Several Bitcoin mining farms belonging the likes of Bitmain, Ebang, and China Telecom have been penalized by Chinese authorities for misleading the intention of their business to benefit from cheaper electricity costs.
It’s estimated that 21 mining farms in total have been reprimanded for the misuse of electricity in the Inner Mongolia region, which already offers cheap electricity.
Mining Firms Disguise Themselves To Earn Cheaper Electricity
It appears like the businesses charged tried to disguise themselves as big data companies or cloud computing firms in an attempt to earn even cheaper electricity costs.
The underhand move by the mining firms has backfired, however, as the regional authorities have now told the companies they will have to pay even higher electricity costs than normal if they intend to carry on mining Bitcoin in the region.
The fee they’ve been told to pay extra is only $0.015 extra per KW/h, but with the thousands of mining rigs each farm hosts, that number will soon snowball, and their costs will spike greatly.
Inner Mongolia is well-known for its cheap electricity costs, and that’s why the mining firms set up mining farms there. And there are further concessions for certain technology firms as the region tries to attract big business.
But it seems like mining Bitcoin isn’t something the Inner Mongolian authorities are overly keen on attracting.
China’s Heavy-Handed Approach Could Backfire
And while the mining firms involved have been caught trying to scam the system, these moves by the Chinese regional authorities are risky, especially when you consider the expected growth of the Bitcoin mining industry.
As it stands, China is the country with the biggest Bitcoin hashrate by far, and its cheap electricity is key to helping it maintain its dominance.
However, it is slowly losing hashrate as other, more stable countries begin to offer competitive electricity costs, but more importantly: stability and trust for a business to prosper in.
No doubt, the mining firms have done wrong and should be reprimanded for scamming the system, but with Bitmain being the biggest manufacturer of ASICs mining rigs, penalizing them might have a negative impact on the growth of the Bitcoin mining industry in China.
China’s Heavy Stance Plays Into North America’s Hand
China is still the biggest producer of Bitcoin with about 65% of the total hashrate coming from the communist state, but things are changing.
The US and Canada has been attracting many large mining firms hoping to set up in regions known for their cheap electricity.
Only last week Riot Blockchain announced it was buying 8,000 ASICs Antminer S19 Pros as it intended to compete with the biggest of mining firms.
The deal will see the Colorado-based mining firm reach its hashrate target of 1.45 exahash per second (EH/s) on 47 megawatts of electricity after the delivery early next year.
While earlier this month, North America’s biggest mining firm Marathon Patent Group ordered 10,500 Antminer S19 Pros in a deal worth around $23 million.
It’s believed once the new mining rigs are installed Marathon will have a total hashrate of 1.55 EH/s, validating its claim as the biggest mining firm on the continent.
And with Canadian mining companies like Hut8 going public, it’s clear the race for Bitcoin mining will continue to grow in the region.
China Dominates Bitcoin Mining But For How Long?
China has long been the dominant force in the Bitcoin mining industry. And this will continue for a while yet, but hashrate is slipping away from China.
And its heavy-handed approach to Bitmain and other big mining firms won’t help its cause.
No doubt the companies should be penalized for gaming the system, but as with legacy industries, we see corporations setting up shop in more favourable jurisdictions.
It’s a difficult situation for China, but in times of an East-West Trade War, Trump would love nothing more than to extract business away from China.
Author: Tommy Limpitlaw