Is energy-intensive Bitcoin mining leaving Inner Mongolia and moving to Kazakhstan and the United States?

Virtual currency mining may be completely moved out of Inner Mongolia. What will happen to the mining farms and mining machines?

On February 25, in order to achieve the dual control target tasks of energy consumption in the "14th Five-Year Plan" in the Inner Mongolia Autonomous Region, the Development and Reform Commission of the Inner Mongolia Autonomous Region issued the "Several Guarantee Measures to Ensure the Completion of the Dual Control Target Tasks of Energy Consumption in the "14th Five-Year Plan" (Draft for Comments)", proposing to comprehensively clean up and shut down virtual currency mining projects, and withdraw all of them by the end of April 2021. In addition, it is strictly prohibited to build new virtual currency mining projects.

Li Lianxuan, chief researcher at OKLink Research Institute, said that Inner Mongolia mainly relies on thermal power, and the energy-intensive industry pollutes the environment, which is not conducive to achieving the economic goals of ecological civilization and green development, and is also contrary to the central government's decision-making and deployment on dual control of energy consumption.

"Because of the policy, we are preparing to move in the next two days." A mine owner in Inner Mongolia previously told a reporter from The Paper.

So, where will the mines and mining machines be moved to?

Domestic: Sichuan and Yunnan are in the flood season, and Xinjiang is likely to introduce a policy to clear out the floods

A miner said that once all the mines in Inner Mongolia withdraw, those with channels will directly move to other regions, and those without channels will entrust miners to sell their machines. "There are already a large number of machines on the market, and the miners will migrate to Sichuan, Yunnan, Xinjiang and other places, which may temporarily lead to a decrease in the computing power of the entire network."

Li Lianxuan told the reporter from The Paper that the decrease in the computing power of the entire network will lead to an increase in the block time. Then, when the difficulty is adjusted next time, the block difficulty will decrease, causing the block time to decrease and maintain a block time of 10 minutes.

A miner whose mining machines are hosted in Inner Mongolia also revealed to The Paper that as far as he knows, most of the mining machines in Inner Mongolia have begun to move to Sichuan, Yunnan and other areas with sufficient hydropower.

The Yunnan-Guizhou-Sichuan region is rich in hydropower resources, and has a wet season and a dry season. In the wet season, there is more rain, sufficient electricity, and low electricity prices, and there may even be a problem of "wasting water". In the dry season, there is less rain and high electricity prices. Previously, some miners had to migrate back and forth between the wet and dry seasons, mining in Yunnan-Guizhou-Sichuan during the wet season and mining in Xinjiang, Inner Mongolia and other places during the dry season.

Miner Kabi (pseudonym) said: "The timing of the end of April is very coincidental. The flood season in Sichuan will start in April and May, so we can move in time."

Li Lianxuan also mentioned that Inner Mongolia’s policy document is currently only in the draft stage for comments, and the official document has not yet been issued. Many miners are still waiting to see whether new policies will be issued before the end of the flood season at the end of October.

So, where will the miners move once the dry season arrives?

"It is definitely impossible to mine in the southwest during the dry season. That's why they mine in Inner Mongolia. Now that mining is not allowed in Inner Mongolia, these miners need to find another place with electricity to mine during the dry season." said Gu Yanxi, founder of Liyan Consulting and researcher in the blockchain and encrypted digital asset industry.

In addition to Inner Mongolia, Xinjiang is also a region with sufficient thermal power. It is understood that the thermal power electricity price in Xinjiang is cheaper than that in Inner Mongolia, but the distance is farther.

"It is more likely to move to Xinjiang and other places," said Yu Jianing, rotating chairman of the blockchain committee of the China Communications Industry Association and president of Huobi University. But he also admitted that since thermal power in Xinjiang also has problems such as energy consumption and pollution, "it is possible that (a policy to clear virtual currency mining) will be introduced" and "there is a high degree of uncertainty."

Li Lianxuan said that from the current perspective, China is still the first choice for building mining farms. In addition to Inner Mongolia, which is the main gathering place of mining farms, there are still a large number of mining farms in Xinjiang, Gansu and other places in the northwest region. Miners can move their excess computing power to these places.

Kazakhstan: 14 cryptocurrency mining farms in June 2020

"In foreign regions, either electricity prices or labor costs are too high (in Europe and the United States), or the local political environment is unstable (in the Middle East and Africa)," said Li Lianxuan.

But he also admitted that in the past few years, the Bitcoin mining industry in mainland China was almost listed as "backward production capacity". When facing a comprehensive liquidation, many mines were moved overseas.

A major consensus in the Bitcoin mining industry is that "at least 60% of the computing power of the entire network is in China", and the computing power currently owned by overseas is also increasing.

According to statistics from the Guosheng Blockchain Research Institute, as of February 19, 2021, mining stocks represented by Marathon Patent Group, Riot Blockchain and BTBT have "swept" 330,000 mining machines, with an announced computing power of nearly 21EH/s, exceeding 16% of the total computing power of the Bitcoin network (136.18 EH/s).

"As for where they (miners) will move to, it is impossible to judge now. Central Asian countries may be an option. This is because there have been Chinese miners mining there before," said Gu Yanxi.

According to a news release from mining machine manufacturer Canaan Technology, a plan to attract $715 million in investment in cryptocurrency mining was first revealed at a hearing held by the Kazakhstan Senate in mid-June 2020. Kazakhstan already has 14 cryptocurrency mining farms.

Canaan also said that this year, it has established cooperative relationships with several leading mining farms in Kazakhstan. Take AQ Group as an example. As a large modern mining farm, it has signed orders for more than 25,000 mining machines with Canaan since April 2019, covering A1066Pro, A11 series and A1246 models.

In addition, Canaan Technology has also opened a dedicated trunk logistics channel from China to Kazakhstan, and provides customers with one-stop customs clearance services to assist customers in customs clearance and improve delivery efficiency. At the same time, the border between China and Kazakhstan is open, and containers are imported free of charge. In addition to paying value-added tax, no additional customs fees are required.

"I think the possibility (of moving to Kazakhstan) exists. Kazakhstan's policies are indeed good, but I think there will definitely be some major problems and difficulties with the large-scale entry and exit of mining machines, so I think the uncertainty is relatively high," said Yu Jianing.

Could the United States be a “good choice”?

Gu Yanxi also suggested that the United States is also a very good choice now. "For example, Kentucky recently issued a special policy to encourage miners to mine in Kentucky."

As early as February 11, 2020, Reuters reported that Barry Silbert, founder of Grayscale Investments, the world's largest cryptocurrency asset management company in New York, told investors that he had seen Bitcoin mining activities shifting from China to the United States and Canada in the past 3-6 months.

But an industry insider said earlier: "Labor and electricity are expensive in the United States and Canada, which is far worse than Xinjiang."

Gu Yanxi pointed out that electricity in Texas has always been cheap, and the most important thing is that the supply is stable. In addition, the overall business environment in the United States is very stable. Therefore, this should be very attractive to miners. Now there are some mines in the United States that allow miners to directly move their machines there and run them.

"We have both hydropower and coal-powered mining here. For example, Washington State is mainly based on hydropower, but the electricity there is basically used by the data centers of large technology companies. Texas is a good choice now," said Gu Yanxi.

Gu Yanxi believes that whether to mine in the United States is a decision that the mine owners themselves make.

He also said that the mining industry in the United States is developing very fast. In the US market, sufficient capital supply is one of its characteristics. For example, some mining companies have raised a lot of funds through listing, and these companies can't even use these funds, and use the excess funds to buy Bitcoin. (The Paper)