Sichuan mining policy is erratic? No big deal, it's a good thing! | Chengdu Mining Observation Notes (II)

Written in front:

Bitcoin mining has not been as complex as it is today in the past decade.

Bitcoin halving, the arrival of the flood season, the upgrading of mining machines, the pervasive financial gameplay, the erratic mining policy, the superposition of five waves, and the increase in uncertainty. Head enterprises join the battle, institutional capital enters the game, overseas forces rise, and multiple parties compete, and the stable pattern is facing the biggest variable.

So, what we are facing may be the prelude to a golden age, or the beginning of a major reshuffle.

Sichuan ushers in "Mining Week" and mining forces gather in Sichuan. Babbitt reporters rush to the front line to bring the most front-line reports from the industry and compile a series of articles called "Chengdu Mining Observation Notes" to describe for you this thrilling change in the mining industry that is taking place.

This is the second article in this series.

If you are a miner and happen to be in Chengdu these two days, you will most likely live a "dark and chaotic" life because it is the "Chengdu International Mining Week".

Sleeping during the day, drinking heavily at night, and talking about business. Life was quite "comfortable".

If there is anything to worry about, besides the shaky price of Bitcoin, it may be the slightly "erratic" mining policies in Sichuan.

In April, the Ya'an government department in Sichuan issued a document stating that it would build a hydropower consumption demonstration zone and build Ya'an into an influential blockchain industry cluster in the country.

In May, Ganzi Prefecture in Sichuan Province held a symposium on the development of the blockchain industry, announcing the construction of a hydropower consumption park in Ganzi Prefecture.

Also in April, the Sichuan Provincial Financial Office issued a document titled "Notice on Guiding Enterprises to Orderly Withdraw from Virtual Currency "Mining" Activities."

In May, Muli County, a major hydropower region, issued a document in response, demanding a ban on new virtual currency "mining" projects and prohibiting hydropower generation companies from attracting investment from mining companies.

This makes many people confused. What does Sichuan’s policy mean? Can mining still be done? Will the Bitcoin computing power plummet?

In Chengdu, Babbitt learned about these issues in detail.

Why does Bitcoin mining always seem to be on the edge of the law?

Before talking about Sichuan’s policies, it is necessary to share some basic knowledge about Bitcoin mining with friends who don’t know about it.

There are many hydropower stations in Sichuan, and Bitcoin mines are often built next to them. In order to obtain low-cost electricity, a key point in mining is to find low-cost electricity. However, this model of consuming hydropower nearby does not require long-distance transmission of high-voltage power grids, and can also reduce power supply costs and power losses.

The industry calls this type of electricity direct power supply. There is a post on Zhihu called "Can hydropower stations provide direct power supply?" The author A Tu explained that it cannot. National laws and regulations do not allow small hydropower stations to conduct direct power supply transactions. Although hydropower stations can be divided into those belonging to the five major state-owned power generation groups and local small hydropower stations, the situation of compliance is more complicated.

Today, direct power supply accounts for a high proportion of Bitcoin mining in Sichuan. Generally speaking, hydropower mines still have some compliance issues in electricity use. How to deal with it can be explained very well by this sentence: Eight immortals crossing the sea, each showing their magical powers. For example, the mine is built inside the hydropower station and becomes factory electricity.

It should be emphasized that although there are compliance issues with the use of electricity in hydropower mines, China does not have any policies prohibiting mining.

Let's talk about the policy of hydropower consumption park. Hydropower consumption park is closer to the city, and its electricity comes directly from the power grid. In addition, there is another kind of electricity in life, which is grid electricity. It is uniformly dispatched and sold by power companies and is the main source of power resources. If the electricity from the hydropower station wants to be transmitted to other places, it must pass through the grid and become grid electricity. The compliance issues of using this kind of electricity for mining will be much smaller, and the site is guaranteed, so everyone interprets it as a good thing.

At present, enterprises settled in the hydropower consumption park can obtain slightly cheaper electricity resources, but it is still more expensive than direct power supply. The first batch of hydropower consumption park enterprises announced in Sichuan includes about 10 mines.

▲A hydropower Bitcoin mine located next to a river

Why do Sichuan’s recent policies seem so contradictory?

Why do some government departments not prevent, or even encourage, mines to enter consumption parks, while some other departments want to crack down on mines?

While attending the "Chengdu Mining Week" event, Jiang Zhuoer, the founder of Litecoin, was interviewed by Babbitt, and his analysis was very interesting.

Areas in Sichuan that are rich in hydropower resources are often economically backward. Bitcoin mining can not only absorb the surplus hydropower resources, but also drive employment. Therefore, Jiang Zhuoer believes that Bitcoin mining is a good thing, and no one would think of killing it. He attributed the contradiction to: "This is a question of how to cut the cake, but no one will kick the cake over."

To put it bluntly, it is a question of how to distribute benefits. The stakeholders involved are mainly power grids and power generation companies (such as hydropower stations), as well as local governments and mines.

Let’s talk about local governments first. Local policies have no incentive to resist mining. In fact, as taxes begin to be levied on mining farms, mining farms are still important tax providers.

Let's look at the power grid and power generation companies. In the case of direct power supply, the infrastructure provided by the power grid is actually used, but the power grid has never received electricity charges. This means that in the game of Bitcoin mining, the power grid, which has a strong influence and even a say, has not gained more benefits from it. The game has begun. The power grid hopes to turn direct power supply into grid electricity and then profit from it.

From this perspective, we can see that the government, or different departments, may play the role of coordinator. Sichuan's somewhat "reversed" policies are largely the result of this game. In Jiang Zhuoer's view, this game will not affect the long-term implementation of favorable policies.

The outside world defines these policies as a swing in Sichuan's policies. Zhu Yu, co-founder of Biyin, believes that this statement is inaccurate. Sichuan is also divided into many different departments, and this statement makes sense.

The public is concerned about the Financial Office's announcement, but during interviews, some miners told me that the Financial Office's attitude on this matter has been relatively consistent, and they are somewhat accustomed to it.

But since the Financial Office has issued the document, mining is not strictly illegal from the perspective of the business entity and the industry, but it can be said to be a violation of regulations. Chen Lei of BitBlue Whale believes that for current mining farms, if they strictly implement construction, fire protection, production safety, environmental protection and other regulations, they may not meet the standards and then be accused of violating regulations or breaking the law.

▲In Chengdu, Laibit Jiang Zhuoer accepted interviews from Babbitt and other media

Direct power supply may disappear, but Bitcoin mining will definitely survive

Zhu Yu told me that Bitcoin mining accounts for a high proportion of electricity consumption in China. This industry supports many people, and the local government has no reason to oppose it. "Mining cannot be killed with one stroke."

Chen Lei added that local governments and power departments have a strong desire to consume hydropower and profit from it, so many departments also describe mining as blockchain, supercomputing, and data centers in an attempt to guide mining in the direction of compliance.

In general, Zhu Yu believes that direct-supply electricity mines will definitely be eliminated and banned, but the process will take a long time.

In fact, governments of major prefectures and cities in Sichuan that are rich in hydropower resources are promoting centralized consumption of hydropower, and the industrial parks are supplied with electricity uniformly through the State Grid. This is a real change that is taking place.

Chen Lei also said that this year there is an overall oversupply of mining farms, and hydropower consumption may accelerate the exit and merger of the industry, further consolidating Sichuan Hydropower's core location advantage in China's mining industry. However, due to the construction progress and market demand, there will not be a reversal in the scale of direct power supply and power consumption this year, and the direct power supply share will still be the majority. This situation may not be reversed until the next flood season.

In any case, the information I got from Sichuan is that Bitcoin mining is on the road to compliance, and everyone is confident. If the price of Bitcoin is good, the future will be good.