Bitcoin mining: China clamps down on booming trade where some can earn £60,000 a day | Science & Tech News | #Bitcoin | #BtitcoingSecurity | #BitcoinHacking


From the outside, it looks like the sort of huge industrial site typical of West China. A dry, dusty corner of the country where 3,000 people are at work.

But beyond the security gates at the main entrance, behind a padlocked and guarded door, is something entirely different: a secret Bitcoin mining farm.

“The government in China, they shut down some mining farms in Inner Mongolia already,” says the owner of the mine, who has asked to be referred to as M.

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Our contact, M, says the government doesn’t know about his site – yet

“We don’t know what their next move is. So it’s better to keep low.”

Does the government know about this?

“No, not right now.”

We are in a new Bitcoin boom – and this is the frontier. It is a coal producing region and that abundant power is being put to a new use. 12,000 computers are at hard, noisy work, verifying transactions made worldwide using bitcoin.

In return, they earn the digital currency – about 1.5 Bitcoin each day, worth £60,000.

“This business is really profitable right now,” M says. “And our plan is to expand this business. Just the land behind this building, we plan to build a factory two times the size.”

Bitcoin is on another bull run. The price hit an all-time high of £44,025.71 on 13 March. Institutional investors including Goldman Sachs and BlackRock are piling in.

In February, Tesla bought $1.5bn (£1.8bn) worth of bitcoin and this month the company said it would accept the cryptocurrency as payment for its cars.

Bitcoin mining requires a huge amount of energy
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Bitcoin mining requires a huge amount of energy

That means there is money to be made in mining.

M used to work in real estate finance but in 2019, he switched to Bitcoin. His first mining farm was in Iran but he was cheated by his business partner there.

“The most important thing is safety,” M says. “The people here, I know them. This place, I’m familiar with. That’s why I like to choose a safer place.”

M says there are hundreds of grey sites like his across China. Bitcoin mining is not illegal, although financial institutions are prohibited from handling Bitcoin transactions.

The provincial government of Inner Mongolia is shutting down all bitcoin mines in the region
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The provincial government of Inner Mongolia is shutting down all bitcoin mines in the region

“It’s not totally inaccurate to say it’s like a wild west in China when it comes to Bitcoin mining,” says Nishant Sharma, the Beijing-based founder of BlocksBridge Consulting, which specialises in Bitcoin mining.

“Chinese miners are trying make money quick before something happens. And that something is usually related to legalities around Bitcoin mining.”

China is the world’s centre for Bitcoin mining – it accounts for 65% of the global total, according to researchers from the University of Cambridge.

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But it also requires a huge amount of energy, which has raised serious environmental concerns. The total power consumption of Bitcoin globally is more than that of Sweden, Argentina or the Netherlands.

And that’s why authorities have been clamping down.

In early March, the provincial government of Inner Mongolia announced that all Bitcoin mines in the region would be shut down by the end of April, to help it meet energy consumption targets.

Other places in China are happy to receive Bitcoin miners though – especially in the southwest, where hydropower is abundant.

“Local governments have their own targets to complete,” explains Jiang Zhuoer, the CEO of BTC.TOP. He runs a huge mining farm in the southwest of the country.

“Inner Mongolia has its own seasonal policy, but Sichuan [province] welcomes mining companies and issues some power-friendly policies on it.

“China is a big country. It’s very complicated, but in general it holds a neutral attitude [to Bitcoin].”

Our contact, M, says the government doesn't know about his site - yet
Image:
Our contact, M, says the government doesn’t know about his site – yet

Nishant Sharma argues that miners are adept at exploiting existing pools of power surplus, to help their business, rather than adding new power demand.

“Bitcoin is kind of relentless in its drive for efficiency and energy production. Because energy consumes the majority of the cost of Bitcoin.

“So miners will always find the areas around the world which have low cost and sustainable supply of energy.”

That may be true in the south, where renewable energy is plentiful – and, more importantly, cheap. But in the northern regions, the power tends to be dirty.

The reason M’s mining farm is inside an existing factory is so that it can piggyback off the existing industrial energy supply, without authorities noticing a new source of energy demand. “It also consumes a lot of electricity,” he says.

“That’s why we built this place especially for Bitcoin mining.”

The issue, in China at least, is one of supply. The country keeps building new coal power stations. They produce cheap electricity – which miners keep taking advantage of.

Perhaps there is a sustainable future for Bitcoin mining. But it hasn’t arrived in China yet.

A representation of virtual currency Bitcoin is seen in front of a stock graph in this illustration taken November 19, 2020
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Bitcoin is notoriously volatile

How does Bitcoin mining work?

Mining is essential to the Bitcoin network.

It solves the ‘double spend problem’, stopping people from spending a Bitcoin they have already spent.

Miners are essentially computers dedicated to the Bitcoin network to verify transactions.

When a Bitcoin user spends a Bitcoin – in effect, sending it to another user – they broadcast that transaction to the network.

Miners gather up hundreds of transactions in a “block”.

They then solve difficult mathematical problems to verify that block, and add it to chain of past blocks – creating a public ledger of past transactions that is effectively impossible for anyone to alter.

The more computer power you have, the better chance you have of solving these problems before anyone else.

And when miners discover the solution, they are rewarded with Bitcoin – currently the reward is 6.25 Bitcoins – worth about £270,000, depending on their value at the time.

Miners also get transactions fees from users for including that transaction in the block.



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