Is Bitcoin mining illegal? The power company responded: The statement is wrong

Observer: Is Bitcoin production illegal? Why did the power company suddenly issue such a notice? Can mining continue in the future? See the response obtained by Caixin reporters from the head of the power company.

On August 12, 2016, in Kongyu Township, Ganzi, Sichuan, Guo Hua (transliteration), manager of the Bitcoin "mine", was checking the "mining" equipment. Photo/Visual China

Caixin reporter Wu Yujian/Text

Since the regulatory requirements for closing Bitcoin exchanges were issued in September, major exchanges have stopped domestic trading operations and chosen to go overseas. Although regulators have previously made it clear that it only targets Bitcoin transactions, not Bitcoin itself, mining professionals who produce Bitcoin at the upstream of the Bitcoin industry chain still have their own concerns. On November 14, an "Emergency Notice on Prohibiting Bitcoin Production" circulated in the cryptocurrency circle and on the Internet, causing a stir in the cryptocurrency circle again.

The document shows that the Danba County Power Supply Branch of the State Grid Sichuan Ganzi Prefecture Electric Power Co., Ltd. notified all small hydropower stations connected to the grid that "Bitcoin production is an illegal operation, and all grid-connected power stations are also engaged in illegal power supply operations", requiring them to "completely stop Bitcoin production" from the date of receipt of the notice. For grid-connected power stations that continue to illegally transfer power, they will be "punished by disconnecting the grid."

The above picture is a notice from a Sichuan power company that circulated online on November 14.

Is Bitcoin production an illegal operation? Why did the power company suddenly issue such a notice? Can mining continue in the future? With such questions, Caixin reporters called the person in charge of the Danba County Power Supply Branch, who said: The notice is true, but the statement is wrong. It was hastily written by the company department when dealing with large-scale power restriction issues, rather than an official red-headed document of the company. The original intention was not to say that Bitcoin mining is an illegal operation, but because some small hydropower stations failed to give priority to meeting the local people's livelihood electricity needs, violating the requirements of the power purchase and sales contract with the company.

"Our power department is just a business unit, not a national administrative agency, and we have no right to determine whether Bitcoin production is illegal. There may be a lot of ambiguity in the wording of the document," the official told Caixin reporters.

"Mining" refers to the process of producing Bitcoin, that is, using the computing power of the chip to perform hash collisions to obtain Bitcoins rewarded by the system. The days when Bitcoins could be mined using a single computer are gone. Currently, it is mainly produced by combining multiple mining machines and mining farms into mining pools. With abundant and cheap electricity resources, China has long been a major Bitcoin producer, and mining farms are mostly concentrated in areas rich in hydropower and wind power resources such as Sichuan, Tibet, and Inner Mongolia.

The person in charge said that the Danba County Power Supply Branch has not yet been connected to the Internet and can only rely on local small hydropower for power supply. At present, the branch has access to power from 9 small hydropower stations, 6 of which are also supplying power to Bitcoin mines. However, Danba enters the dry season in winter every year, resulting in insufficient power supply. "In order to ensure electricity consumption, power is restricted at night, and a large number of rural areas are shut down. There are many customer complaints, and some departments are anxious. This notice was made in a hurry."

Two days after the notice was issued, on November 15, the Danba County Power Supply Branch convened a meeting with all small hydropower stations. First, it gave a brief explanation of the tight electricity supply in Danba County in winter; second, it required all shared power stations to fulfill the grid connection agreement, give priority to supplying electricity to the county power grid to ensure local people's livelihood electricity needs, and not illegally transfer electricity to other places, otherwise it would constitute a breach of contract.

"We reached an agreement with the grid-connected power company on the spot. They stated that they would prioritize electricity for people's livelihood during the winter dry season. The matter was corrected the next day," said the aforementioned person in charge.

But it is worth mentioning that, strictly speaking, the aforementioned six small hydropower stations do not have the qualifications to provide electricity to the mines. It is understood that power stations need to obtain corresponding qualifications to generate and supply electricity, and the six small hydropower stations do not have power supply business licenses, so they can only generate electricity but not sell electricity. However, this requirement has not been strictly enforced, because Danba County has abundant electricity during the flood season, and there is no network connection, so "the county power station can't accept so much." This is also a common phenomenon in domestic mines. Although the mining machines consume a lot of electricity when they run at high speed all year round, most of the electricity used is "abandoned water and abandoned electricity", that is, a large amount of surplus electricity.

"Because only abandoned water and electricity can be cheap, and Bitcoin mines do not have such high requirements for the quality of electricity." A person who owns a Bitcoin mine in Danba County told Caixin reporters that the electricity cost of Bitcoin mining is about 0.3 yuan/kWh. The person in charge of the aforementioned power company said that the sales price of the local small power station in Danba County to the power company is 0.18 yuan/kWh. Usually, when the mine enters the dry season in Sichuan, some of them will move to Inner Mongolia to choose thermal power generation. At present, the average cost of mining a Bitcoin is less than 20,000 yuan, of which 15,000 yuan is the electricity cost.

Previously, Caixin had verified whether China could continue to "mine". At that time, people close to the regulators said that there was no plan to ban mining (see Caixin.com "Bitcoin price hits a new high, what are the currency circles still worried about"). However, according to Caixin reporters, some mining professionals also have the idea of ​​going overseas, and their destinations include Russia, Japan, Mongolia and Southeast Asia. According to Russian News Agency, Yuri Pripachkin, chairman of the Russian Blockchain Virtual Currency and Blockchain Alliance (RACIB), said last week that he had received 40 applications from companies and individual investors in EU countries and China, hoping to open mines in Russia. The aforementioned mining person told Caixin reporters that he was one of the 40 applicants. At present, Russia mainly generates electricity through hydropower, and its electricity cost is only 7 or 8 cents per kilowatt-hour. ■