Recently, various reports have been suggesting that China’s crackdown on cryptocurrencies will extend to mining, as state-run Sichuan Electric Power Corporation reportedly distributed a circular ordering grid-connected hydropower stations to stop supplying low-cost electricity to bitcoin mining operations. As reported by CCN, the report has been debunked as the company admitted it made several mistakes, including using unverified claims, on its circular.
Later on, state-owned news publication Caixin revealed that the government didn’t plan on banning bitcoin mining or any activity surrounding cryptocurrency mining yet. Nevertheless, a recent report by the South China Morning Post (SCMP) reveals that the country’s bitcoin miners are considering moving their operations overseas to make sure they can stay in business.
China’s crackdown on cryptocurrency started earlier this year, as regulators made it illegal to conduct and participate in initial coin offerings (ICOs), and then forced cryptocurrency exchanges to shut their doors. This now led Chinese miners to take precautions.
China has become the undisputed leader in bitcoin mining. As it became more competitive, few ordinary bitcoin users managed to make a profit, and hashpower was then pooled in large farms centralized in regions that offer its operators competitive advantages such as cheap labor and low-cost electricity. The country is now home to various large bitcoin mining operations, but that may soon change.
The South China Morning Post spoke to a cryptocurrency miner, Cui, 43, who’s preparing for the possibility of having to move his operation overseas. He stated:
“Many of us have already paid visit to Vietnam, Laos, Thailand, Russia and the US, negotiating electricity prices with local authorities and buying sites for future use (…) The business blueprint is bound to go overseas, even if there’s only a 1 per cent possibility that China’s crackdown against bitcoin would extend to mining.”
Cui further revealed that if regulators do outlaw cryptocurrency mining, it will take miners “about three months” to resume their operations overseas. According to him, money spend buying property is small when compared to the whole business.
Bitcoin Mining: A Profitable Business
The South China Morning Post revealed that it approached three other bitcoin mining organizations, but that they declined to do interviews with them citing fears over regulatory uncertainty and scrutiny into deals they struck with local energy companies. The publication added that bribery is common in the industry, and that thermal power can “hide” its output before transferring it onto the national power network.
Commenting on the business’ practices, Cui said that no other bitcoin miners brag about it, because “it’s best to make a fortune in silence.” In China, thermal power can be as low as 0.27 yuan ($0.04) per kilowatt hour, while hydropower can go for 0.15 to 0.25 yuan ($0.02 to $0.04) per kilowatt hour depending on various factors.
Cui, a native of Beijing, further revealed that he started mining bitcoin in 2013 with an initial investment of 5 to 6 million yuan (roughly $800,000), and that over time he has expanded his operation to over 100,000 mining machines, claiming 90 percent belong to friends and clients.
The cryptocurrency miner declined to reveal his profit margin, but did point out he could earn about 100 yuan ($15) per day from each machine, provided he has a reliable source of electricity that allows him to avoid the losses of having machines down without power.
Nevertheless, Cui is in favor of the moves that led to the shutdown of exchanges, as to him these are centralized institutions that go against the nature of cryptocurrencies, and that traders are increasingly dependent on them, whereas they used to exchange between themselves. Moreover, Cui is worried about China’s influence on bitcoin:
“It is important for bitcoin to [reduce its dependence on] China so it can become stronger, as was already proven in its latest price surge.”