《Alliance Analysis-Industry Hotspots | Bitcoin Mining Ecosystem History》

At the beginning of the new year, the news that Russian oil companies opened a crypto mining farm that uses natural gas as energy has added new impetus to the development of Russia's crypto mining ecosystem. In recent years, users have been paying attention to the development of Bitcoin mining machine manufacturers. At present, the mainstream Bitcoin mining machine manufacturers in China are mainly: Bitcoin Mainland, BitMicro, Ebang International and Canaan Creative. This article combines the pain points of the mining machines produced by Bitcoin mining machine manufacturers to study the site selection layout, operating costs, benefits and legal risks of domestic Bitcoin mining farms.

1. Pain points of domestic mining machines

As mentioned at the beginning of the article, the four major domestic Bitcoin mining machine manufacturers are: Bitmain, MicroBit, Ebang International and Canaan Creative. Under the leadership of the four major mining machine manufacturers, my country's computing power has always accounted for more than 50% of the world. However, it has also caused huge losses to my country's power resources. The reason is that no matter which mining machine manufacturer produces the mining machine, the power consumed during the mining process is far more than that of ordinary enterprises. In order to protect the power resources in their jurisdiction and prevent them from being overused, some regions in China have issued policies to regulate them, which is not very friendly to the development of mining companies.

2. Site selection and layout of domestic mines

Most of the domestic miners or mining companies mainly choose to mine and build factories in parts of southwest and northwest my country.

Some mining factories are located in southwest my country, such as Sichuan and Yunnan. The reason is that Sichuan, Guizhou and Yunnan are rich in hydropower resources during the flood season from May to October every year, which also leads to cheaper hydropower prices. Mining factories located in these two places can take full advantage of the cheap electricity prices for mining. However, mining factories in these places will face the embarrassment of the dry season in winter. In winter, mining factories are in a situation where they lose money whether they start mining or not.

Some mining plants are located in Northwest my country, such as Inner Mongolia and Xinjiang. The reason is that Northwest China is rich in coal resources, mainly thermal power generation. Due to the inclination of national policies, these regions have abundant and cheap electricity resources. However, in the past two years, many Bitcoin mining farms in Northwest China have been involved in power supply contract fraud, which has caused the government to tighten policies on corporate electricity use.

3. Costs and benefits of domestic mines

The main costs of a Bitcoin mining plant are divided into static costs and dynamic costs.

Static costs are mainly the expenses of mining companies for purchasing various types of Bitcoin mining machines. As mentioned above, the price of Bitcoin mining machines sold by the four major domestic mining machine manufacturers fluctuates between 10,000 and 30,000. Of course, the price of mining machines is also positively correlated with the market conditions of cryptocurrency. In the past two days, the price of mining machines has been rising all the way.

Dynamic costs are mainly electricity costs and labor costs, but labor costs are not worth mentioning compared to electricity costs. For countries where cryptocurrency trading is prohibited, the cost of electricity purchased by mining farms cannot be deducted as input tax when calculating the taxes and fees that mining plants need to pay. Can the cost of purchasing mining machines for mining plants in my country be deducted? At present, domestic tax laws do not clearly stipulate it. In the actual operation process, enterprises can purchase mining machines as "fixed costs" and deduct them from the tax amount. However, this has also become a "legal reason" for some mining plants to evade taxes.

The main income of domestic mining plants comes from blockchain rewards and transaction fees obtained during the mining process. However, based on the constant total amount of Bitcoin, the blockchain rewards miners receive during the mining process will only decrease.

IV. Legal risks of domestic mine operations

As mentioned earlier, it is common for domestic mines to evade taxes during operations, for unqualified electricity buyers to purchase low-priced electricity, and for theft of electricity resources.

1. Legal risks of tax evasion in mines

or suspected of tax evasion

Article 201 of my country's Criminal Law stipulates the crime of tax evasion. If a taxpayer resorts to deception or concealment to make false tax declarations or fails to declare, and the amount of tax evasion is large and accounts for more than 10% of the tax payable, he shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention and shall also be fined. If the amount is huge and accounts for more than 30% of the tax payable, he shall be sentenced to fixed-term imprisonment of not less than three years but not more than seven years and shall also be fined.

If the acts in the first two paragraphs are committed multiple times and have not been dealt with, the cumulative amount will be calculated.

Article 63 of my country's "Tax Collection and Management Law" stipulates that if a taxpayer evades taxes, the tax authorities shall recover the unpaid or underpaid taxes and late payment fees, and impose a fine of not less than 50% and not more than 5 times the unpaid or underpaid taxes; if it constitutes a crime, criminal liability shall be pursued in accordance with the law.

As mentioned above, if the crime of tax evasion is committed for the first time, if the tax evader pays the relevant taxes and fees, pays the late payment fees, and accepts administrative penalties, he or she will not be held criminally liable.

In practice, it is generally difficult for mining companies to avoid Bitcoin transactions while mining. In this process, mining companies will need to pay corporate income tax, value-added tax, etc. For corporate income tax, mining companies generally increase the purchase cost of mining machines, reducing the company's final income. For value-added tax, the increase in the purchase cost of mining machines will be used as input tax to increase the deduction, and the amount of value-added tax paid will be reduced. When Bitcoin mining companies are found to be evading taxes, they should actively cooperate in clearing the taxes owed.

(II) The phenomenon of unqualified electricity purchasers purchasing electricity at low prices

Or suspected of contract fraud

Article 224 of my country's Criminal Law stipulates that the crime of contract fraud refers to the act of defrauding the other party of property in a large amount by means of fabricating facts or concealing the truth during the signing and performance of a contract for the purpose of illegal possession.

In practice, in order to use cheaper electricity resources, mining companies conceal their true financial situation and provide false certification materials to prove that they are qualified electricity purchase entities. They then sign electricity purchase contracts with power centers to enjoy lower-priced electricity resources, which also leads to the loss of national electricity resources. Such behavior of mining companies may constitute contract fraud and be investigated by public security organs.

3. Theft of Electricity Resources

or suspected of theft

According to the Electricity Law, if the amount of electricity theft is large or the circumstances are serious, the power supply department should ask the judicial department to investigate criminal liability.

If the amount of electricity theft is large and the circumstances are serious, constituting a crime, the judicial authorities shall pursue criminal liability in accordance with Article 264 of the Criminal Law of the People's Republic of China.

According to Article 31 of the Electricity Supply and Use Regulations, electricity theft includes:

1. Unauthorized connection of electricity to the power supply facilities of the power supply company.

2. Use electricity by bypassing the power supply company’s electricity metering device.

3. Forging or arbitrarily opening the electricity metering device sealed by the power supply company.

4. Deliberately damaging the electricity metering device of the power supply company.

5. Deliberately causing the power supply company's electricity metering device to be inaccurate or ineffective.

6. Using other methods to steal electricity

In practice, some mining companies, in order to save electricity costs, simply privately pull grids and connect power lines to carry out mining and build factories, which seriously violates the Criminal Law and other relevant laws and regulations and may be held criminally liable by judicial authorities.

It is expected that mining machine manufacturers will be able to produce mining machines with higher computing power and relatively lower power consumption in the future. This will be good news for Bitcoin mines and some independent miners, and will also indirectly promote their compliance operations.

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