China’s escalating push to rein in cryptocurrency mining was triggered in part by concern that the practice has stoked a surge in illicit coal extraction, endangering lives and undermining Xi Jinping’s ambitious environmental goals.
Authorities decided to act after concluding the spike in electricity consumption from server farms underpinning Bitcoin and other tokens was a key factor behind rising demand for coal in certain parts of China, according to a person who participated in high-level government meetings on the issue and asked not to be identified discussing private information.
The nationwide crackdown on crypto mining could create a competitive environment in which only the biggest miners can survive, said a co-founder and managing partner of Waterdrip Capital, a major investor in the Chinese crypto mining industry.
“Finding suitable sites outside the mining hubs requires a lot of resources such as capital and network,” Yusan Zheng said during a Chinese-language Clubhouse discussion hosted by CoinDesk. “Only the most experienced and deep-pocketed miners will be able to carry out such a plan.”
Local authorities in major Chinese mining hubs have started banishing crypto mining businesses since last Friday’s crackdown notice from the State Council. With little idle capacity in overseas hosting sites, some miners plan to go underground and continue to operate in other parts of the country, which might be only feasible for some of the biggest miners.
If mining power is too centralized, a few miners could manipulate the market by controlling the supply of bitcoin (BTC, -3.43%), or rewrite transactions on the immutable distributed ledger in the bitcoin network and shut out smaller miners with over 50% of the network’s mining power.
Xinjiang, Sichuan and Inner Mongolia have been popular regions for Chinese miners due to their cheap electricity. While the miners run their mining machines with hydropower in Sichuan during the rainy season in the summer, they migrate to the other two regions that chiefly have coal in the winter.
It is likely that miners will move from these mining hubs in western China to the east, where they can put the mining machines into factories, said Zheng, who was an early investor in bitcoin mining in China. The miners could also send a few mining machines to each household in the countryside, he said.