The Washington Post: Magical Bitcoin Mining Finds a New Home in Tibet

A Bitcoin mine is built next to a hydroelectric power station in the mountains on the edge of the Qinghai-Tibet Plateau (Paul Ratje/The Washington Post)
Deep in the mountains of western China’s Qinghai-Tibet Plateau, thousands of bitcoin mining machines are lined up in a tin factory, emitting a constant stream of noise and heat.

Outside the computer room, there are blue skies and white clouds, and green mountains are stacked up. Outside the computer room, a group of goats are leisurely passing by a pile of discarded foam packaging. Walking into the computer room, the tranquility outside is instantly transformed into the roar of machines. Various red, blue, and green small lights on the machines are constantly flashing, and cooling water used to dissipate heat flows down the copper mesh walls. Large ventilation fans work hard to discharge the hot air produced by a large number of Bitcoin mining machines out of the computer room.

This is a Bitcoin mine in the mountains of western China, the world's leading digital currency computer room. The centralized computing equipment here provides computing power to the world's Bitcoin network, which is used to record Bitcoin transactions and support the operation of the world's Bitcoin network. These machines earn Bitcoin rewards while solving complex mathematical calculation problems: this produces new Bitcoins into circulation. In order to obtain the rewarded Bitcoins, more and more people are investing in the Bitcoin mining industry.

The original intention of Bitcoin was to create a decentralized currency outside of government control, a utopian liberal ideal. This decentralized currency issuance tool can not only facilitate Bitcoin transactions around the world, but also meet the needs of those who have lost confidence in the global monetary system. The programmer who invented this technology remains a mystery.

There are many mines in Tibet, some of which are even gold mines. But here this digital currency mine is virtual, and it can be built here, on the one hand because of the cheap hydropower here, and on the other hand because of the unique cooperation between Chinese entrepreneurs.

For a while, Bitcoin was also used by drug dealers as a means of payment for the Silk Road, an online underground black market for drug trading that was closed down by the FBI in 2014.

Today, the Bitcoin industry has begun to mature, and the focus of the entire industry has begun to shift to China, moving away from the original geeks' dreams of freedom and beginning to be controlled by venture capital companies.

"When Bitcoin was invented, it was only some Internet geeks who accepted it at first," said Eric Mu, chief market operations officer at HaoBtc, which manages a Bitcoin mining farm in Sichuan Province in western China. "Now more and more bankers and lawyers are beginning to accept Bitcoin. Now the industry is changing."

What is Bitcoin?

Bitcoin payments can be made directly between the sender and the receiver without the need for an intermediary. Bitcoin payments can be made globally, and the fees are much lower than ordinary financial methods. Bitcoin's blockchain technology implements digital currency technology that avoids double payments.

The changes brought about by digital currency also affect China

Today, Chinese companies account for 70% of the world's Bitcoin computing power, Chinese factories produce the world's cheapest Bitcoin mining machines, and 70% of the world's Bitcoin transactions also take place in China.

The Bitcoin industry continues to expand, with more than 1.5 million bitcoins now in circulation: each worth about $615, with a total market value of $9.2 billion.

For some, it’s ironic that a technology once controlled by freedom-loving Internet geeks is now controlled by China. For others, the situation is a real threat, as Chinese miners disagree with bitcoin’s scaling proposals to increase transaction speed and capacity.

But these concerns are likely overblown.

“Some Westerners have generalized the definition of Chinese miners,” said Emin Gün Sirer, a professor of computer science at Cornell University in the United States. “Chinese bitcoin miners do not belong to the same company or collude with each other.”

(Guo Hua, a mine manager, inspects equipment at a mine in Sichuan, China. Paul Ratje/The Washington Post)
But Sirer also warned that the concentration of Bitcoin computing power in one country is also a risk.

If the Chinese government wants, in theory, it can seal up the miners' accounts and mining machines. If the Chinese government wants to seal up Bitcoin, although the government cannot directly confiscate Bitcoin assets, it can prevent the flow of Bitcoin. Being controlled by the government is the most unacceptable thing when Bitcoin was first designed, and it goes against the goal of Bitcoin's decentralization and freedom.

China’s previous “Great Firewall of the Internet” has allowed the world to see the Chinese government’s control, which allows China’s Internet market to be independent of the world and operate its own regulatory standards that are different from those of the Internet world.

Here, deep in the mountains of Sichuan, it’s hard to see any evidence that the Chinese have any conspiracy to take Bitcoin in a bad direction.

Currently, the Chinese government has not banned Bitcoin, but has only slightly implemented controls. In 2013, the government banned banks from directly participating in Bitcoin transactions, but individual transactions were allowed and mining was also possible.

China's Bitcoin industry includes investors and dreamers. The players are IT and electrical engineering practitioners. Among them is an investor, Xu Ruian, an Australian born in China, who loves Bitcoin and has become interested in the free economy. He works as an operator at a nuclear power plant. He thinks he is a venture capitalist with a utopian ideal. After dinner in Kangding, Sichuan, he said

"Governments around the world are constantly printing money to dilute personal finances. Such a financial system will experience a financial crisis every 5-10 years. Such a monetary system is already terminally ill and needs treatment."

He said he wasn't sure Bitcoin was necessarily the solution, but for now it seemed like a useful attempt.

Why does China occupy a major position in the Bitcoin industry?

Centralized operation of Bitcoin mining machines is very power-hungry, Bitcoin mining competition is fierce, and profit margins are not large: Xu's mining machines have been looking for cheap electricity all over the world, from Iceland to Georgia, then to Washington State, from Inner Mongolia in northern China, and now to the mountainous areas of Sichuan. Xu has searched many places.

(Thousands of Bitcoin mining machines are running, and the computing power they provide also supports the operation of the world's Bitcoin network)
Xu's newest mine is under construction, between a substation and a hydroelectric power station, between Kangding and Kongyu.

Chinese power companies invested in a large number of hydropower plants in western Sichuan, an expansion of the Chinese economy. When economic growth slowed, their electricity could no longer be sold smoothly to the national grid.

Eric Mu, HaoBTC’s chief operating officer, said: “These power stations cost a lot of money to build, and once they are built, they hardly require a lot of money to maintain, so these power stations are willing to sell electricity to those who are willing to buy it, even if the price is very low.”

Mu employed 10 people in three mines, and each of them received a monthly salary of 6,000 RMB, which is a very good income in the local area.

HaoBtc also has a new mining farm in Xinjiang that will house more than 11,000 machines and produce 80 bitcoins per day.

Chinese entrepreneurs aren’t the only ones participating in the bitcoin economy.

After being deprived of other good speculative opportunities and the poor stock market investment environment, ordinary Chinese citizens have also participated in Bitcoin investment in large numbers.

Bobby Lee is a Silicon Valley engineer, a partner of BTCC, and runs China's first Bitcoin exchange. Lee said that the main customers of casinos around the world are Chinese, and this phenomenon reflects the gambling instinct of the Chinese.

As Bitcoin continues to mature, it is also experiencing growing pains. On August 2 of this year, Bitfinex, a Hong Kong-based Bitcoin exchange, had to admit that 120,000 Bitcoins worth $72 million in their customer accounts were stolen by hackers. This news caused the global Bitcoin price to fall by 20%. This news once again reminded people that the security of digital currency is very important.

At the same time, there have been recent signs of overload on the Bitcoin network, which can process three transactions per second, which pales in comparison to Visa's ability to process 24,000 transactions per second.

The Bitcoin industry has split into two camps on this issue. One camp believes that expansion should be achieved to increase the transaction processing capacity of the Bitcoin network, while the other camp believes that the transaction congestion problem should be solved by increasing transaction fees as was done when Bitcoin was first designed.

Ryan Xu shows off part of his newest mine, which is still under construction. (Paul Ratje/The Washington Post)
Bitcoin core developer Jeff Garzik said: A new technical direction is under development that will allow the Bitcoin network to handle tens of thousands of transactions per second.

"I think as new technologies are developed and launched, the Bitcoin transaction network will be able to satisfy people all over the world who choose to pay with Bitcoin when buying coffee," he said. "Bitcoin can really replace the cash currency in your hands."

Shirer is not too worried about the concentration of Bitcoin computing power in China because the market is constantly changing and the rulers change every year.

“The dominance of this market can easily change because anyone can enter this market. If China’s computing power suddenly disappears, other competitors’ computing power will make up for it within 24 hours.”

In the Bitcoin mines in the mountains of Sichuan, miners often play mahjong, poker, smoke and play with their smartphones to pass their free time. Mine manager Guo Hua still likes to tinker with his camera. He used to run a camera repair shop. Marketing manager Wu, who is only here a few weeks a year, likes to read books in his free time at the mine or go to the nearest town to buy cigarettes for his roommate. He sometimes hikes to explore remote Tibetan villages in the mountains to breathe fresh air and wash away the dull Beijing smog in his chest.

At all times, the machines in the Bitcoin mines are running at a roaring pace.