In remote — sometimes unmapped — regions of China, thousands of computers are 'mining' bitcoin, the queen of virtual currencies. The country may boast all the right conditions to dominate the cryptocurrency market today, but will its mining boom last?
HEJING — The location two hours from the northwestern city of Hengdu is not indicated on any map. To reach it, you have to leave the main artery that winds along the Min River and take a bumpy dirt road below a hydroelectric plant. Hidden from view, it can be heard before it is visible. The closer you get, the louder the hum of the machines that "mine" bitcoin in this vacant lot nestled at the bottom of the valley. Even as night slips over the surrounding mountains, the activity continues. The machines operate 24 hours a day, 365 days a year in the four warehouses guarded by a large dog in a muzzle. On the walls, huge fans run at full speed to cool the interior of the buildings. Inside, some 4,000 wired computers are cranking up the decibels and the temperature to match their computing power.
Tian Qiang*, 33, watches the performance of each machine like clockwork. "If there's a problem, I can see it immediately on my cell phone: This little red square means that machine number 121 is in trouble," he says. It is necessary to intervene as soon as possible. "Mining" bitcoin means generating this unbreakable cryptocurrency through calculation. A lot of calculations. Much like trying billions of combinations on a safe, modern "miners' run computers to solve cryptographic problems that validate transactions and ultimately create blocks within the blockchain, the underlying technology. The miner who gets the right combination as quickly as possible unlocks the safe and gets a "mining bonus' as a reward for creating this new block.
While any individual in the world can theoretically participate in this vast global mining operation, China has turned it into an industry. Just by itself, the country accounts for two thirds of mining activity. Its recipe: one of the cheapest electricity systems in the world combined with low taxes, a crucial asset for extremely energy-intensive "mining."
"We use the equivalent of the electricity consumption of 10,000 households every day," says Tian Qiang. Another advantage is that Chinese miners have close relationships with the world's leading mining equipment manufacturers, who are also Chinese: Bitmain, Canaan Creative and Ebang.
The farms are usually far from major cities. To reach the one run by Tian Qiang, one must first drive to Chengdu, the capital of Sichuan, in western China, and then two hours to the foothills of the Himalayas. Several farms along the Min River cooperate directly with the hydroelectric plant.
"Electricity is lost if you don't use it," says Tian Qiang. In early April, the rainy season has not yet begun in Sichuan; the water is low.
In the warehouses, some computer racks are empty. "During the dry season, we move the machines to other farms in Xinjiang," says Tian Qiang. In this region at the western end of the country, which is home to almost half of all mining in China, the electricity comes from coal-fired power plants.
In the workshop next to the warehouses, Wang Guoqiang* is hard at work: 100 Nvidia graphics cards have just arrived. Armed with his screwdriver, he is assembling six of them to mine Ethereum, another virtual currency whose price has soared in recent months. "These cards are now very hard to find," he says. "Fortunately, we can leverage our relationships with suppliers. "
The surge in cryptocurrency prices has led to fierce competition and a race for suitable graphics cards and large machines. The shortage — now compounded by a shortage of semiconductors — is forcing many miners onto waiting lists. "When the price of gold goes up, you need more and more shovels."
In the next room, with an old toothbrush, Dong Fengke* gently cleans a motherboard. "Dust gets into the machines and can cause them to overheat," he says, wearing an old kitchen apron. Originally from the rural Jiangxi province, he maintains the machines from 9 a.m. to 9 p.m. and spends the rest of his time between the dormitory and the dining hall he shares with six other employees. "My salary is not bad here and the work is not too hard," says this computer enthusiast. The hardest part is dealing with the noise and dust."
Bictoin mining machines are running at a bitcoin farm in China's Sichuan province — Photo :Ran Wen/ROPI/ZUMA
If he is lucky, Dong Fengke can repair a machine by restarting it directly on site. If the problem is more complicated, he has to take it off the shelf and take the toolbox into the workshop. In addition to consuming a lot of electricity, mining requires frequently replacing computers.
"It's very frustrating when a machine breaks and you can't fix it," he says. When the rainy season comes, the teams will be reinforced and a night shift will be set up to ensure maximum capacity on a full-time basis.
Four years ago, Jin Xilai*, who ran an internet cafe for video game fans, noticed that graphics cards were becoming increasingly scarce. "When it was explained to me that they were being used to create cryptocurrency, I became interested in the subject and wanted to get started! " he says. At 28, he then gathered 5 million yuan (650,000 euros) with other investors to open the mine. "I didn't receive any public support, but I found the land through my connections," he says.
In the warehouses, the machines mine both bitcoin and Ethereum on behalf of various clients. Sometimes located on the other side of the world, these clients can monitor the performance of their machines remotely and warn the employees on-site if there are problems. They have been particularly restless in recent months," says Jin Xilai. With the recent inflation in the price of many cryptocurrencies, many investors who sniffed — or thinking they sniffed — a good deal, have put their money into the sector. "My phone keeps ringing," says Jin Xilai.
He keeps a cool head. If he does have a few bitcoins (he won't say how many), the return on his mine is mainly dependent on the price of electricity. "The people in charge of the power plant follow the price of bitcoin and want to charge us more," he says. His customers, who bear the cost of the expensive machines, do not invest without risk: Their fortunes depend on the computing capacity of the computers used, their efficiency, and the price of cryptocurrencies. The business is very volatile.
If China decided to ban mining outright, it would have a huge impact on all cryptocurrencies
It is also increasingly complicated. There are fewer and fewer bitcoins to mine — their total amount is fixed — and the rewards are halved every four years, a rule set from the start.
For years, China has had an ambiguous relationship with bitcoin, and Chinese miners are not immune to changes in regulations. Beijing initially allowed the industry to grow; Chinese investors flocked to bitcoin as a great tool to move fortunes out of the country while evading capital controls. But the tide turned in 2017 when the government increased regulations, banning, for example, all cryptocurrency fundraising activity — an operation labeled as an "illegal and unauthorized public funding channel" — and tightening the monitoring of transactions. The new rules banned bitcoin trading but not possession, and mining was encouraged by some local authorities who saw it as a way to attract investment and create jobs in less hospitable areas.
But how much longer will this last? Once a staunch supporter of the industry, Inner Mongolia has now turned its back on it. Since April 1, cryptocurrency mining has been banned in this vast northern province. Thanks to its abundant and inexpensive coal, as well as its cold and dry climate conducive to machines, it alone accounted for 8% of the world's computing power — more than the United States.
But the provincial authorities have been smacked on the knuckles by Beijing for failing to meet energy reduction targets. Could the measure expand? In April 2019, the powerful National Development and Reform Commission (NDRC) had placed mining on the list of 450 polluting industries to be eliminated as soon as possible... before reversing course. The subject remains eminently sensitive as China, the biggest polluting country on the planet, now wants to play the good student in the fight against climate change.
About half of China's bitcoin mines are powered by coal-fired electricity, which could jeopardize the country's climate goals, researchers recently warned. According to their study published in the journal Nature, if nothing is done, the energy consumption of bitcoin mines could increase fivefold by 2024, surpassing that of Italy and Saudi Arabia. Greenhouse gas emissions from Chinese mines would exceed those of Qatar and the Czech Republic. This would render President Xi Jinping's commitment to peak carbon emissions before 2030 — a crucial step towards the carbon neutrality promised for 2060 — even more complicated.
If China decided to ban mining outright, it would have a huge impact on all cryptocurrencies. Last month, a simple power outage in the Xinjiang region already caused a sharp drop in the price of bitcoin: Investors suddenly realized that while the network is decentralized by nature, its operation remains highly dependent on China. But no one really dares to believe in a total ban. Miners should have more incentive to move to regions with "clean" energy, such as the mountainous provinces of Sichuan and Yunnan, researchers suggested in Nature magazine. Hydropower prices in these zones are generally very low, but volatile.
Some Chinese operators are now looking abroad for even cheaper electricity. Earlier this year, a sudden blackout in several cities in Iran exposed the presence of Chinese-owned bitcoin farms in the country. For now, the decision by the Inner Mongolian authorities hasn't really shaken the enthusiasm of the new gold miners. "We still have very good years ahead of us," says Jin Xilai.
*All names have been changed at the request of those concerned.