China’s Inner Mongolia, once a hotbed of bitcoin mining, is now planning to ban all cryptocurrency mining farms and has asked them to shut down operations by the end of next month, forcing miners to move their equipment elsewhere in China or even overseas.
The provincial government of Inner Mongolia says it needs to end crypto mining to achieve new carbon-reduction goals set by the national government. Unlike other regions in China that can provide an abundance of clean hydroelectricity for powering crypto mining machines, Inner Mongolia’s crypto farms are run on coal-powered electricity.
An autonomous region in the Northern part of China, Inner Mongolia has a cold and dry climate that is ideal for operating mining machines. The region is also rich in coal, which provides a relatively cheap source of electricity for cryptocurrency miners, but its coal-burning power plants are also a significant source of air pollution.
Inner Mongolia: a major bitcoin-producing region
China is the world’s largest producer of bitcoin and many other cryptocurrencies. From September 2019 to April 2020, China produced 71.7% and Inner Mongolia 7.71% of the world’s hashrate for bitcoin, according to the Cambridge Centre for Alternative Finance. In comparison, the bitcoin computing power generated by all of the United States was only 5.29% over that same period.
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But starting in May, Inner Mongolia will not be an option for cryptocurrency miners anymore. Its Development and Reform Commission recently posted a draft plan to “shut down all cryptocurrency mining projects” and ask them to leave by the end of April. In addition, “new cryptocurrency mining projects are strictly prohibited.”
In China, draft plans put forth by the government typically serve as notice or warning. There is a public comment period, but it’s typically a routine procedure that doesn’t lead to many changes. Draft plans are then usually later carried out in actions.
Crypto miners fleeing
The reverberations within China’s cryptocurrency mining communities were immediate.
Weminer, a Beijing-based cloud mining service provider that provides hashrate leasing and selling services, posted on Weibo, China’s Twitter-like microblog, that Inner Mongolia’s new mining ban is causing them to suspend several phases of their cloud mining projects as those machines are located in Inner Mongolia, and they now have to stop issuing profits that those customers made by lending or purchasing part of the hashrate.
Separately, cryptocurrency farms in Inner Mongolia have also already begun transferring their mining rigs to set up farms in other locations, such as the Sichuan province, according to local media.
But others say they already saw the handwriting on Inner Mongolia’s proverbial wall and have adjusted their mining activities accordingly.
There was a time when coal-burning electricity in Inner Mongolia was subsidized by the regional government. But starting in September 2019, Inner Mongolia started to scrutinize the crypto mining companies located there and warned that the government would shut them down if they were not “qualified” — which meant firms under government supervision with “rational” levels of energy consumption. In August last year, Inner Mongolia announced that 21 out of 30 crypto farms in the region were not qualified, and canceled their preferential electricity prices for the “unqualified” crypto farms. The government also encouraged crypto farms “to orderly exit” or “transform to state-supported cloud computing firms.”
“This incident had little effect on us,” said Jiang Zhuoer, the CEO of BTC.TOP, one of China’s major mining pools, told Forkast.News. “We took into account the uncertainties in Inner Mongolia, so there are [now] only a few mining machines in Inner Mongolia and most of them are in the more stable mines in Xinjiang.”
Why ban crypto mining
Jiang, whose crypto mining company has been in the business for seven years, says he believes the new policy may be part of yet another “regional and seasonal shutdown” that would happen periodically with cryptocurrency farms in that area.
“The underlying reason is the winter power shortage in northern China,” Jiang said. As Inner Mongolia is close to Beijing, every winter when electricity usage intensifies, mining farms are often the first ones to be shut down to help ensure a stable power supply to the region, especially in the nation’s capital. “It’s Inner Mongolia policy to basically shut down crypto mining farms every year,” Jiang added.
However, this time the shutdown may be permanent.
In the 2019 United Nations general assembly, President Xi Jinping pledged that China would halt the rise in its carbon emissions by 2030, and achieve carbon neutrality in 2060. Controlling energy consumption and gradually achieving carbon neutrality is an important goal that has been written into China’s 14th Five Year Plan draft, a crucial guiding document for the country’s future social development and economic growth. The plan is revised every five years, and the latest version is for 2021 to 2025.
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In terms of helping China meet its goals of reducing carbon emissions, Inner Mongolia has not had a good track record. It failed to meet China’s energy-saving target in 2019. The central government criticized Inner Mongolia for its “serious problems with energy conservation,” according to People’s Daily, a mouthpiece of China’s Communist Party.
This time, Inner Mongolia’s draft plan to “constrain growth in energy consumption” was published right before the national “two sessions” or Lianghui, the most important meetings to make national-level political decisions before the National People’s Congress passes the final version of the 14th Five Year Plan. Many industry watchers believe the determination of Inner Mongolia to close down its mining industry was not only to please but may also reflect pressures from authorities higher than the provincial government.
Crypto mining migration
With the end of April deadline now ticking, what could the mining farms in Inner Mongolia do?
According to Wu Blockchain, a blogger who often publishes news and scoops on China’s blockchain and cryptocurrency industry, some miners have started to transfer their mining rigs to Sichuan and Yunnan provinces, which have inexpensive and abundant hydropower. But hydropower is also energy that gets wasted if not used — especially during the rainy season.
One disadvantage of hydropower is the volatility of electricity prices, which can fluctuate depending on changes in weather. Though hydroelectricity is abundant and cheap during the rainy season, prices can go up if there is power scarcity during dry spells.
Sometimes, the rainfall that produces hydropower can be too much. Every year, some years worse than others, some mining farms in the Sichuan province get damaged or even wiped out after torrential rains that lead to flooding.
See related article: Opinion | Cloud Mining: An Alternative Investment Vehicle for Bitcoin Exposure
Yet another option that Chinese bitcoin miners are pursuing is moving their mining operations out of China altogether, according to National Business Daily, a Chinese financial and economic daily newspaper.
Chinese bitcoin miners chasing lower electricity costs and looser regulations have already moved some operations to Russia, Belarus, Kazakhstan, Iran, Malaysia, Myanmar and even Iceland, according to a Forkast.News check of the websites of several major Chinese mining pools that list mining farms locations.
The perception that there is an influx of Chinese bitcoin mining migrants now working overseas recently rocked Iran, which has suffered from power shortages, a surge in smog and blackouts earlier this year.
Regardless of whether Iran’s air pollution and power outages were really caused by a surge in Chinese-owned bitcoin mining, many people in Iran blamed Chinese mining farms and posted anti-Chinese comments on social media. As a result, the Iranian government halted its supply of electricity to all cryptocurrency mining farms for two weeks, to cool down the outrage.
“Even though the electricity prices are cheap, the infrastructure [of crypto mining] including the mining machines, the accessories needed and logistics are still not as sufficient as in China,” Jiang said. “And being overseas could encounter policy risk as well.”