal and the record is complete, we would first choose two places in China: the first is Sichuan, because of the energy support of the abandoned water consumption park, its companies can consume the electricity that cannot be transmitted and create value for the country. The second is Xinjiang Zhundong Economic and Technological Development Zone.

"In fact, in the Jungar region, we use coal on the surface. It would be a huge waste of energy if these resources are not used up," said Zhang Lu.

According to statistics, the world's abandoned photovoltaic power reached 5.49 billion kWh in 2019, and abandoned hydropower was about 69.1 billion kWh. Utilizing waste energy is what crypto mining is doing.

In addition, Zhang Lu said: "We can always choose to mine in Sichuan using hydropower. This will not cause a fatal impact. It's just that the electricity bill is more expensive during the flood season, and small computing power machines are eliminated, but large computing power machines can still operate. When the computing power of the entire network decreases, the number of bitcoins mined increases, and the impact is not significant."

Hu Yiying, assistant to the general manager of Computing Power 360, also mentioned: "The trend of carbon neutrality will lead everyone to think longer-term and move to places rich in hydropower, which is undoubtedly Sichuan."

Computing power may accelerate its transfer overseas in the next year

Since the beginning of this year, many US-listed companies have announced their entry into the computing power market. Guosheng Securities' latest report mentioned that as of February 2021, about 17 listed companies disclosed that they had purchased Bitcoin mining machines, and the disclosed mining machine computing power was close to 21E, which was 16% higher than the total Bitcoin network computing power during the same period.

China is the country with the largest share of Bitcoin computing power in the world, but data shows that China's Bitcoin computing power has been slowly declining since September 2019. Bitcoin computing power is quietly but quickly shifting overseas, especially to North America.

Hu Yiying said in her sharing that in March this year, China's share of global computing power fell below 70% for the first time, to 65.7%. In April, it recovered to 71.70%. In comparison, the growth rate of the United States is very obvious, and its share of global computing power is 7.24%.

The distribution and ranking of the top ten mining power regions in the world are relatively solidified. The top three are China, the United States, and Russia, followed by Iran, Malaysia, and Kazakhstan. Relatively speaking, the competition between China and the United States is more about competition. The characteristics of the mining ecology of these two countries are very obvious: China's industrial chain is very complete because China has the longest mining history. The advantage of the United States is compliance, and Wall Street has long-term fixed investment funds entering the market.

Zhang Lu also believes that one of the important reasons for the transfer of computing power overseas is that there are very compliant deposit channels overseas. This allows them to purchase mining equipment with low-cost fiat currency. In the United States, the interest rate for fiat currency mining is 3%-4% per annum; in Japan, the figure is 1%-2%. In China, traditional miners need to sell coins in exchange for computing power equipment, risking a surge in Bitcoin prices, and sell coins to buy mining machines. In the current market environment, the "opportunity cost" of domestic mining is very high.

In an interview with reporters, Zhang Lu said that the current supply and demand relationship of mining machines is extremely unbalanced. The supply is still in the previous era, while the demand has now entered the next era, resulting in a large amount of overseas funds, especially Wall Street funds, pouring in to buy mining machines.

Overseas giants believe that the competition in the Chinese market is too fierce and there are many immature aspects. In the future, more and more institutions will choose to establish mining farms overseas. Zhang Lu mentioned that under these various factors, the computing power of overseas mining farms will continue to increase. She predicted: "There will be huge changes from the end of this year to the beginning of next year."