Mining consumes too much electricity. What should Inner Mongolia do if it is determined to clean up the mining farms during the Bitcoin bull market?

The Bitcoin bull market is in full swing, but the high energy consumption problem caused by "mining" has once again "poured cold water" on mine owners.

Recently, Inner Mongolia announced that it plans to shut down all virtual currency mining projects by the end of April, sparking heated discussions in the industry. Inner Mongolia has abundant power resources and has been favored by mine owners in recent years, but the high energy consumption of the mining process has also increased the pressure on Inner Mongolia to control energy consumption.

On March 2, a local mining industry insider told the Daily Economic News that he had not received any notice of mine closures. On March 3, the policy will end the solicitation of opinions.

Another practitioner analyzed that the closure of mining farms in Inner Mongolia will further accelerate the integration of the virtual currency mining industry to a certain extent. Once the mining farm is closed, the mining farm will find another place to continue (mining). Under the trend of stricter domestic supervision, many domestic mining farms have also moved overseas.

In this regard, Pan Helin, executive dean and professor of the Digital Economy Research Institute of Zhongnan University of Economics and Law, told reporters that the Inner Mongolia shutdown policy has limited impact on the overall virtual currency mining industry, and other regions will not follow suit on a large scale for the time being. It is hoped that the policies in the field of virtual currency mining will be clearer in the future to promote the healthy development of the entire industry.

Policies in different regions are tailored to local conditions, and it is not expected that large-scale mine closures will occur.

Recently, Bitcoin has continued to hit new highs, and concept stocks have amazed the capital market. Under the demonstration effect of Tesla's purchase of Bitcoin, the price of Bitcoin has been rising steadily, and has previously exceeded $58,000. On the morning of March 1, the price of one Bitcoin was around $45,000, and on March 2, the price of Bitcoin rebounded to nearly $50,000. Driven by the hot market of Bitcoin, the income from "mining" has also risen, which has also driven more funds to flow in.

The income from Bitcoin mining is mainly affected by the difficulty of mining and electricity costs. In Central Mongolia, which is rich in electricity resources and an important region for domestic "mining", virtual currency mining projects are about to be cleared.

On February 25, the Inner Mongolia Autonomous Region Development and Reform Commission issued the "Several Guarantee Measures for Ensuring the Completion of the 14th Five-Year Plan Energy Consumption Dual Control Target Tasks (Draft for Comments)" (hereinafter referred to as the "Guarantee Measures"), which mentioned that in principle, no new modern coal chemical projects will be approved during the "14th Five-Year Plan" period. The scale of data center construction should be reasonably and orderly controlled, and new virtual currency mining projects are strictly prohibited. The "Guarantee Measures" also require that "virtual currency mining projects be fully cleaned up and shut down, and all of them should be withdrawn by the end of April 2021."

Previously, Inner Mongolia has also been continuously promoting the rectification of the virtual currency mining industry. In January 2018, Ordos City issued the "Notice on Guiding the Orderly Exit of Virtual Currency "Mining" Enterprises in Our Region"; in November 2019, the Department of Industry and Information Technology of the Inner Mongolia Autonomous Region issued a document notifying the autonomous region's joint inspection team to go to some leagues and cities to conduct a joint inspection on the cleanup and rectification of virtual currency mining enterprises.

The deadline for soliciting opinions on the "Safeguard Measures" released this time is from February 25, 2021 to March 3, 2021. So, have the relevant companies made suggestions on the comprehensive shutdown of virtual currency mining projects? On March 2, the reporter called the public telephone number of the Development and Reform Commission of the Inner Mongolia Autonomous Region, but no one answered the phone before press time.

A local miner in Inner Mongolia told the reporter from the "Daily Economic News" that he has not received any notice of mine closure yet.

An employee of a virtual currency mining farm told reporters that before, the domestic attitude towards mining farms was rather vague, with an attitude of neither encouraging nor banning. The closure of mining farms in Inner Mongolia will further accelerate the integration of the virtual currency mining industry to a certain extent. However, in the specific practice process, there may also be a "tug-of-war" between the mining farm owners. Once the mining farm is closed, the mining farm owner will find another place to continue (mining). At present, under the trend of stricter domestic supervision, many domestic mining farms have also moved overseas.

Will other regions follow Inner Mongolia's policy? In this regard, Pan Helin, executive dean and professor of the Digital Economy Research Institute of Zhongnan University of Economics and Law, told the reporter of Daily Economic News that at present, local policies for the virtual currency mining industry are adapted to local conditions. If idle electricity can be sold, it is desirable. Inner Mongolia's policy will not have much impact on the virtual currency mining industry for the time being. Other regions will make arrangements according to their own conditions. At present, there will be no large-scale follow-up.

The trouble comes from high energy consumption. How much electricity does mining really consume?

It is worth noting that the background of the proposal of the "Safeguard Measures" is to ensure the completion of the "14th Five-Year Plan" energy consumption dual control target tasks in the Inner Mongolia Autonomous Region. According to the National Development and Reform Commission, Inner Mongolia is the only provincial administrative region that failed to achieve its energy consumption control target in 2019.

A person in the mining circle told the reporter of "Daily Economic News" that the above-mentioned "Safeguard Measures" mentioned the comprehensive cleanup and shutdown of virtual currency mining projects, which was mainly due to the pressure of failing to achieve energy consumption control targets.

So why does Bitcoin mining consume so much electricity? “Mining” is the process of “mining” virtual currency, which is actually a process of “solving problems” by investing computing power through dedicated “computing equipment”, which consumes a lot of electricity in the process.

Take a Bitmain ordinary product "Antminer" S15 as an example, the standard computing power of this mining machine is 28TH/S, and the power consumption is 1596W. Running non-stop for 24 hours, the power consumption per day is 38 degrees, and the power consumption per month (calculated as 30 days) is as high as 1149 degrees, which is far more than the monthly power consumption of an ordinary family.

Previously, the Bitcoin Power Consumption Index released by Cambridge researchers showed that if Bitcoin were regarded as a country, it would be one of the top 30 countries with the largest power consumption in the world, and the annual power consumption of Bitcoin mining is about 121.36 terawatt hours (TWh, 1 terawatt hour is 1 billion kilowatt hours). This figure has exceeded the power consumption of Argentina, the Netherlands, and the United Arab Emirates, and is expected to exceed Norway soon. If this electricity is used for electric kettles across the UK, it will be enough for all British people to use for a full 27 years.

According to a research report by Guosheng Securities, the development of the mining industry can be roughly divided into three stages: from the fourth quarter of 2017 to the first quarter of 2018, companies engaged in traditional mineral exploration (such as gold) were the first to enter the market; from 2018 to 2019, it was a big year for mining companies to order mining machines; from 2020 to the present, companies in the IT industry (such as online games, information security, etc.) have entered the mining market, and domestic mines are mainly distributed in areas rich in electricity resources such as Inner Mongolia and Sichuan.

"Finding lower and more stable electricity prices is one of the key factors for mine owners to make profits." The above-mentioned mining circle person said that some private hydropower stations have low electricity prices, but poor stability, and can only meet the power supply needs during the annual flood season. Inner Mongolia has abundant electricity resources, which has become the choice of many mine owners in terms of stability and cost-effectiveness, and has also brought new electricity price revenue increments to Inner Mongolia. However, as more and more mine owners build mines in Inner Mongolia, it has also brought high energy consumption pressure to the local area.

How to regulate mining? Experts call for clearer policies

In recent years, China has taken frequent actions to clean up and rectify virtual currency mining.

Regarding the supervision of virtual currency "mining", the Daily Economic News previously reported that in November 2018, virtual currency mining farms in Guizhou and other places were required to shut down for rectification, accept tax inspections and conduct real-name registration. In addition, these mining farms were also required to sign a guarantee letter for network information security work from the public security department.

The virtual currency mining industry was almost included in the list of eliminated industries. However, in November 2019, the National Development and Reform Commission issued the "Guidelines for Industrial Structure Adjustment (2019 Edition)", and the "virtual currency mining activities" originally listed in the eliminated industries were deleted.

Guojin Securities believes that, except for two documents issued by the Leading Group of the Internet Finance Risk Special Rectification Office in January 2018 and the National Development and Reform Commission in April 2019, the national regulatory authorities have not yet issued any documents specifically mentioning cryptocurrency mining. The regulatory policies facing virtual currency mining activities are not clear, which brings uncertainty to mining farm investment.

In the view of industry insiders, the attitude of relevant departments towards the rectification of virtual currency mining and the effective withdrawal of irregular production capacity has not changed.

An expert in the blockchain field told the reporter of the Daily Economic News that the "mining" industry has nothing to do with the real economy, consumes a lot of energy, and some companies have safety risks. When many mine owners applied for mine construction in Inner Mongolia, they once claimed to be "big data processing centers" to the outside world, but were actually doing "mining" business internally. In the cooperation cases between mines and local governments, most of them applied in the name of big data processing and analysis, which not only passed the government approval, but also obtained state subsidies for high-tech industries and electricity discounts.

In terms of supervision, Pan Helin told the reporter of Daily Economic News that my country has strict restrictions on Bitcoin transactions, and financial attributes are not allowed, but there is no explicit ban on mining. In recent years, the state has been increasing its efforts to rectify the virtual currency mining industry, and in the future, there will be a need for clearer statements on the production and trading of virtual currencies. After all, mining farms will eventually need to sell the Bitcoins in their hands, and these sales still need clearer policy statements and regulatory rules.