China’s crypto miners make hard choices to meet climate goals

With Inner Mongolia banning crypto-mining and Xinjiang expected to soon follow, China’s crypto miners are turning to green energy or moving overseas.

Once a popular crypto-mining hotspot in China, Inner Mongolia has issued a crypto-mining ban that will take effect tomorrow, leaving crypto miners just one more day to comply with the order to shut down their business or move all their mining rigs out of the province.

Inner Mongolia’s ban is just one of many actions supporting Beijing’s directive to suppress the country’s crypto-mining activities, which is regarded as a highly polluting but low-return industry in regions like Inner Mongolia, where the mining is run on coal-powered electricity. Inner Mongolia’s crypto-mining ban is being enacted to help China achieve its ambitious goals to achieve carbon-neutrality by 2060.

Facing stricter regulations, China’s crypto miners, who represent 65% of the global hash rate, are seeking alternatives. Some of them are now attempting to use green energy, others are leaving the country altogether.

China’s crypto-mining hotspots

Until recently crypto-mining in China was clustered primarily in four provinces: Inner Mongolia, Xinjiang, Yunnan and Sichuan. According to the Cambridge Centre for Alternative Finance, the four provinces together represented over half of the global computing hash rate from September 2019 to April 2020.

Within the past two months, however, miners in two of the provinces have faced severe setbacks.

Inner Mongolia was once a crypto-mining-friendly region, where the regional government subsidized coal-burning electricity until 2019. The recent Development and Reform Commission ban, however, will sweep out all the crypto-mining projects in the autonomous region by the end of this month, and new cryptocurrency mining projects are strictly prohibited.

Coal-abundant Xinjiang, meanwhile, suffered a flooding accident in a local coal mine on April 10. Xinjiang imposed a week-long blackout to conduct a comprehensive circuit inspection. This led to a 46% drop in Bitcoin’s mean hash rate on the first day of the blackout, as few crypto miners had time to react.

“During the dry season, many BTC.top and B.TOP (a subsidiary of BTC.top) mining rigs are located in Xinjiang,” said Jiang Zhuoer, CEO of BTC.top, one of the main mining pools in China.

“This incident forced us to shut down mining rigs for a week which led to a 2,000 pillion hash-per-second decrease,” Jiang said. Using today’s Bitcoin price, BTC.top lost about US$5.9 million during the blackout.

“Before the blackout, we could mine 25 Bitcoin each day, but during the blackout, only about 9.375 Bitcoin a day,” Jiang said. BTC.top, he added, lost Ethereum mining revenue as well.

Bitdeer was luckier. The one-stop crypto cloud-mining service platform does have mining rigs in Xinjiang, but since they were not in Xinjiang’s circuit-inspection area, they were not affected by the blackout.

“This accident had nothing to do with crypto-mining, but this, alongside Inner Mongolia’s crypto ban, has caused quite a stir in China’s crypto-mining community,” Wang Wenguang, head of Bitdeer’s mining data center, told Forkast.News.

Bitdeer was spun off from Bitmain, a top mining rig manufacturer, after a power struggle between Bitmain’s two co-founders, Jihan Wu and Micree Zhan ended in a truce. Wu left Bitmain and is now CEO of Bitdeer.

China’s ambitious goal to be ‘carbon-neutral’

Carbon neutrality, once just academic jargon in China, has recently become a catchphrase.

President Xi Jinping pledged at the 2019 U.N. General Assembly that China would halt the rise in its carbon emissions by 2030 and achieve carbon neutrality in 2060.

It’s an aggressive goal. According to environmental NGO Greenpeace, about 60% of Chinese electricity originates from coal-burning, and electricity consumption is still growing in the world’s largest developing country.

To demonstrate its commitment, China has written “control energy consumption and achieve carbon neutrality” into its 14th Five Year Plan, published in February, a crucial guiding document for the nation’s future social development and economic growth. Provincial and municipal governments must provide detailed action plans to achieve the Parliament’s master plan.

A recent study written by academics from Chinese elite universities, Cornell University and the University of Surrey, however, warned that without appropriate interventions and feasible policies, the crypto-mining industry might quickly become a threat to the achievement of China’s climate goal.

At the current rate of growth, the study found the annual energy emission generated from Bitcoin mining in 2024 would exceed the total annualized greenhouse gas emission output of the Czech Republic and Qatar.

China’s crypto-mining community has received the official message, loud and clear. Some believe the government’s efforts will fundamentally reshape China’s crypto-mining landscape.

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“Carbon neutrality is indeed a significant policy factor, and in the short term, as you’ve already seen, it’s mainly impacted Inner Mongolia,” Wang said. “After the crypto ban in Inner Mongolia, no large-scale crypto-mining firms will be there anymore.”

“Even though Xinjiang has not been affected by carbon neutrality currently, I believe, as this policy continues to push, Xinjiang will certainly face the same problem as Inner Mongolia,” Wang added.

Green energy for crypto-mining

The question now is, what can China’s crypto miners do next?

“The policy will lead to good results, as it will let the Bitcoin miner use renewable energy to reduce carbon emissions,” Arthur Lee, founder of SAI, a clean energy technology company, told Forkast.News.

China has abundant hydropower resources in Sichuan and Yunnan provinces. Every summer, Bitcoin miners emigrate to Sichuan and Yunnan, with their mining equipment in tow, during the wet season to take advantage of the abundant and cheap electricity.

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“In the south of China, there is so much hydropower, but they can’t find many users, so we can use Bitcoin mining to solve the (wasted) clean energy consumption problem,” Lee said.

Jiang also sees the potential of hydropower. Ahead of the wet season beginning around May, BTC.top is relocating its mining rigs. “At present, mining income [from South China] is very considerable,” Jiang said.

Another green strategy is the so-called liquid cooling technique that uses liquid rather than fans to cool the mining rigs. The heat transmitted from the rigs to the liquid then can be reused for public heating demands or to produce green electricity. Ideally, this will replace part of the heating and electricity generated by thermal power.

“We are using Bitcoin mining devices to provide green heating to the world and to reduce the carbon emissions from (non-renewable) heating and electricity,” said Lee, whose company employs the liquid cooling technique.

If total electricity consumption in China were the sea, green electricity generated from the mining community would measure just a drop.

Crypto-mining exodus

Sichuan’s hydropower resources are not a long-term solution for Bitdeer, Wong said. Uncertainty is a huge concern. After the wet season, mining firms have to move somewhere else or use other local energy sources, primarily coal, and relocating the rigs might cause the equipment to depreciate. Also, moving rigs means having to halt the operation for a while.

See related article: China tightens cryptocurrency oversight with new regulations

“As we are in a bull market, compared to profits for cheaper electricity fees, we focus more on stability,” said Wang.

Bitdeer’s strategy is to move its mining rigs out of China and expand its operations overseas.

As a long-term strategy, Bitdeer plans to move out of China gradually. Many other countries welcome crypto-mining and have more mature regulations and policies on crypto-mining. “Some foreign peers heard about the news about Inner Mongolia, have invited us to cooperate with them to build an overseas crypto-mining market together,” Wang added.

But, moving out of China is not a panacea.

Operating mining farms overseas means conforming to local laws and regulations.

“Miners have to accept the cost to gain compliance in other countries,” Wang said. He estimated that building the required infrastructure and paying local taxes will initially cost dearly. “The cost might not be a small number for some domestic miners, but they have to accept it (if they want to go overseas).”

Every location overseas has its own inherent issues. For example, even though the Iran government embraces the crypto-mining industry, Iran may not be viewed as an option for some crypto miners because of its perceived anti-China sentiments. “[Crypto miners] should choose places with law and order where they can mine in a stable condition,” Wang said. “Ideally where laws and policies are transparent and there is a community that is friendly to bitcoin mining.”

Bitdeer currently has a 50-megawatt crypto-mining farm and a 300-megawatt farm under construction, both in Norway, plus a 200-megawatt farm in the U.S.

For now, Jiang said BTC.top is remaining in China. Carbon neutrality is unfavorable to the mining industry in the long run. But the 2060 carbon-neutral goal is still far away, and how local cities and provinces execute Beijing’s policies remains somewhat flexible.

BTC.top will move some of its mining rigs from Xinjiang to Sichuan and Yunnan. Jiang just doesn’t know how many, yet.

“I still need to wait and see the subsequent performance of the cryptocurrency price,” Jiang said.