Unusual discovery: Mining has never been banned in China.
Yes, you read that right. In fact, not only is it not banned, but Chinese miners are leading the world in innovative uses of Bitcoin mining.
But what about? This is a Reuters report. And Others Who says it’s banned?
Let’s take a closer look.
Yes, the network hashrate dropped from 179.2 EH/s to 87.7 EH/s (a 51.1% decrease), which seems to confirm that China has banned mining.
After all, China, according to Cambridge, was responsible for 46% of the global hash rate in the month before the “ban” (April 2021). So the numbers are roughly consistent with the thesis that “mining is banned in China.”
But there’s a big gap in this logic. If you’re a disruptive student and your principal sends you away from school, “absences” don’t mean you’re expelled from school. They can just mean you’re suspended. And it turns out that’s exactly what happened in China.
Here’s how we know.
1. Investigative reports
Let’s start with the mainstream news reports.
Firstly, NBC reported In May 2021, reports indicated that at least some miners were “unaffected” by the recent ban.
New York Times then Reported “Banned” in China in September 2021, citing this Policy Disclosure From the Chinese government (more on that later), although publicly available data from the same month from Cambridge showed that mining activity had already risen to 22.3% of the global hash rate.
Cambridge data showed that by December 2021, China was still in 19.1% of global retail rate.
It wasn’t until May 2022 when CNBC ran Full report Regarding the large Bitcoin mining hash rate that is still operating in China, although this data has been publicly available to all media since September 2021.
Beyond the New York Times article, evidence suggests that mining was never banned, but merely suspended. Let’s take a closer look at the New York Times article and the document they cite as evidence for the ban.
2. Our Surprising Discovery in Chinese Legislation
When I read the document that the New York Times used as evidence for the ban, I found that it did not support their interpretation.
the Chinese policy document The September 24, 2021 law does not enact a ban, but rather a temporary moratorium on the creation of any new mining sites, as well as a “signal of intent” (but not a ban) to cancel current mining activity “at some point” (which has not yet happened after three years).
Regarding the statement of intent: The policy states that Bitcoin mining sites are something that should be phased out, as they do not support the Chinese government’s carbon neutrality goals. Other reasons cited include that they are easy to use for money laundering and consume a lot of electricity.
Cultural Factors The New York Times Didn’t Consider
In China, it is common for policy to say one thing, but what is implemented is completely different.
As a rule, in more developed cities, the letter of the law is implemented literally. However, this rarely happens in smaller cities and regions.
For example, in China there is an official policy that requires all banks by law to minimize the steps their customers take to obtain any legally approved documents.
But in most cities, private banks do not follow these rules, but on the contrary. For example, if a parent or spouse dies and you need to get the remaining amount in his or her bank account, the bank can say, “Your death certificate is not enough.” There have been cases where the deceased person needed to bring the body to the bank to prove it. I kid you not.
The most advanced cities will follow the letter of the law. But in China, most mining now takes place in Inner Mongolia, far from the big developed cities. In these areas, culturally, it’s not the government rules that matter, but your network. If you have the right network, you can do “this and that” to get around the legislation.
So in short:
1. Mining was never banned, but there was a moratorium on new mining and unfriendly proposals to grant concessions to existing mining facilities at some point.
2. The use of fossil fuels was the main stated reason (although we know from inside sources within the Communist Party that while this was certainly a factor, control of capital was the main reason). Energy Policy Expert Magdalena Gronowska This has been verified.
3. With the exception of coal-based mining, the moratorium was not implemented in the most isolated areas. There, new mining activities started.
4. The New York Times did not accurately portray the Chinese policy document, lacked an appreciation of the cultural factors that made even the suspension of sanctions something that might not be widely implemented, and failed to check publicly available hash rate records that would have told them that mining activity was still occurring on a large scale in China.
This wouldn’t be the first time that there has been a discrepancy between what was reported and what actually happened in Bitcoin mining ban stories. News reports of the “ban” in Paraguay (It wasn’t that, it was a crackdown on energy theft), and New York (It wasn’t, it was just a two-year moratorium on new fossil fuel-based mining.) It was similarly overblown.
Then just this month, several media outlets, even within the crypto community, reported that Venezuela had banned Bitcoin mining “for security reasons.” Power grid protection“He even referred to the government’s move as an “anti-corruption initiative.”
However, it turned out that the source of the power outage was due to rampant corruption (the theft of power within the government) that led to the well-documented state of Venezuela. State-owned energy company PDVSA Not being able to provide enough energy to stabilize their own electricity grid. For context: Venezuela ranks second out of 180 countries in malnutrition. Transparency International The corruption index tends over time towards more corruption, not the opposite.
But back to China. Sebastian JosepelloBigBlock’s CEO, who has experience mining in China, allowed us to include his perspective on the matter: “They stopped mining and then started it again a few weeks later. But not everywhere; only where it was useful.”
3. Interviews with players in the Bitcoin mining industry
In total, we spoke to four independent mining organizations operating in China (HashX_Mining, and three others who preferred to remain anonymous). What’s interesting is that None of them say they are “risk it all“ As a CNBC news article dramatically pointed out, Chinese authorities are actively encouraging Chinese companies to help solve various energy-related challenges.
We have discovered that Bitcoin mining is not only happening in China, but Miners actively use the positive environmental externalities of Bitcoin mining.especially heat recycling and liquefaction of stranded renewable energy.
For context, the first reported examples of recycling heat from Bitcoin mining were: In Canada early 2018Since then, heat recycling has emerged as a major way in which Bitcoin mining (essentially, using an electric resistance heater to mine Bitcoin) can reduce the need for heating with fossil fuels. China has joined the heat recycling party.
“With the economic slowdown in China, some heavy industries have left Inner Mongolia and Xinjiang Province. As a result, there is often a surplus of electricity supply,” a mining distributor said. Chinese authorities have called on Bitcoin mining companies to fill the void and stop wasting renewable energy.
Bitcoin mining operations in Inner Mongolia typically involve 200-500 miners (~1 MW), all of which use either hydroelectric, wind, or solar power.
Think of Inner Mongolia as the Texas of China. Like Texas, it had a fossil fuel past, but now it is moving toward that. Renewable Energy Solutions Faster than any other part of the country (according to reports) 57% of wind farms in the countryLike Texas, it needed and wanted Bitcoin mining to help monetize wasted renewable energy and offset renewable energy outages.
But why did China halt mining operations in the first place, and why were most of the mines it allowed to return operating on a smaller scale and relying on renewable energy?
Capital controls
Large-scale Bitcoin mining was a problem for China. It provided a way to get money out of China. The large operations converted yuan into Bitcoin, and then into US dollars. The second, but less important, reason: The large operations often used coal plants. This put the government’s emissions targets at risk.
The mining suspension was initially seen as an opportunity to clamp down on capital outflows from the yuan. By allowing mining companies with 200 to 500 units to exploit wasted renewable energy, it helps China stabilize power grids and exploit wasted renewable energy without the risk of massive capital outflows.
Special thanks again to Leslie from @HashX_Mining, Sebastian JosepelloCEO of big block, Magdalena Gronowskaa partner in Metamesh and two Chinese nationals who wished to remain anonymous in preparing this special report.
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Additional context
More details from our interviews with Chinese mining companies.
- While a large amount of hashrate has migrated to other countries (the US initially, and Ethiopia more recently), a large amount of new hashrate has also arrived in China since the China “ban.”
- Off-grid coal mining is no longer happening. It is too easy to detect, competes for primary energy and runs counter to central government emissions targets. This has led to a significant drop in the emission intensity of Chinese mining after the “ban.”
- Mining is mostly hydroelectric, and small hydroelectric (especially in the rainy season). Areas above the red line are very wet months. 4 areas:Xi’an, Wuhan, Beijing, Xining, where hydropower has become incredibly cheap.
But we also discovered a lot of mining on the network, and what’s even more surprising is that we discovered a lot of selling by pieces Mining on the network.
- Retail miners mine at a loss because they pay retail electricity rates. Why do they mine at a loss? It’s simple: to get money from China, or from Yuan to USD. They convert the Chinese Yuan into ASICS and electricity that produces BTC, which is converted into USD. Many retail miners are happy to take the loss of profitability just because there is a way to convert Yuan to USD.
- Local governments often subsidize what the central government does not, because it makes economic sense. We have heard more than one story where a regional government has granted a “de facto mining license” in exchange for the rights to use recycled heat.
For example, one 13-megawatt mining operation, an example of the new hashrate, works in tandem with a regional government. They buy electricity from them and in return the government gets the right to use their recycled heat for free. Since 95% of the energy generated by Bitcoin mining is spent as heat, this is almost as efficient as getting free heating. What do they use with this (free) heat? Heating water for fish farms.
Click here Download PDF of “Bitcoin Mining Was Never Banned in China” — Report #3 in the “FUD Fighters” series powered by Hive Digital Technology Co., Ltd.
This is a guest post written by our guest Daniel Patten. The opinions expressed here are entirely his own and do not necessarily reflect the views of BTC Inc or Bitcoin Magazine.