The strange ecology of the mining industry: from stealing electricity, cheating on subsidies to stealing supercomputers

The rise, development and growth of the blockchain industry has brought a lot of capital to the industry and injected a lot of demand into the industry chain. As the core of maintaining the operation of the blockchain network and the bottom-level adherent of the blockchain consensus, mining is regarded as a business that is sure to make money in the industry.

In a bull market, if you set up two mining machines at home, you can get your money back within a year, and even within half a year when the price of the currency is at its highest. If you have enough funds, you can even open a factory and use mining machines to mine, realizing what countless people dream of: making money while lying down. Mining machines can bring income to miners in both bull and bear markets, but this income hides huge gray income.

The role of mining machines in the blockchain world is to maintain the operation of the blockchain network and obtain digital cryptocurrency rewards through proof of work. The mining process consumes a lot of electricity. Common mining machines consume 1400W of electricity per hour and 33.6 kWh of electricity per day. Taking the more popular Bitmain S9i mining machine as an example, this mining machine costs 3,350 yuan, and the daily electricity cost is about 20 yuan. The daily Bitcoin income is about 22 yuan. According to this income, it will take 230 days to pay back.

However, if the electricity cost can be reduced, the payback period can be greatly shortened. It can be seen that electricity consumption is the main cost of mining and the key to determining mining income. Miners can only get a faster payback and obtain more income if they find cheaper electricity.

In order to find a cheaper electricity supply, BlockBeats saw that the masters from the grassroots tried every means to obtain this cheap electricity, and staged plots such as stealing electricity, stealing electricity, etc., which shows how magical it is.

From the prairies to the southwest, cryptocurrency mines are chasing electricity

Due to the prosperity of blockchain and encryption industries, a new mining industry has begun to emerge in China. This summer, a picture of a mining machine being soaked by flood water spread all over the Internet. Many people joked that "this is a real mining accident", but it also revealed some truths about the digital cryptocurrency mining industry.

Crypto mining, a newly emerging industry, is growing wildly in these remote areas of China. In these deep mountains and forests and remote areas, very few people understand the regulatory environment and policies of the mines. It has created many jobs in the local area and driven local economic growth and prosperity.

A flood caused by heavy rain in June had a huge impact on the cryptocurrency mining center in Sichuan, located in the southwest. Tens of thousands of mining machines were submerged by the flood, causing heavy losses. A large number of mining machines could not work, and the computing power of the entire network even dropped significantly. On June 27, the computing power of the entire network reached its lowest value in nearly 20 days, which coincided with the time of the Sichuan flood disaster.

"Go to Inner Mongolia in winter and go to Sichuan in summer." This saying circulating in the cryptocurrency circle more or less explains this phenomenon. Because Inner Mongolia's coal-fired power and Sichuan's hydropower resources are very abundant, private thermal power and private hydropower can provide cheaper electricity, making these two regions the gathering places for the mining industry.

The behavior of approaching power generation areas is not only popular in China, but also calculated by foreign miners. Mining is becoming a new industry to boost the economy. In the past few months, the small town of Ocean Falls in British Columbia, Canada, has attracted a large number of miners with cheap electricity resources. This "ghost town" with a population of less than 100 people may revive its economy through mining.

The cryptocurrency mining industry is often located near mountains and rivers, and is concentrated in remote areas such as the deep mountains and old forests in the southwest and Xinjiang and Inner Mongolia where electricity is cheap. In addition to the need to hide the identity of their mining factories, another important reason is that these places are rich in resources and can obtain cheaper electricity prices. Gathering here often maximizes the profits from mining. Mining by purchasing cheap electricity is generally a legal business, but the following is not so glorious.

Mining with mining machines that rely on computing power is a very power-consuming computing process. High-performance graphics cards and mining machines are simply power hogs when fully powered. In order to maximize profits, stealing electricity is a very effective means. Through illegal means, the electricity cost is passed on to others or tampering with the electricity meter, etc., to achieve zero-cost mining.

Below, BlockBeats will show you how these folk masters have worked to steal electricity.

From data center subsidies to nuclear labs

In order to develop the Internet digital economy, many local governments will provide preferential electricity support to companies such as cloud storage, data centers, and server centers to reduce their operating costs, attract companies to settle in the local area, and increase fiscal revenue.

Take Inner Mongolia as an example. The province started to subsidize electricity for data centers in 2013. After approval, the electricity price can be reduced from more than 60 cents per kilowatt-hour for industrial electricity to 3.8 cents per kilowatt-hour. iCloud's data center, which recently moved its cloud server from overseas to Guizhou, is currently enjoying the 3.5-cent subsidized electricity price provided by Guizhou Province for big data centers.

According to BlockBeats, a popular practice in the mining industry in recent years is to package the company as a data center and then apply for provincial or municipal science and technology innovation subsidies. This kind of preferential policy allows mining machine owners to enjoy high tax and electricity discounts, and the name of the data center can be used to cover up high power consumption. In fact, it is not easy for the government to find out, but it is a waste of resources.

According to Jiemian, at the end of 2017, the central bank, together with several ministries and commissions, decided to guide the "orderly exit" of virtual currency mines in China. After the release of this opinion, many mines located in Xinjiang, Inner Mongolia, Sichuan and other places have been interviewed by local financial offices and asked to exit. Some mines have not yet been interviewed, but the preferential electricity prices of the mines have been cancelled, and the costs have risen sharply. The corresponding mines have also moved out of the country after the policy was tightened, and entered markets with lower electricity prices such as Canada and Iceland.

The Russians may be bolder than taking money out of the government's pocket.

The resourcefulness of the Russians, their love of adventure and their passion for "quick money" are not only reflected in programming (V God, who brought us Ethereum), ICO enthusiasm and cryptocurrency speculation, but also in mining. They either don't play at all or play big, and this time they are directly targeting supercomputers used to research nuclear weapons.

According to a BBC report in February this year, several Russian nuclear weapons experts started a sideline after work, using the laboratory's supercomputer to earn some extra money - mining Bitcoin. However, they did not expect that the supercomputer connected to the Internet was soon targeted by the security department, and many people were arrested and faced criminal charges.

From moving mining machines to work to tampering with the electricity meter

In order to make money from mining, people will do anything to pass on the electricity costs to power companies, units or other people. However, this behavior of using public electricity to make profits for oneself is unacceptable to any company. According to BlockBeats, a well-known domestic Internet company issued an announcement on the company's intranet as early as 2017, prohibiting employees from bringing mining machines into the company, and violators will be severely punished.

In order to make money, there are endless cases of secretly changing electricity meters and connecting lines. In the news media, you can see news about miners being caught stealing electricity almost every once in a while.

"A man in Jiang'an District, Wuhan, installed 80 mining machines in his rental house and stole 60,000 kilowatt-hours of electricity to "mine" Bitcoin"

"In order to mine Bitcoin, a mine in Daqing disguised itself as an electrical repair shop and stole more than 3 million yuan in electricity in nine months"

"600 Bitcoin mining machines steal electricity for mining, Tianjin police crack down on major electricity theft case"

"600 Bitcoin mining machines in Tianjin stole electricity for mining, resulting in abnormal electricity usage, which was reported by the power company and cracked by the police. 600 computers used to mine Bitcoin and 8 high-power fans were confiscated."

"It was discovered in Yan'an that a mine had secretly connected wires to steal the lighting electricity provided by the oil field mining area to the mountainous residents along the line, and was seized by the Yan'an police."

But this kind of news that serves as a warning to others cannot stop the people's "creative" thinking. They can still find various cheap or even free sources of electricity.

Last December, a Tesla electric car owner tried to use free charging to mine. He installed 4 motherboards and 16 graphics cards in the trunk of his car for mining, and planned to drive his Tesla electric car to a super charging station to charge. Because Tesla's super charging station provides free charging points to car owners who bought the car in 2016, the owner can charge unlimitedly and use Tesla's electricity to mine for himself. This is enough to show that electricity is the most important factor affecting miners' mining.

Why is the country cracking down on the mining industry?

At present, the main sources of electricity for mining are thermal power and hydropower. You may ask why not use clean energy? Solar power generation is expensive and the current level of technology cannot pay back the investment in a short time. The seemingly powerful wind power generation is affected by seasonal cycles. Relatively speaking, the more stable and reliable thermal power and hydropower are obviously more popular.

However, the impact of thermal power and hydropower on the natural environment is obvious. The burning of coal in thermal power will cause air pollution and emit a large amount of carbon dioxide, while hydropower will cause a devastating blow to the downstream ecology by intercepting river water. According to a mining industry practitioner who told BlockBeats, in the mountain valleys of Sichuan, the distance between two small hydropower stations is less than 1 kilometer.

More importantly, mining power consumption has an impact on social and economic operations. It takes away energy originally used for life and production, causing real electricity supply to fall short of demand. In January this year, a residential area in Kunming, Yunnan, experienced frequent power outages, and a transformer worth 500,000 yuan was burned by cables. After investigation, they found that a tenant in the building had placed dozens of Bitcoin mining machines in the rental house for mining, with a monthly electricity consumption of up to 10,000 kWh, which far exceeded the level of residential electricity consumption and exceeded the tolerance of the transformer and cables in the building.

In this regard, the relevant departments believe that it is a waste that electricity resources that could have been invested in the real economy are used to mine cryptocurrencies. Analysts from the central bank believe that Bitcoin not only takes advantage of local electricity subsidies, obtains a large amount of cheap electricity, consumes huge amounts of energy, but also makes no contribution to the real economy. It is reasonable for regulators to shut them down.

To this end, various regulatory authorities have successively issued a series of laws and regulations to regulate the use of electricity by closing irregular mining sites through compression and withdrawal. In July this year, the Xinjiang Uygur Autonomous Region Economic and Information Commission recently issued a "Notice on the Withdrawal of Illegal Electricity "Mining" Enterprises", requiring the withdrawal of illegal electricity "mining" enterprises. Illegal Bitcoin mining business refers to all businesses that use electricity without being registered as a licensed business entity with the government or without a formal contract with a utility company.

On July 20, a government document suspected to be from Bayannur City, Inner Mongolia, was circulated online. Screenshots showed that the document was issued on July 13 and conducted a centralized inspection of cloud computing, big data, and blockchain companies in the city, and found that a large number of companies were using blockchain and other technologies as an excuse to mine Bitcoin.

For mining farms, the more the price of coins falls, the more they need to find cheaper electricity to mine in order to ensure sufficient costs. Under the current situation, it is difficult to find cheap electricity sources in China, so they can only look for new opportunities overseas. Many teams have begun to target emerging market countries such as Southeast Asia, or regions with excess natural resources, such as Canada and Russia.

With high costs, low returns and long cycles, mining can no longer provide miners with the huge profits they once did, and many mine owners have begun to reflect on their business models. However, if they withdraw from the market due to low returns, they will not be able to recover the funds they have invested, and many small mines have already left the market.

This provides a good opportunity for large miners to stabilize the market. According to Bitmex research, miners may have accepted the fact that short-term profits have declined. Mining machine heads such as Bitmain did not show resistance during the downturn. "The bear market is more conducive to eliminating the weak and consolidating their position."