To grab the last 4.2 million bitcoins, domestic bitcoin mining companies are looking abroad

In recent years, Li Jiacheng, a young businessman from Fujian, has been doing business in Myanmar, Africa and other places. As the price of Bitcoin skyrocketed, a new project came into his sight: Myanmar has a hydropower station near the Yunnan border with cheap electricity, which can be used for Bitcoin mining.

Li Jiacheng told the reporter from China Business News that one of his important tasks recently is to contact Bitcoin mines across China, hoping to cooperate with them to mine Bitcoin in Myanmar, where there is no supervision, the electricity price is only around 30 cents, and the mining plant can be built directly next to the hydropower station.

According to an interview with Yicai Global, several mines in Inner Mongolia were cut off from power a week ago, which indicates that the domestic regulation of Bitcoin mining is tightening. The situation has forced mine owners to find other ways out. There are Chinese mine owners in Malaysia, Kyrgyzstan, Belarus, Canada, and Iceland.

Bitcoin mining requires a large amount of electricity to support computer operations, and China currently produces 70% to 80% of the world's mining machines and has the largest computing power (mining capacity) in the world. Wherever the electricity price is cheap, Bitcoin mining capacity will flow there.

Regulation squeezes out capacity

"My mine has been without power for five or six days." The head of a large mine in Inner Mongolia who did not want to be named told the First Financial 1℃ reporter.

The person in charge handed over to the reporter a red-headed document from the local Economic and Information Commission, dated December 28, 2017, which required adjustments to multilateral electricity transactions within the jurisdiction, re-identification of cloud computing and big data users, and suspension of electricity transactions before the identification was completed. The list of companies attached to the document included mining giants such as "Bitmain" and "BitCloud Valley". The mine owners in Sichuan, Shandong and other places interviewed by the reporter of Yicai Global 1℃ all said that they are still operating normally.

Since 2017, China has tightened its regulation of Bitcoin, from prohibiting Bitcoin online transactions to gradually extending to the mining field. At the beginning of 2018, a document led by the Leading Group of the Internet Financial Risk Special Rectification Office was issued to local financial offices. This document mentioned that it was necessary to actively guide enterprises under its jurisdiction to withdraw from the "mining" business, and required local governments to compile statistics on the relevant information of "mining" enterprises, including basic information of enterprises, revenue, preferential treatment, etc. Since then, some provinces have begun to tighten their supervision of Bitcoin mines.

Bitcoin mining farms have, to a certain extent, solved the problem of oversupply of electricity that plagued provinces such as Sichuan and Yunnan (during the flood season), and became an ideal target for attracting investment in areas with excess electricity. Large-scale mining farm projects are mostly implemented in the name of "cloud computing centers."

"We can basically no longer operate in China. At present, there are two options: the stopgap measure is to find a state-owned enterprise somewhere to use as a shell company, and the other option is to go abroad." A mine owner in Chengdu told the 1℃ reporter of China Business Network.

Mining farms chase electricity prices

Regulation and electricity prices are two core elements of the Bitcoin mining industry.

Due to the extremely complex cryptographic system of Bitcoin, the amount of electricity required to mine a Bitcoin is staggering, and electricity consumption has become the biggest cost of mining Bitcoin. According to statistics, by the end of 2017, the global demand for electricity for Bitcoin mining had risen to 20.5 terawatt hours, which is equivalent to 0.13% of the world's total electricity consumption. Although it may not sound like a lot, this number has exceeded the annual electricity consumption of 159 countries.

Bitcoin miners in China control the vast majority of Bitcoin mining computing power. Today, large mining farms are looking for cheap electricity resources around the world. Following the ICO "going overseas" wave set off by the regulatory crackdown in 2017, another round of Bitcoin mining companies are preparing to "go overseas".

A Wuhan mining operator told the First Financial 1℃ reporter that the company has found a backup power supply in Malaysia, and if the supervision of domestic mining farms is tightened, the production capacity can be transferred out.
A mining farm operator registered in Anhui told 1℃ reporters that they have already negotiated cooperation with the Kyrgyzstan power grid and the mine is under construction.

"The mining machines are all sent to Xinjiang, and we will have a logistics company send them to Kyrgyzstan by rail. The electricity price there is very cheap, only 30 cents (per kilowatt-hour). In China, unless it is a large-scale mining farm, where can you find such cheap electricity? The mining data is visible in real time. Anyway, you don't have to worry about anything, everything will be done for you." The person said.

Another mining farm operator said that they have finalized resources in Belarus. "The current electricity price of the Belarusian government is RMB 0.6, and the price we can negotiate with the government is about RMB 0.36. Belarus is a government that recognizes, supports and recognizes cryptocurrency and ICO mining farms. The local government promises to tax exemption for 5 years. After we build the factory, we can go through the procedures for Chinese enterprises to enter Belarus with the Belarusian government." This is what the operator said in the introduction sent to the reporter of Yicai 1℃.

Earlier, media reported that the head of Bitmain, China's largest Bitcoin mining farm, said that the company is setting up a regional headquarters in Singapore and conducting mining operations in the United States and Canada. In addition, the third largest mining farm, BTC.Top, is opening a branch in Canada, and the fourth-ranked ViaBTC has also set up operations in Iceland and the United States.

The final battle

Since the beginning of 2018, the price of Bitcoin has turned sluggish. According to the trading platform Bitstamp, Bitcoin fell by more than 7% during the trading session on February 1. In January this year, the price of Bitcoin fell by 23.6%, and the total market value evaporated by $60 billion. Is mining still profitable?

This depends not only on the price of Bitcoin, but also on the intensity of the arms race. After all, the computing power of the world is still increasing crazily, but there is not much Bitcoin left.

On January 3, 2018, Bitcoin officially celebrated its ninth anniversary. Nine years ago, on January 3, 2009, the "Genesis Block" was born in the Bitcoin blockchain network, known as "Block #0", the original block.

Nine years later, 80% of the total supply of 21 million bitcoins originally set by Bitcoin founder Satoshi Nakamoto in the 2008 white paper has been mined. More than 16.8 million bitcoins have been mined by bitcoin "miners" around the world and put into circulation.

Now, the computing power of the whole world is in the final competition to grab the last 20%, or 4.2 million bitcoins.

The difficulty of mining will increase accordingly. In 2009, the reward given to miners for the "Genesis Block" was 50 bitcoins; today, the reward for miners who mine a new block has dropped to 12.5 bitcoins. As more and more people start mining, it becomes increasingly difficult to get bitcoins. In the Bitcoin network protocol designed by Satoshi Nakamoto, it is required that the "mining" reward be reduced by half for every 210,000 blocks (1% of the total supply) "mined". According to the current global computing power, it is estimated that by June 2020, this "halving" will happen again, when the reward given per block will be reduced to 6.25 bitcoins.

The competition is only getting more intense. In the production areas of Bitcoin mining machines such as Shenzhen Huaqiangbei, buyers from all over the world are still enthusiastic, and the mining machines are almost in short supply, which means that the computing power in the world is still increasing. For miners, this may be the last feast of Bitcoin mining, but it may also be a Waterloo.