Cryptocurrency miners have been making millions in digital currency from China's excess energy. Now, a government crackdown could end the gold rush
r Gao tells me, “Just because something is not illegal in China, doesn’t make it legal.” He takes a slight pause, a short breath, before leaning emphasis on the final word. Mr Gao is a bitcoin miner, with a few thousand mining rigs of his own, and facilities that he leases out to others. At present he has the capacity for 110,000 new machines, in sites spread throughout China’s sprawling western provinces, Sichuan and Yunnan, and also in the north, in Xinjiang and Mongolia. In other words, despite the precipitous fall in bitcoin’s price over the last 18 months, Mr Gao has been planning to expand.
China has 70 per cent of the world’s crypto-mining capacity, and over 70 per cent of that capacity is nestled in the mountains of Sichuan, where abundant hydroelectric power makes the price per kilowatt some of the cheapest anywhere in the world. But the very existence of this crypto gold rush is under threat. Mining bosses in China are making their millions in a legal grey area – and a new directive issued last week by the The National Development and Reform Commission (NDRC) hints that cryptocurrency mining may soon be outlawed altogether. For those at the top of China's crypto economy – including the mining moguls I spoke to – this is a clarion call to mine as much money as they can before it is too late.
Miners secure the network for a cryptocurrency, maintaining its infrastructure – its blockchain – by solving a series of complex computational problems necessary to string together transactions in clusters, or “blocks”, which constitute the “chain”. This is what makes cryptocurrencies comparatively decentralised and also theoretically impossible to hack. For their algorithmic chiseling, miners are rewarded with cryptocurrency coins....MUCH MORE
In order to keep the rate of coins entering the market steady, the mining process has been designed to grow more difficult and electricity-consuming as the overall computational capacity devoted to mining increases. Therefore, already a few years after Bitcoin’s launch in 2009, mining operations started moving out of bedrooms and desktop computers running small processing units, to giant warehouse facilities with tens of thousands of machines, elaborate cooling units to stop them overheating, teams of engineers working around the clock to make sure none of the mining rigs go offline, and management teams working on logistics and smoothing the relationships with local power suppliers.
The tumultuous price of bitcoin – which hit $20,000 in December of 2017 before plummeting to $3,399 in February 2019 and since then stabilising around $4,000-$5,000 – doesn’t overly affect miners’ business; as long as the price per-bitcoin doesn’t fall beneath their costs, and they believe that the general trend is for bitcoin to increase in value in the long run (and not drop to zero as some speculate), their income remains steady.
Globally, according to research by JPMorgan Chase, “the production-weighted cash cost to create one bitcoin averaged around $4,060 globally in the fourth quarter” of 2018, meaning that as bitcoin’s price hovered around the $4,000 mark in recent months it looked as if bitcoin might fall to a point where it became financially unfeasible to continue to mine for it. Except, that is, in China, where the abundance of cheap power enables miners to keep the cost-per-coin at roughly $2,400....
