Jiang Zhuoer became a multimillionaire a few years ago by operating some of the most lucrative mines in China. His goods? Bitcoin.
Jiang kept around 300,000 computers buzzing around the clock in 20 specially ventilated warehouses in remote northern China, and swallowed enough electricity to power a small town. The sophisticated machines cost hundreds of millions of dollars. The digital currency they minted was worth even more.
Today, Jiang, an eloquent 36-year-old, is finished in China. He and several Chinese investors – some who became billionaires through Bitcoin mining – are considering shipping their equipment to Texas and Tennessee.
China’s bitcoin moguls are coming to America.
For years, Chinese miners like Jiang were made possible by the flood of cheap – and often dirty – electricity in China, where a huge fleet of coal-fired and hydroelectric plants has fueled the country’s rise to an industrial giant. At its peak in 2018, China’s bitcoin prospectuses accounted for 74% of global bitcoin production.
But this year, Chinese authorities are cracking down on the cryptocurrency to reduce energy consumption and meet their climate goals, thereby scattering the miners. And more and more miners are breaking into places like Texas, South Dakota or Canada and starting a mass migration with an impact on the developing industry and the new communities that will host them.
There is also the question of how much local energy networks can handle. Digital currencies require tremendous computing power for transactions and other functions such as creating new cryptocurrency stocks. That consumes a lot of energy – often measured in gigawatts or 1 billion watts – to keep the systems running. The more a cryptocurrency system grows, the more electricity it needs.
Jiang recently withdrew tens of thousands of its machines from Chinese regions including Inner Mongolia, which not only banned mining but also encouraged citizens to call a government office to report illegal mining.
“You know it’s getting serious,” said Jiang, “when they set up contraception hotlines.”
Elsewhere in China, too, the Xinjiang region and three major provinces – Qinghai, Yunnan and Sichuan – have banned the production of cryptocurrencies.
In Beijing on May 21, senior economic officials pledged to “curb bitcoin mining and trading,” an announcement that plummeted the global price of bitcoin. In the past few weeks, Chinese social media users have complained that some crypto-related topics are being censored, while Chinese police have announced the arrest of more than 1,000 people for cryptocurrency-related financial crimes.
This sudden cold, Chinese Bitcoin miners and executives predict, will only intensify. The Chinese government has felt uncomfortable not only because of the industry’s carbon footprint, but also because of the inherently uncontrollable, decentralized nature of the cryptocurrency.
Yemu Xu, the co-founder of Bella Protocol, a cryptocurrency banking service provider, said Chinese miners who see the writing on the wall have been trying to immigrate to countries like Iran and Kazakhstan for years to save costs. In the past year there has been a growing interest in countries that not only have cheap electricity, but also have “stable political regimes, mature regulation and better political support”.
“As a result, mining has increased in countries like the US and Canada,” he said.
But the introduction of industrial mining into U.S. communities could raise the same sensitive questions about the technology’s environmental impact that piss off officials in China.
Researchers from the Chinese Academy of Social Sciences predicted earlier this year that China’s bitcoin mining industry could use more energy than Italy by 2024. Researchers at the University of Cambridge estimated that Bitcoin miners were responsible for more energy consumption worldwide than Argentina.
Alex de Vries, a financial economist who has long criticized Bitcoin’s energy consumption, predicted the migration of China’s Bitcoin miners will have an impact.
“You speak of an energy demand that may be the size of a small western country that needs to be relocated elsewhere,” he said. “Finding a new home is a huge problem for all of these miners.”
Earlier this year, a dispute broke out in the Finger Lakes region of New York State between local activists and a Connecticut private equity firm that had converted an old natural gas-fired power plant into a Bitcoin mine. As a result, New York state lawmakers are considering billing that would block new bitcoin mining in carbon-producing power plants.
Other jurisdictions have taken the opposite approach. In March, coal-rich Kentucky passed bill giving tax breaks to miners who invest $ 1 million to install new machinery in the state.
Either way, growth in the U.S. cryptocurrency mining industry is expected to continue as larger mutual funds draw in, especially if Bitcoin can return to its all-time high of over $ 60,000, industry insiders say.
“In China, miners may be running out of places to go and they are thinking, how can I move part of my portfolio elsewhere?” Said Mike Colyer, CEO of Foundry, a Rochester, NY-based company Helping miners buy tens of thousands of computers at once and assemble them at industrial sites. “But it’s not just the Chinese. At the moment everyone is trying to connect machines. “
Colyer said he also helped identify properties and turn them into bitcoin farms, such as abandoned aluminum factories that have the electrical infrastructure that can handle enormous wattages.
A Chinese miner who spoke on condition of anonymity for fear of political repercussions in China said he predicted 60 to 70% of his colleagues would relocate their operations to the United States or Europe. He said he’s building about 50 shipping containers to house his computers on an oil field in west Texas and he’s breaking the ground on a 33-megawatt site in Newfoundland and Labrador, Canada.
“In China in particular, everyone is scared. The question is not whether to move out, but immediately or gradually, ”said the miner. But there are also regulatory uncertainties in the West.
“The local communities in the US don’t necessarily like bitcoin farms,” he said. “We have to be aware of this and the environmental risks as the Biden government could take a tougher stance on Bitcoin.”
Other Chinese miners are less concerned about looking for new frontiers.
Jiang put a number of drawbacks on expansion in the United States: too many “environmentalists who care about wildlife and birds,” he said, and too much “white liberal idiocy” was concerned with climate change – the science of which he was concerned doubted. US electricity is six times more expensive than in China, he estimated, and he has to pay IT staff relatively high wages to keep his computers purring.
Even so, Jiang said he was considering two locations in Texas and Tennessee. It seemed less risky than other places, including the Middle East, where he was hired by the authorities, or Russia, where his colleagues’ expensive computers were confiscated by corrupt police officers.
And right now, anywhere seemed a safer choice than China, where regulators can be quacky and unforgiving.
“A change in government policy that suddenly ousted all miners – that would never happen in America,” Jiang said. “It’s a capitalist system.”
Pei Lin Wu of the Washington Post in Taipei contributed to this report.