In an effort to contain financial risks, Chinese regulators have reportedly issued a notice to local governments, ordering them to make it more difficult for Bitcoin miners to operate in the country.
A Chinese watchdog for internet financial risk has reportedly ordered local governments to implement measures to limit Bitcoin mining in the country.
On Friday, a tweet was posted online which appears to show a notice from China’s Internet Financial Risk Special Rectification Work Leadership Team Office, the country’s online financial risk regulator.
The order requests that local governments gradually force Bitcoin miners out of the business. Measures which local authorities are instructed to use include control of the power supply to Bitcoin mines, as well laws regarding tax, land use and environmental protection.
More than two-thirds of the world’s processing power devoted to bitcoin mining is located in China, but authorities there want to clamp down on the sector.
They fear that cryptocurrencies are used as a tool for speculation and thereby fuel financial risk. In addition, it is feared they may be used to finance illegal activities including money laundering.
With some miners paying +$80k per month on electricity, it would make more sense for the government of #China to assist the miners.#Bitcoin #cryptocurrency #bitcoinmining #ThursdayThoughts pic.twitter.com/sHhMLCaPtQ
— Casey Landry (@MrCaseyLandry) January 4, 2018
Earlier this year, China banned mainland residents from trading Bitcoin and other cryptocurrencies on exchanges.
In June, it was reported that several Bitcoin mining companies had been shut down or relocated in Mabian Yi Autonomous County, home to a prosperous mining industry in southwest China’s Sichuan province.
Chinese miner, Akira Cui, recently told the South China Morning Post that many miners “have already paid visit to Vietnam, Laos, Thailand, Russia and the US, negotiating electricity prices with local authorities and buying sites for future use.” Mr. Cui argues that “the [mining] business blueprint is bound to go overseas, even if there’s only a 1 percent possibility that China’s crackdown against bitcoin would extend to mining.”
The South China Morning Post states that it contacted four major mining companies, with Mr. Cui being the sole respondee. Representatives of Chinese mining companies seldom speak with media as many miners are reported to strike private deals with local power companies that are concealed from higher-ranking officials and institutions.
“No one brags about it because it’s best to make a fortune in silence,” Mr. Cui said.
It is Estimated that Chinese Miners Produce Approximately 70 percent of the Bitcoin Network’s Total Mining Power
Mr Cui states that he started mining bitcoin in 2013 after selling his previous broadband internet company for 30 million yuan ($4.5 million USD approximately).
Mr. Cui initially invested roughly 5-6 million yuan ($800,000 USD) into mining hardware, and has expanded to now manage 100,000 machines. Mr. Cui estimates that 90 per cent of his hardware belongs to friends and clients for whom he maintains their equipment.
“It’s very noisy to store them at your own place.
Instead, clients can choose between delivery or keeping them at my factory for a fee and access remotely via pass codes,” Mr. Cui states.
Mr. Cui says that securing a reliable source of power is the principal concern for large scale miners.
Each machine can generate roughly 100 yuan ($15 USD) in profit daily, meaning that the financial losses incurred through having idle equipment can be significant.
As such, many miners are looking to preempt an intensification of China’s cryptocurrency crackdown by seeking to relocate overseas.
Who’s Got the Power?
“We are in discussion with partners in Los Angeles, and have also visited Russia and Vietnam for potential sites,” Mr. Cui states.
“If the regulators move to outlaw mining, it will only take us about three months to resume operations overseas.
Money spent in buying land is a relatively small amount compared to the whole business.”
Curiously, Mr. Cui forecasts that China’s cryptocurrency crackdown may ultimately serve as a positive for the bitcoin community at large.
He argues that China’s dominance over the bitcoin markets in recent years undermined the cryptocurrency’s decentralization, stating “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.” Similarly, Mr. Cui believes that the Chinese crackdown on cryptocurrency exchanges will lead to greater decentralization, stating “it’s abnormal to have exchanges globally, as any centralized institution goes against the cryptocurrency’s very nature.”