Inner Mongolia releases the strictest shutdown plan for virtual currency mining; Yunnan, Guizhou and Sichuan may give the green light to embrace mining

Source: China Times, author: Wang Yongfei, researcher at China Times Financial Research Institute

As the price of Bitcoin continues to rise, the business of mining machines and graphics cards is booming. However, behind the craze for virtual currency mining, mining, as a high-energy-consuming project, has always been questioned for not meeting energy conservation and emission reduction requirements and power consumption.

On February 25, the official website of the Development and Reform Commission of the Inner Mongolia Autonomous Region released the "Several Guarantee Measures to Ensure the Completion of the 14th Five-Year Plan Energy Consumption Dual Control Target Tasks (Draft for Comments)" (hereinafter referred to as the "Draft for Comments"), which mentioned that it will accelerate the elimination and resolution of backward and excess production capacity, including "steel, titanium alloy, calcium carbide, coke, graphite electrodes, thermal power and virtual currency mining."

Among them, steel, titanium alloy, calcium carbide, coke, etc. can still undergo capacity replacement, but the opinion on virtual currency mining is to comprehensively clean up and shut down virtual currency mining projects, and all withdraw by the end of April 2021; and it is specifically mentioned that the establishment of new virtual currency mining projects is strictly prohibited.

Inner Mongolia has repeatedly cracked down on virtual currency mining

The Inner Mongolia Autonomous Region’s plan to clean up and shut down virtual currency mining is not a surprise attack. As early as November 2019, the official website of the Department of Industry and Information Technology of the Inner Mongolia Autonomous Region issued the “Notice of the Department of Industry and Information Technology of the Inner Mongolia Autonomous Region, Development and Reform Commission, Public Security Department, Local Financial Supervision and Administration Bureau, and Big Data Development Management Bureau on Inspecting and Rectifying Virtual Currency “Mining” Enterprises” (Inner Mongolia Industry and Information Technology No. [2019] 384) (hereinafter referred to as the “Notice”) on the deployment of documents related to the cleanup of virtual currency mining.

The Notice pointed out that the Inner Mongolia Autonomous Region Joint Inspection Team went to some leagues and cities to conduct a joint inspection on the cleanup and rectification of virtual currency "mining" enterprises. The main contents of the inspection include analyzing the materials reported by the leagues and cities, based on the relevant data held by the autonomous region, focusing on finding out virtual currency "mining" enterprises that have nothing to do with the real economy, evade supervision, consume a lot of energy, and use the "big data industry" as a package to enjoy local electricity prices, land and taxation preferential policies.

In August 2020, a document sent by the Ministry of Industry and Information Technology of the Inner Mongolia Autonomous Region to the Inner Mongolia Electric Power Group stated that after government agencies conducted on-site inspections of more than 30 big data and cloud computing companies in the Inner Mongolia Autonomous Region, they found that 21 of them were actually crypto mining farms, so they were issued a suspension notice. It is reported that these include two subsidiaries of Bitmain, a giant Bitcoin mining company in Inner Mongolia, and a subsidiary of Ebang International.

The Ministry of Industry and Information Technology of the Inner Mongolia Autonomous Region once pointed out that virtual currency mining is a pseudo-financial innovation that has nothing to do with the real economy, and the attitude of the Inner Mongolia Autonomous Region towards virtual currency mining has long been determined. After two years of strict investigation in 2019 and 2020, the virtual currency mining industry in Inner Mongolia has almost been cleared out, and many large mines have long been moved to Sichuan, Xinjiang and other places. The OKEx Research Institute told the Financial Research Institute of this newspaper that the impact will not be great. Under market economic conditions, as long as an industry has considerable profits, companies will continue to enter. The zeroing out of the mining industry in Inner Mongolia will only cause the mining industry to move to other regions. Including the fact that the Bitcoin mining industry was listed as "backward production capacity" in mainland China in the past few years, when it faced a comprehensive withdrawal, many mines moved overseas.

Alex, a senior crypto mining practitioner, pointed out that the famous "ghost town" of Ordos in Inner Mongolia Autonomous Region and Dalate Banner to the north of it, due to the stable power output of developed thermal power and the cold climate that is conducive to heat dissipation, virtual currency mine owners once built China's largest Bitcoin mine here. At the beginning, this mine alone accounted for 4% of the computing power of the entire Bitcoin network. At that time, the annual electricity bill of the entire mine also reached a staggering 100 million yuan.

Regarding the "Draft for Comments", Zhu Yu, co-founder of Yinbit, told the Financial Research Institute of this newspaper that the "Draft for Comments" has a great impact on the virtual currency mining industry; Inner Mongolia has one or two such enforcements every year, and the industry has a certain resistance, but this time may be the most powerful one. After the previous enforcements, most of the virtual currency mining farms moved away, but this time I am afraid that all of them will move away.

A researcher at OKEx 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.

The "Draft for Soliciting Opinions" issued by the Inner Mongolia Autonomous Region will end on March 3. Regardless of whether there will be adjustments, the major policy of making advance arrangements to achieve the dual energy consumption control targets of the "14th Five-Year Plan" will not change.

New options for cryptocurrency mining

As the domestic virtual currency mining environment changes, many former domestic mine owners have chosen to set up mines in countries or regions such as Canada, Iceland and Sweden in Northern Europe, Norilsk in Siberia, and the Columbia Basin in the United States to circumvent regulatory governance.

In the "Draft for Soliciting Comments on the Guiding Catalogue for Industrial Structure Adjustment" issued by the National Development and Reform Commission in recent years, industrial activities are divided into three categories: encouraged, restricted and eliminated, and virtual currency mining appears in the eliminated category. Will the Inner Mongolia Autonomous Region's measures be extended to mines in Yunnan, Guizhou, Sichuan, Xinjiang and other places?

Zhu Yu believes that it will be difficult for other provinces to follow suit as many provinces still have a heavy task of absorbing abandoned electricity, so they will have to give the green light this year.

OKEx Research Institute analyzed to this newspaper that the Inner Mongolia region mainly uses thermal power, while the southwest region mainly uses hydropower. The energy consumption limit policy depends on the specific conditions of each region. In fact, Bitcoin mining has certain benefits for the economic development of some southwestern regions and is also welcomed by local governments. Hydropower in the southwest region is relatively abundant, especially during the flood season, electricity is not fully utilized, and Bitcoin mining can solve this problem; and the mining industry provides a large number of tax revenues and jobs for local governments.

It is understood that there are a large number of hydropower stations built in Yunnan, Guizhou and Sichuan. Previously, due to the poor transmission channels, hydropower resources could not be effectively allocated across the country, and the amount of abandoned hydropower continued to increase. At the beginning of 2021, the Sichuan Electric Power Dispatching and Control Center stated that after multiple verifications, the annual hydropower utilization rate in Sichuan Province in 2020 was finally fixed at 95.4%, completing the goal of "hydropower utilization rate reaching 95%" issued by the National Development and Reform Commission and the Energy Bureau, and the results of hydropower consumption work were remarkable.

Researchers at the China Times Financial Research Institute learned from the Sichuan Provincial People's Government website that data disclosed by the State Grid Sichuan Electric Power Company many years ago showed that from 2012 to 2016, the amount of "abandoned" hydropower in the Sichuan power grid was 7.6 billion, 2.6 billion, 9.7 billion, 10.2 billion and 14.2 billion kWh respectively. It had previously predicted that Sichuan's annual hydropower surplus would exceed 50 billion kWh in 2020.

Among the pilot projects of hydropower consumption industry demonstration zones carried out by Sichuan in Ganzi Prefecture, Panzhihua City, Ya'an City, Leshan City, Liangshan Prefecture, and Aba Prefecture, there are many large virtual currency mining farm owners. Compared with the Inner Mongolia Autonomous Region, hydropower generation does not pollute the environment like thermal power generation and cause a large amount of carbon emissions. It also consumes excess electricity for Sichuan and provides cheap electricity for virtual currency mining farm owners, which is a win-win situation.

OKEx Research Institute analyzed that the power consumption of Bitcoin mining can be measured based on the Cambridge Bitcoin Electricity Consumption Index (CBECI). This index was created by the University of Cambridge. This index comprehensively considers dozens of mining machines, calculates the comprehensive efficiency of mining machines and comprehensive power efficiency, and thus estimates the annual power consumption of Bitcoin mining and its upper and lower limits at the current computing power level.

The latest data shows that the current power consumption of Bitcoin mining has reached 129.22 TW·h/year; and according to the IEA's global electricity consumption rankings in 2021, Bitcoin's power consumption has exceeded more than 100 countries and regions including Norway (124.05 TW·h/year) and the Netherlands (114.65 TW·h/year), ranking around 28th in the world. Therefore, the energy consumption of Bitcoin mining is relatively large.

According to foreign media reports, Iran, a major cryptocurrency mining country in the world, has a welcoming attitude towards Bitcoin at the government level because its economy has basically stopped. The electricity price for cryptocurrency mining is only 4 cents per kilowatt-hour. Therefore, a large number of mining farms have flooded into Tehran's power grid, causing difficulties. Recently, Bitcoin has repeatedly set new historical highs, but Tehran and other places are facing frequent power outages, and millions of people are often in darkness without Internet and light.

The impact of Bitcoin mining on the environment has been criticized by many experts and scholars who are critical of Bitcoin. Zhu Yu pointed out that it is unreasonable to accuse virtual currency mining of consuming electricity. In a market economy, individuals and enterprises can legally use electricity after paying electricity bills. Moreover, most of the hydropower consumed by virtual currency mining at present has almost no pollution to the environment. After the water is stored in a few small hydropower stations, there will be no water downstream, causing the death of aquatic organisms and leading to a small-scale ecological disaster; however, as long as such hydropower stations are built, there will be such problems, which have nothing to do with virtual currency mining.

OKEx Research Institute also pointed out that Bitcoin mining only consumes energy but does not emit pollutants, which is green and environmentally friendly;

With the development of cryptocurrency and mining technology, it can be found that virtual currency mining is gradually transforming from extensive to intensive, and more and more high-efficiency, low-energy consumption mines will become the mainstream of the mining industry.