Relocation and closure: Sichuan, the "mining capital", is facing the strongest supervision

The Bitcoin mining capital is in Sichuan, and one-third of Sichuan’s available hydropower comes from Ganzi.

For miners, starting from the end of May this year, the hydropower-rich Ganzi Prefecture no longer seems to be "safe".

Starting from May 27, multiple departments in Kangding City, the capital of Ganzi Prefecture, set up a working group to investigate and rectify the Bitcoin mines on the Dadu River.

Under the high pressure of supervision, some miners who had just settled in Ganzi began to move out. The owners of the Ganzi mines that were still operating were also on pins and needles.

Policies have become one of the most unstable factors in the domestic mining circle, especially after the National Development and Reform Commission issued the "mining restriction order" in April this year.

This local supervision may just be a warning. It is conceivable that practitioners facing policy elimination will continue to be constrained in the future.

Move out of the "mining capital"

"For safety reasons, we moved out (from Ganzi Prefecture)," miner Li Jianzhong told Odaily Planet Daily.

According to Cover News, starting from May 27, multiple departments in Kangding City set up a working group to investigate the Bitcoin mines on the Dadu River and clean up any violations. The next day, a relevant person in charge of the Kangding City Economic and Information Bureau said that Ganzi Prefecture does not allow Bitcoin mining.

Although the government's attitude towards Bitcoin mining has not been positive, Li Jianzhong couldn't help sweating in his palms when he heard the relevant departments publicly emphasize it.

The relevant rectification notice was immediately issued, and the mine responsible for hosting Li Jianzhong also cut off power in time to wait and see what would happen.

Li Jianzhong, who entered the mining industry in early 2018, mainly sells mining machines, and his side job is helping customers find reliable mining farms to host mining machines.

In order to find low-priced and stable electricity, Li Jianzhong visited various places in Sichuan many times. Just after the Lantern Festival this year (mid-February), Li Jianzhong came to Ganzi to look for abundant hydropower.

Compared with other prefectures, Li Jianzhong's impression of Ganzi is that "there are many hydropower stations and mines on both sides of the road."

Seeing the booming business here, Li Jianzhong spent a week inspecting several mines. Along the way, Ganzi, with its mountains and rivers running through the entire area and its dangerous terrain, gave him a lot of trouble.

"The snow on many mountains has not melted yet, and rocks roll down from time to time. If you are unlucky, you will lose your life. The road is not easy to walk on, and you may fall into the river dozens of meters deep next to you if you are not careful." Li Jianzhong sighed. "But I still have to go, otherwise there is no hope at all."

Ten days later, Li Jianzhong signed a letter of intent for custody with a mine.

Li Jianzhong returned to Shenzhen and thought that the logistics support for Fengshui mining was basically ready, but he did not expect that the mining machine would encounter strict supervision not long after it was put into use. He could only watch helplessly as he gave up the electricity he had worked so hard to find.

"The rains were late some time ago, so we can't dig with peace of mind now." Despite the cruel situation, Li Jianzhong still has to make long-term plans for mining customers. "After the power outage for a few days, we moved away and moved tens of thousands of mining machines to a mine in a neighboring province."

"We think we'll have to move sooner or later, so it's better to move sooner," Li Jianzhong judged.

In fact, in the long run, Li Jianzhong does not think that the mines in neighboring provinces are much safer. "The national policy is to clean up mining hardware and to clean up capital flight through financial instruments such as Bitcoin, so it will be tightened gradually. It is not time to sell at a loss."

One-year payback may be in vain

Not long after Li Jianzhong moved from Ganzi, the mine inspection officially began.

According to the Cover News report, after 10 days of investigation, on June 7, a team led by Kangding Mayor Jia Mo worked on-site with the inspection team to rectify the "three no" projects along the Dadu River in the Zhedong area of ​​Kangding City (i.e. no construction planning land use permit, no construction project construction permit, and no land use permit), as well as various mines with incomplete procedures, built without approval, and unsafe conditions.

The Cover News report also stated: "The relevant project parties (in other parts of the city) must submit the relevant procedures and materials to the Kangding Municipal Government Office on June 10. Construction and production must be stopped before the procedures are completed."

Miners can relocate, but mines cannot.

According to Lu Feng, the owner of the Ganzi mine, "Those with incomplete land use procedures, those with random construction, and those that affect the surrounding environment must be regulated. I understand that several such mines were forced to be demolished after they were built."

Of course, Lufeng, which had a registered company and land use procedures, escaped the disaster. Even so, Lufeng, which was at the center of high-pressure supervision, was still on pins and needles.

His mine was completed in March this year, and it has not been a month since the start of operation. "It will take a year of normal operation to make a profit." No one knows how many variables there are in this process.

This is not the first inventory in Ganzi Prefecture, but it may be the most severe one.

In January this year, when Lufeng was preparing for the Fengshui mine, the Ganzi prefecture government issued a "mining restriction document".

A notice issued by the Ganzi Prefecture Government Office titled “Notice on Cleaning Up and Rectifying Mines in Ganzi Prefecture and No More Mines” shows:

Although the relevant policies on the legality of Bitcoin mining companies are not clear, the Fifth National Financial Work Symposium in 2017 and the Internet Financial Work Symposium held on November 20, 2017 both pointed out that the virtual currency "mining" industry is a pseudo-financial innovation that has nothing to do with the real economy and is not supported. Measures should be taken to exit in an orderly manner. From the perspective of risk prevention and control, it is recommended that: 2. Take advantage of the current sharp drop in Bitcoin prices to guide relevant mining companies to exit; 3. Require all counties (cities) to no longer accept the establishment of new mining companies and control the increase... Those without any approval procedures should be closed down according to law.

When the document was released, some people were happy and some were worried. Lufeng, which had already completed the relevant procedures, did not feel the crisis. But as the old saying goes, "A blessing in disguise".

At that time, Hao Peng, who was also planning to build a mine in Ganzi, told Odaily Planet Daily, "This document will make many people cry, like me. I just got very cheap electricity and was preparing to build it. Now I can save money..."

That document did save Haopeng a lot of money. According to many industry insiders, building a mine with a load of 10,000 kilowatts requires at least 4 million yuan, and higher specifications will be more expensive. Haopeng, who took 80,000 kilowatts at the time, saved more than 30 million in potential losses.

When I met Lufeng again in May, this once ambitious industry builder no longer looked as energetic as before. "I don't think the situation will improve. Mining has been listed as an eliminated industry by the National Development and Reform Commission. I'm afraid it won't last long."

How is mining considered “non-compliant”?

From the above, it can be seen that the Ganzi Prefecture government did not adopt an attitude of immediate and comprehensive clearance of mining companies, but instead adopted measures for orderly withdrawal. On the other hand, it is also working to control the number of new mining companies and ban illegal construction.

Illegal construction is the focus of current rectification. But what is "illegal construction"?

According to the cover news, "the Bitcoin mining plant cannot be approved, and there is no environmental impact assessment or construction permit, and it is suspected of illegal construction."

There are at least two possible reasons why the project could not be approved. One is that the electricity used is not connected to the Internet. "Only those who use the power of the State Grid can be approved. Whether the approval document will be passed is uncertain, but using the power of the State Grid is a prerequisite." Meng Yiming, a mine owner who operates in many places across the country, told Odaily Planet Daily.

The fact that the mine did not use the power from the State Grid is most likely because it purchased electricity from the power station privately in order to reduce costs. "The power station does not have the power to directly provide electricity to users, otherwise it will constitute illegal use of electricity. So what should be done? The power demand side can sign an agreement with the power generation company, but it still needs to go through the State Grid, which will charge a network access fee of 0.1 yuan/kWh to 0.15 yuan/kWh." Yu Yang, COO of the China Miners' Community Mining Association, once introduced to Odaily Planet Daily.

There may be another reason for the failure to establish the project, which is that the mines that are being built quickly are unwilling to wait for the slower approval process. If the regulations are strictly followed, after the mine owners sign power supply agreements with the power station and the State Grid, they will then apply to multiple departments for environmental impact assessments for new projects, filing with the Development and Reform Commission, construction planning approval, construction permits, etc. This series of procedures will take a lot of time. This means that mine owners may miss the golden time for mining during flood season, and at the same time they will have to bear additional land costs. As a result, many mines were built privately first, and then they tried to make up the formalities. "This is quite common in the Dadu River Basin."

The price of coins and mining machines fluctuates, and the production cycle requires flexible decision-making. The survival rules of this industry make it difficult for mining to be produced on a regular basis like other industries.

So can the mining farms that allow users to “get on the bus first and buy the ticket later” easily complete the formalities?

This is another thorny issue. According to a senior industry insider, the mine owners need to pay the "grid access fee" to complete the supplementary procedures, and at the same time meet the standards for environmental impact assessment, fire protection and other indicators. "This is not a small amount of money, but the big mines will make up for it, but it is hard to say for small mines with a load of less than 50,000 kilowatts."

These unqualified mines are the targets of this state government's rectification.

If the government does not investigate "illegally built" mines, what hidden dangers might exist?

We can see the following points intuitively: illegal Bitcoin mining risks violating the law; the mine is built on a river bank several meters high and is at risk of being hit by floods; and privately built mines will also lead to illegal tax evasion.

Boots that can't land

Compliance has always been the sword of Damocles hanging over the heads of miners. On the one hand, people in the mining industry call for regulation, but on the other hand, they are afraid of high-pressure regulation.

At this stage, as Chen Lei, secretary general of the Peking University Blockchain Club and also a mine owner, said, "As long as you are not stealing electricity, mining itself is not illegal. It's just that different departments and levels have different attitudes on the topic of compliance. The policy pressure is still relatively large."

According to Chen Lei, so far, there are about four or five mines with a scale of more than 20,000 that have been closed due to various regulatory pressures, and hundreds of thousands of mining machines have been affected. "We cannot give a conclusion as to which type of regulation caused it. Most of them are regional and sporadic, and there is no overall regulatory situation."

As for the future, Chen Lei also said that although the National Development and Reform Commission issued the "Guidelines for Industrial Structure Adjustment (2019, Draft for Comments)" in April this year, which listed "virtual currency mining activities" as an industry that has been explicitly eliminated or immediately eliminated by national industrial policies, "but we estimate that the government will not immediately shut down all mining farms."

Iranian miner Yifan also agrees with this view. "Mining has always been a gray industry in China. The document does not say that it will be banned, but elimination requires time and flexibility. It will take half a year to wait for the official version of this draft for comments, another half a year to wait for the implementation of the survey, and another half a year to wait for the processing."

"It is estimated that this matter will be transferred to the Ministry of Commerce and local main departments for implementation in the third quarter of next year," Chen Lei added.

"In addition, I looked at the industries that need to be eliminated next year. Some industries that were eliminated in 2001 by the National Development and Reform Commission's "Industrial Structure Adjustment Guidance Catalog (2001 Edition)", such as tricycles, chemicals, and raw materials industries involving drugs and explosions, are still being operated in many places. There is no other way. The country is so big, and development must be done step by step. After the implementation, local governments still have a lot of choices on what to do. They can kill people with knives, or they can increase revenue by increasing the stakes."

There is no doubt that with regulatory protection, the industry will be able to thrive; otherwise, practitioners will be constrained at every turn.

Zheng Xun, CEO of Hash Era, a comprehensive service platform for mining machine hosting, has a deep understanding of this.

Statistics show that the cost of mining in the United States is 1.5 times that of mining in China. According to Yu Wei, former head of Bitmain's global mining farm, who has mining experience in the United States, in fact, due to high construction standards, the cost of building a mining farm in the United States can be 3 to 5 times that of China. With such high infrastructure costs, why do some miners still choose to mine in the United States? Zheng Xun asked his American counterparts.

"They told me that because many states in the United States do not oppose mining and also impose reasonable legislative constraints on the conduct of the business, although the cost is higher, the risk cost is low. Perfect policy permits and social recognition are also necessary elements for the healthy development of the industry," said Zheng Xun.

Concerns about Bitcoin "Mining Capital"

The surplus of electricity during the flood season is exactly what makes hydropower stations and mines a perfect match. Every penny cheaper in electricity costs can save a mine "terribly large" costs.

Taking the general Ant S9 (14T) as an example, when the electricity price is 0.33 yuan/kWh (the current thermal power price), miners need to pay 10.93 yuan in electricity bills for a mining machine every day; if the electricity price drops to 0.24 yuan/kWh (the current hydropower price), the electricity bill paid by miners for the mining machine will be reduced by 27% every day, and the saved electricity bills will be all profits.

The Bitcoin mining capital is in Sichuan, and one-third of Sichuan’s available hydropower comes from Ganzi.

Ganzi Prefecture, located on the southeastern edge of the Qinghai-Tibet Plateau, is traversed by the Jinsha River, Yalong River and Dadu River. In addition, the mountains in the territory are long and the river valleys are deep. The huge drop in elevation has brought rich hydropower resources to this border area.

Data from the Ganzi Prefecture Economic and Information Commission show that in 2018, the exploitable power station capacity in Ganzi Prefecture reached 41.3 million kilowatts, accounting for 34% of the province's exploitable capacity. Against this background, the hydropower industry has also become a new pillar of Ganzi's industry. Data from the Sichuan Provincial Bureau of Statistics show that in 2017, the added value of the power industry in Ganzi Prefecture accounted for 83.7% of the added value of industrial enterprises above designated size in the prefecture.

There are advantages in water resources, but there are also concerns about hydropower consumption. This is a true portrayal of Ganzi.

According to data released by the Ganzi Prefecture Economic and Information Commission, last year, the amount of abandoned hydropower stations in Ganzi Prefecture reached 16.3 billion kilowatt-hours (accounting for more than 30% of the province's abandoned hydropower), and the direct economic losses of hydropower companies reached 4 billion yuan.

“To put it bluntly, if we don’t sell it, it will be thrown away in vain,” Lu Feng said.

It can also be said that the hydropower stations on rivers and in the mountains of Ganzi Prefecture produce the cheapest electricity in China. Attracted by the low-priced electricity, countless miners come here to build mines through the mountains.

"These mines help power stations utilize abandoned hydropower, allowing them to repay bank loans ahead of schedule, and boosting local employment and increasing income." Lufeng believes this is the positive side of mining.

Now that the policy in Ganzi has been tightened, it has become less attractive to miners. Mining clusters in Aba Prefecture, Ya'an City, Leshan City and other places around Ganzi may also suffer the same fate.

This "mining capital" that once produced 70% of the world's new bitcoins is suffering from regulatory shocks.

I wonder if the blue tin house will become a distant landscape in the mountains of Sichuan in a few years.