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In Southwestern China, Sichuan province has long been considered the epicentre of Bitcoin mining operations worldwide. Every year, the onset of the spring season has been characterized by the arrival of hundreds of trucks stacked with computers headed to the hydro dam.

For many years, crypto miners have called this province ‘home,’ thanks to the availability of cheap power for Bitcoin mining operations. Bitcoin mining is a mysterious process used to accumulate large amounts of new Bitcoin coins using computer processing power to solve complex equations.

By the beginning of 2021, China was home to around 75% of the global Bitcoin mining operations. Its cheap electricity and established tech supply chains helped make it a favourite with entrepreneurs before hunting out miners came to being. Mining operations use tons of energy to power the computer processes contributing to major overheads for the miners.

As a result, crypto miners have continued to flock to Sichuan province during the summer season when rains are plentiful. It’s an area that always has an excess energy supply, and its far-flung location means it’s yet to get plugged into the country’s main power grid. The local administration has for years offered electric power to the miners for pennies.

Tang, a local administration official, says the cheap power helps attract jobs and cheap labour, which in turn boosts the local GDP. According to him, “The water is just going to flow away, so rather than waste it, we use it to contribute to China.” However, the central government in China seems to disagree with this statement.

Miners Hunting in China - The beginning

As May 2021 was coming to a close, the State Council in China indicated it would begin cracking down on Bitcoin and crypto mining. The move caused Bitcoin (BTC) prices to reduce by a whopping 30%, leading to a net value loss of close to $1trillion.

Liu He, the Chinese Vice Premier, informed government officials that the crackdown on crypto mining operations aimed to boost the country’s financial stability. Though this clampdown will target all crypto miners in the country, individual BTC traders and miners may eventually slide through the cracks.

Another firm, HashCow, which currently owns the largest Bitcoin mining farms globally, stated it would no longer sell mining machines to Chinese clients. It followed this with an invitation for interested buyers to purchase its mining rigs sold via social media platforms.

Jiang Zhuoer, the CEO of BTC.TOP, a firm that previously controlled 18% of the mining operations in China, also noted that his firm was suspending its China operations. He went as far as to indicate that this move by the State Council had forced his company to consider other alternatives, including North America.

Using his Weibo social media account, Jiang Zhuoer wrote, “It’s not worth running the regulatory risk.”

Bitcoin and Its Impact on the Environment

Industry insiders believe that the sudden miners hunting in China have largely been brought about by the CCP’s aversion to risk. CCP (Chinese Communist Party) controls everything in the country and doesn’t look positively at anything beyond its control. As such, Bitcoin’s speculative nature doesn’t help matters.

However, another issue that further compounds the new approach taken by the government is the impact that crypto mining has on the environment. President Xi Jinping has an ambitious plan, which, if successful, will see the country become carbon neutral by 2060. Allowing mining operations to continue would undermine this plan!

According to a study appearing in the scientific journal “Nature Communications,” China was expected to produce carbon emissions totalling 130 million metric tons by 2024. If the Bitcoin mining industry were equated to a single country, the industry would be ranked 29th when it comes to annual energy consumption.

The industry has traditionally used sustainable power sources during the summer seasons when there’s heavy rain. During winter, miners in China had no option but to look for other alternatives, as the season is primarily arid. Miners have often had to turn to coal as wind, and solar farms cannot produce enough energy to power mining operations.

Moreover, Bitcoin mining operations in China were largely considered a legal grey area before miners hunting in China began. But some believe that the operations in certain parts of China, e.g., in Ningxia province, are downright illegal. These are places where electric power meant for other uses has been siphoned to power Bitcoin mining.

The Concentration Problem

Initially, cryptocurrencies, and in large part, Bitcoin was launched to circumvent centralization. On the other hand, China has always employed a top-down regulation model that has enabled it to control a large chunk of the crypto mining industry. Before the mass miners hunting in China, the country didn’t allow banks to trade cryptocurrencies.

However, it had turned a blind eye to the mining operations. Many of these operations were conducted with the full support of the local administrations. Any new coins generated from these mining operations couldn’t be exchanged in the country, forcing individuals to consider international exchanges.

It’s an incompatibility that has become glaring with every passing day. Take, for instance, the hundreds of companies in Shanghai and Shenzen purporting to process data and AI, but which earn their money from crypto mining farms.

Some have diversified and invested in power plants located in far-flung areas. Such companies don’t need to use that much power to support AI functions and process big data.

Having Bitcoin mining operations concentrated in a single location or country can prove problematic for the entire system that supports the industry. It usually doesn’t take long before vulnerabilities begin to emerge. Remember that the core basis on which cryptocurrencies are based is that their transactions are publicly verifiable thanks to their transparency.

As such, when a single miner corrupts any block, others within the system can notice the inconsistency and correct their records. Therefore, the peer system helps in maintaining order, making it unnecessary to involve a central authority.

But consider a scenario where a government orders the miners within its borders to corrupt a ledger. It may trigger a Bitcoin fork or cause unwarranted uncertainty in the crypto industry if it goes unnoticed. Such a scenario underpins the reasons why no country in the world should have the majority of the crypto hash rate.

The recent decision by Beijing to institute hunting out miners policy ensures that this scenario doesn’t become a reality. Nonetheless, this decision by the Chinese government has caused unprecedented turmoil in other market segments, particularly the graphics cards segment. Since the crackdown went into effect, its prices have spiked by around 25%.

It’s a move that has affected the AI and gaming industries, which were reliant on this hardware.

What’s Next for Bitcoin Miners?

While the new policies in China have contributed to a slump in BTC prices, industry insiders believe that this is only a short-term issue. The prices will recover with time, but Bitcoin miners will no longer have to chase the spring rains in Sichuan province.

It’s expected that Bitcoin miners will begin moving their operations to areas with cool year-round temperatures and better sustainable energy supplies. Iceland and Canada are emerging as a favourite as their industries are more standardized than China which currently lacks clarity.

For Bitcoin miners in China, many will not risk going head to head with the government. As a result, this industry’s social and environmental issues will soon become someone else’s headache.

The large mining operations in China may consider shifting operations to new bases in places like Afghanistan, Kazakhstan, and Mongolia.

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