Shocking revelation: Mining has never been banned in China.
Yes, that is correct. In fact, not only is Bitcoin not banned, but Chinese miners are leading the world in innovative uses of Bitcoin mining.
but, This Reuters report and others Does it say it’s forbidden?
Let’s take a closer look.
Yes, the network hashrate has dropped from 179.2 EH/s to 87.7 EH/s (a drop of 51.1%), seemingly confirming China’s ban on mining.
After all, according to Cambridge, China accounted for 46% of the world’s hashrate one month before the “ban” (April 2021), which roughly aligns with the “mining is banned in China” narrative.
But there is a big flaw in this logic. If you are a troublemaker and the principal expels you, those “days of school absence” don’t mean you’ll be expelled. You might just be suspended. And that’s exactly what happened in China.
Here’s how we know.
1. Investigative journalism
Let’s start with the mainstream news reports.
beginning, NBC reported In May 2021, it was reported that at least some miners were “unfazed” by the latest “ban.”
The New York Times then report A “ban” was issued in China in September 2021. Policy Disclosure That same month, it was announced by the Chinese government (more on this later), despite publicly available Cambridge data showing that mining activity had already rebounded to 22.3% of global hashrate.
According to Cambridge data, as of December 2021, China still 19.1% of the world’s hashrate.
It wasn’t until May 2022 that CNBC Full Report The report was dismissive of the large amount of Bitcoin mining hashrate still operating within China, even though this data has been publicly available in all media since September 2021.
Apart from the New York Times article, evidence indicates that mining was never banned, merely suspended. So let’s take a closer look at the New York Times article and the documents it cites as evidence of the ban.
2. Surprising discoveries about Chinese law
A reading of the documents the New York Times used as evidence of the ban did not support their interpretation.
of Chinese policy documents The September 24, 2021 bill does not legislate a ban, but rather a moratorium on the establishment of new mining sites and a “signal of intent” (not a ban) to protect existing mining activities “at some stage” (which, three years later, has still not been implemented).
Regarding the statement of intent: The policy states that bitcoin mining sites should be gradually eliminated because they go against the Chinese government’s carbon neutrality goals, among other reasons including their susceptibility to money laundering and their high electricity consumption.
Cultural Factors the New York Times Doesn’t Consider
In China, policy says this but what is actually implemented is usually very different.
Generally, in developed cities, the letter of the law is enforced to the letter. However, in smaller cities and regions, this is rarely the case.
For example, China officially has a policy that all banks must by law reduce the number of steps that customers go through to obtain legal certification documents.
But in most cities, private banks don’t follow the regulations and do the opposite. For example, if your parent or spouse dies and you need to get the money left in their bank account, the bank can say, “A death certificate is not enough.” In some cases, the family has to bring the body to the bank to prove it. No joke.
The more developed cities will follow the law. But most of China’s mining activities are now in Inner Mongolia, far from the big developed cities. In these areas, the cultural focus is not government regulation, but networks. If you have the right networks, you can “do this and that” to get around the law.
To summarize:
1. Mining has never been banned. Rather, at one point there was a moratorium on new mining and an unfriendly offer to inherit existing mining facilities.
2. Fossil fuel use was cited as the main reason (sources within the Communist Party say this was certainly a factor, but capital controls were the main reason). Energy policy experts Magdalena Gronowska This was cross-validated.
3. Except for coal-based mining, the moratorium was not implemented in isolated areas where new mining activities were started.
4. The New York Times did not accurately portray Chinese policy documents, did not understand the cultural factors that made even a moratorium likely not be widely enforced, and did not collate public hashrate records that show large-scale mining operations still take place in China.
This is not the first time that reports about a Bitcoin mining ban have been at odds with actual events. Paraguay (Instead, it was a crackdown on electricity theft.) And new york (It wasn’t, it was just a two-year moratorium on new fossil fuel-based extraction only) was similarly exaggerated.
Then this month, a number of media outlets within the crypto community reported that Venezuela had banned Bitcoin mining. Protecting the power grid” He even called the government’s action an “anti-corruption effort.”
But the cause of the blackout Pervasive corruption (theft of power within the government) has led to the well-known case of Venezuela. State-owned energy company PDVSA It cannot produce enough electricity to stabilize its own power grid. For reference: Venezuela is the second worst country out of 180 countries. Transparency International The corruption index tends to show more corruption over time, not less.
But back to China. Sebastian GhespirouBigBlock’s CEO, who is familiar with China’s mining issues, allowed me to give his own perspective on the matter: “They stopped mining and then restarted it a few weeks later, but not everywhere, just where it was useful.”
3. Interviews with players in the Bitcoin mining industry
We spoke with four independent mining organizations operating in China (HashX_Mining and three others who wished to remain anonymous). What is interesting is that: no one”Risking everything“ As a CNBC news article dramatically suggested, Chinese authorities are actively encouraging cooperation in solving various energy problems.
Bitcoin mining is not just done in China. Miners are actively exploiting the environmental externalities of Bitcoin miningA particular focus is on heat recycling and the monetization of renewable energy.
By the way, the first reported example of heat recycling from Bitcoin mining was In Canada in early 2018Since then, heat recycling has emerged as a primary way that bitcoin mining (essentially electrical resistance heaters that mine bitcoins) can reduce the need for fossil fuel-powered heating. China has also joined the heat recovery movement.
“The slowdown in the Chinese economy has led some heavy industries to withdraw from Inner Mongolia and Xinjing provinces, resulting in frequent power oversupplies,” admitted one mining distributor. To prevent waste of renewable energy, Chinese authorities have invited bitcoin mining companies to fill the gap.
Bitcoin mining operations in Inner Mongolia typically operate just 200-500 miners (around 1MW), all powered by hydro, wind, or solar energy.
Think of Inner Mongolia as the Texas of China. Like Texas, it has a fossil fuel past, but now Renewable Energy Solutions faster than other parts of the country (reportedly 57% of domestic wind power plants). And like Texas, they needed and wanted Bitcoin mining to monetize wasted renewable energy and offset the intermittency of that renewable energy.
So why did China suspend mining operations in the first place, and why is most of the mining that has resumed small-scale and renewable energy based?
Capital Controls
Large-scale bitcoin mining was a problem for China. It provided a way to get money out of China. Large-scale mining converted yuan into bitcoin and bitcoin into US dollars. The second reason, which is less important, is that large-scale mining often used coal plants. This put the government’s emissions targets at risk.
It was an opportunity to curb the initial capital outflow to mining companies. By allowing 200-500 mining units to monetize wasted renewable energy, China could stabilize the power grid and monetize wasted renewable energy without risking huge capital outflows.
Thank you again. Dan Leslie from HashX_Mining, Sebastian GhespirouCEO Big Block, Magdalena Gronowskaa partner at Metamesh, and two Chinese nationals who requested anonymity in compiling this special report.
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Additional Context
(Optionally, you can add more details if you want to go into more detail, or you can leave this out altogether if you want to focus strictly on “what wasn’t forbidden”)
Other facts revealed from interviews with Chinese mining companies:
- While much of the hashrate has migrated to other countries (first the United States, and more recently Ethiopia), since the Chinese “ban” a lot of new hashrate has also flowed into China.
- Off-grid coal mining is no longer taking place – it is easily detected, competes with baseload energy and thwarts central government emissions targets – which has significantly reduced the emissions intensity of mining in China since the “ban”.
- Mining is mainly done with hydropower, small hydropower (especially in the rainy season). The areas above the red line are in the very rainy months. Four regions: In Xi’an, Wuhan, Beijing and Xining, hydroelectric power is incredibly cheap.
But we also found a lot of on-grid mining, and even more surprising: retail On-grid mining.
- Retail on-grid miners mine at a loss because they pay retail electricity prices. Why mine at a loss? The reason is simple: to get funds out of China, or from RMB to USD. They trade RMB for ASICs and electricity to create BTC, which they then trade for USD. Many retail miners are willing to accept a drop in profitability just to have a way to exchange RMB for USD.
- Local state governments often support things that the national government won’t support because it makes more economic sense. We’ve heard stories time and again of state governments granting de facto “mining licenses” in exchange for the right to use recycled heat.
For example, one example of new hashrate, a 13 MW mining operation, is run in partnership with a state government. The state government buys electricity from them, and in return, the state government gets free use of recycled heat. Since 95% of the energy from bitcoin mining is distributed as heat, this is almost as effective as getting free heating. What does the state government use that (free) heat for? To heat water for fish farms.
This is a guest post by Daniel Batten. The opinions expressed here are entirely Batten’s own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
