The Economist July 10th 2021 41
ChinaBitcoinminingThere was gold in them thar hills
I
n the hengduanmountains of Sichuan
province, swollen brown rivers and trees
heavy with ripe mangoes do not evoke dig
ital wizardry. Yet until recently, there were
buildings here with rack upon rack of spe
cialised computers. They were often near
hydropower plants that supplied them
with electricity from dams. They needed
lots of power. Their machines were used
for “mining”, a process that involves vali
dating transactions conducted in bitcoin
and other digital currencies by solving
cryptographic puzzles. In return, they re
ceived newly minted coins. The buildings
were recognisable by their huge cooling
systems: usually a wall on one side covered
in giant fans to draw in air.
But across Sichuan, the fans have
stopped whirring. In May, a government
committee tasked with promoting finan
cial stability vowed to put a stop to bitcoin
mining. Within weeks the authorities in
four main mining regions—Inner Mongo
lia, Sichuan, Xinjiang and Yunnan—or
dered the closure of local projects. Resi
dents of Inner Mongolia were urged to call
a hotline to report anyone flouting the ban.In parts of Sichuan, miners were ordered to
clear out computers and demolish build
ings housing them overnight. Power sup
pliers pulled the plug on most of them.
The clampdown has had a global im
pact. Bitcoin’s “hash rate”, a measure of the
computational power being used by the
world’s mining machines, has fallen by
half in recent weeks. Its “difficulty rate”,
which rises and falls as computers join or
leave the mining effort, last week fell to an
alltime low. China had accounted for
about 65% of bitcoins earned through min
ing, according to the Cambridge Bitcoin
Electricity Consumption Index. But an
alysts think about 90% of its mining has
now ceased. Chinese miners are selling
their computers at half their value.
China’s mining boom began in 2017,
after a surge in the price of bitcoin caught
the attention of local entrepreneurs. Thecountry was already making most of the
machines that mine bitcoin globally, as
well as the tailormade chips on which
they run. It also had the capacity to pro
duce more power than it needed. In 2018
this excess amounted to 70 terawatthours
(twh), equivalent to Switzerland’s total en
ergy production. Rather than let the sur
plus go to waste, plants sold it to mining
farms. The seasons would determine
where those farms operated. After the end
of Sichuan’s drenching summer rains,
when prices there would rise, miners
would drive their machines to somewhere
near a cheaper source, usually coalfired
power plants thousands of kilometres
away in Xinjiang and Inner Mongolia. (En
ergy from solar and wind power is not reli
able enough to power nonstop mining.)
In 2017 China, fearing a loss of financial
control, banned cryptocurrency trading.
But local governments still welcomed the
miners: they were a source of taxes and
other levies. In June a staterun zone in
Ya’an, a city in Sichuan, had been set to
open in time for the start of the rainy sea
son. It was offering cheap power for min
ing and other digital activities. “It was a
winwin,” says Kirk Su, a miner who had
been planning to put some of his machines
in the zone. “China was leading in mining
in all respects: cheap power, cheap labour,
fast and easy access to kit,” he says.
Then came the clampdown. It was tar
geted in part at the cryptocurrency traders.
The mining industry itself has little to do
with the volatile business of trading. ButX ICHANG
The government has shut down half of the world’s miners of digital currency→Alsointhissection
42 Thepartyandthepopstar
43 Chaguan: Patriotism’s local economy