Under the title "Bitcoin Miners Scour the World for Shelter and Energy Sources", Bloomberg's East reported that during the weekend at the end of June, hundreds of desperate Bitcoin miners gathered in a luxury hotel in western China, facing a significant issue. Weeks earlier, the Chinese government banned cryptocurrency mining due to concerns about illegal coal-based mining and inherent financial risks. Now, they had to think of a way to relocate millions of computers out of the country.
Miners sat in rows of white chairs in a hall at the Gran Meliá Chengdu hotel, attentively listening to executives from Bitmain Technologies, the world's leading mining equipment manufacturer, who presented on the basics of energy in Texas and cryptocurrency mining in Kazakhstan. The attendees enjoyed pastries, drank juices, and discussed their bleak local prospects.
Bitmain staff offered to act as intermediaries to connect miners with data centers in the U.S., Central Asia, and Europe. They also warned that an uncontrolled rush into new markets could drive costs up for everyone. One slide in the presentation read: "Unite to feel warm. Say no to fierce competition."
Just hours after the conference, the severity of the situation became clear when Alex—a Chinese miner who preferred to remain anonymous for fear of government retaliation—went out with fellow miners for karaoke and then called to check on his machines in the mountains outside Chengdu. A colleague had informed him that local authorities had cut power to his facility, leaving the mine in silence and rendering it nearly worthless. Alex cursed and complained, saying, "All my money is gone. I lose money every day these machines aren't working."
Chinese cryptocurrency miners were forced to abandon the cheap electricity generated by abundant coal and rushing rivers in their country, finding themselves pushed into a wild and extreme world searching for energy to power their operations. Just as gold miners headed towards California and Alaska more than a century ago, Bitcoin miners are now heading toward any inexpensive and reliable energy source they can find. Their next destinations are a matter of great concern for an industry focused on decentralization and independence, as well as for other energy-consuming sectors they compete with for greener electricity.
Of course, a Bitcoin mining platform does not extract anything from the ground; it typically consists of thousands of specially designed computers that manage complex calculations to maintain the cryptocurrency network. These computers are often stacked on shelves in warehouses, which usually have huge fans used for cooling. In China, warehouses are typically located near their energy sources, such as independent hydropower plants and thermal power plants associated with coal mines. According to Tyler Page, CEO of Cipher Mining Technologies, electricity accounts for about 80% of mining costs.
Miners who run encryption calculations receive a reward of new Bitcoin, with the value of Bitcoin falling from about $65,000—before China banned mining—to about $33,500 today. Recent data from the University of Cambridge showed that approximately 65% of Bitcoin mining globally since April last year occurred in China.
Cheap energy is the reason Kazakhstan, a neighbor to China, has become the first destination for miners fleeing from China. This former Soviet state has more than 22 gigawatts of electricity, mostly from coal and gas-fired plants, and it borders the Xinjiang region, which was home to about 36% of Bitcoin miners worldwide.
Dmitry Ivanov, sales manager at Germany-based Enegix, noted that Bitcoin mines can obtain electricity at a low rate of around 3 cents per kilowatt-hour. He further added that the country’s cold weather is also favorable, as data centers do not require air conditioning to avoid excessive heat that could raise energy costs by an additional 30%.
Enegix operates server hosting in Kazakhstan, building data centers where Bitcoin miners can pay fees to connect their equipment. At the end of last year, the company established its largest site yet, a data center with a capacity of 180 megawatts on a 37-acre plot near Ekibastuz in northeastern Kazakhstan, which is a major industrial center powered by one of the world's largest coal-fired power plants outside of China.
In June, Ivanov received daily messages from miners in Sichuan and Inner Mongolia who needed to relocate after Beijing's crackdown. He said, "We'll benefit from this, but these people will face catastrophic losses due to all the infrastructure that needs to be moved elsewhere."
Clients of Enegix are set to soon ship about 10,000 mining devices to Kazakhstan via air freight, including models such as the S19 Pro produced by Bitmain and the Whatsminer M21S from Chinese manufacturer MicroBT. Overland shipping from China is less expensive, but trucks could remain stuck at the border for weeks, and spending that time mining Bitcoin will offset the added costs of air transporting the equipment.
Didar Bekbaou, head of another Bitcoin hosting company based in Almaty, a smaller competitor to Enegix, has also been inundated with requests from miners. He said over the phone: "A lot of Chinese are contacting us, asking for help in moving their equipment, and they are asking every Kazakh citizen they know for help with providing electricity."
However, there are limits to Kazakhstan's capabilities; its electric network has added only slightly more than 3 gigawatts of capacity in the past twenty years, according to BloombergNEF data, leaving little room for increasing the number of connected mining devices. Bekbaou now has to turn away clients, stating, "All surplus kilowatts have already been booked."
For some miners, the decision to relocate from China also presents an opportunity to clean up the energy sources they use. It's hard to determine the overall pollution caused by Bitcoin mining, but it reflects the energy source and the mining site's location. Earlier this year, tens of thousands of mining devices consumed approximately 45 million kilowatt-hours of energy monthly in a region of western China reliant on coal-fired power plants, equating to 15,000 tons of standard coal. Globally, mining devices consume as much energy as all the electricity used by Bangladesh, a country with a population of 160 million.
Although some of this electricity comes from green sources, the majority of global electricity still comes from burning fossil fuels. Earlier this year, Elon Musk stated that Tesla would not accept Bitcoin for vehicle sales due to its carbon footprint. A coalition of companies in the cryptocurrency industry launched the Crypto Climate Accord earlier this year to address criticisms and committed to helping the sector transition to 100% renewable energy consumption.
Cryptocurrency miners face a much larger push toward reducing carbon emissions from energy consumption to combat climate change. According to the International Energy Agency, the share of energy from renewable sources should rise to about two-thirds of supplies by 2050 from around 12% in 2020 to prevent temperatures from rising more than 1.5 degrees Celsius above pre-industrial levels. Countries around the world, including China, the U.S., and the European Union, must ramp up the construction of wind farms and solar power plants to approach their targets.
Renewable energy sources such as wind and solar may be abundant at times, but demand is expected to rise as cars, home heating, and heavy industries increasingly switch to electricity. Excess energy in Northern European countries, which became heavily involved in Bitcoin mining due to their abundant hydropower, began to dwindle earlier this year as industrial users ramped up their production.
Peter Wall, CEO of the London-listed mining company Argo Blockchain, noted: "There are more noble uses for renewable energy than Bitcoin mining... but the truth is people will keep mining Bitcoin, and they won’t stop."
Bitcoin miners want to feel confident they won't wake up one day to news of another crackdown on their operations. Last October, Bit Digital, a Nasdaq-listed mining company, began relocating some of the 30,000 devices it operated in China to North America. By the time of the Chinese crackdown, Bit Digital was able to continue mining with minimal disruption.
Even within the U.S., there are regulatory differences among states. Cipher Mining Technologies, the American arm of Dutch company Bitfury Holding, is building mining capacity in Texas, the only state with a power grid separate from eastern or western state grids, and in Ohio, due to the state’s cheap power prices and low-carbon electricity sources. In contrast, a state like New York is less attractive, as lawmakers there previously proposed a bill that would limit cryptocurrency mining in the state.
The physical characteristics of a location are also crucial; extreme fluctuations in temperatures in either direction are viewed negatively, as are extremely dry and sandy environments. Page of Cipher said, "Dust actually gets into the computers, causing serious problems."
Some of Bit Digital's mining rigs were shipped to a data center in Kearney, Nebraska, where the company already has about 5,000 Bitcoin mining devices, which generate significant noise. The CEO, Brian Bulat, exclaimed on a recent tour of the facility, as fans blew his hair around: "You can't hear anything here!"
About a mile away from the data center, there is a warehouse containing transported Chinese rigs owned by Bit Digital, stacked to the ceiling on wooden platforms, awaiting an opportunity to be plugged in and generate revenue. Bulat remarked, "Seeing the equipment here in boxes, unable to be plugged in and earn money, is disheartening." He estimated that about 500,000 devices are being shipped from China as a result of the crackdown.
Bit Digital is considering establishing operations outside North America, but local regulations and stability are concerning factors. The president of El Salvador announced last month that his country would be the first to adopt Bitcoin as legal tender and ordered the state-owned geothermal energy company to create a plan for Bitcoin mining powered by volcanic energy. Therefore, Bulat and other executives from Bit Digital traveled to the Central American nation late last month for two days of meetings with the cabinet.
Other Bitcoin mining companies want to ensure that El Salvador's enthusiasm for the cryptocurrency will withstand leadership changes. Bulat said, "It's natural to have questions about stability, especially in a capital-intensive sector like mining." When asked whether he would send Bit Digital devices to its Salvadoran development site, he paused before responding: "It depends on the details... for sure, it's worth keeping an eye on."
Unlike large American mining companies, smaller intermediaries are also benefiting from the mass exodus from China. Since news about the crackdown in China first broke in late May, Tim Kelly, CEO of BitOoda, hasn't slept much. Kelly founded BitOoda in 2017 to provide research, investment banking services, and other support for clients involved in Bitcoin mining. From his beachfront home on Nantucket Island off the coast of Massachusetts, Kelly has spent most summer nights on the phone speaking with Chinese miners. When the sun rises, he reaches out to people in the U.S. to find those who can provide locations with enough electricity to host mining operations.
Kelly said, "There is absolute desperation to provide sites as quickly as possible." Although the Chinese restrictions have currently choked the Bitcoin mining sector, the suffering will be only temporary. With increased mining capacity elsewhere, such as in the U.S., BitOoda estimates that the computing power used in mining will return to pre-crackdown levels by early 2023 and continue to grow throughout the rest of the decade.
BitOoda's business has seen steady growth. By May of this year, the company had built network connections with a capacity of less than 500 megawatts for Bitcoin miners seeking to connect their devices to American electricity. Thanks to his sleepless nights, Kelly has successfully increased this figure to around 2,000 megawatts through ongoing deals, with about 70% of that capacity going to Chinese clients.
Building and operating a Bitcoin mining facility from scratch is not easy. Kelly's clients need not only a power source but also substations and transformers which adapt the high voltages in the power grid to be suitable and low enough so as not to damage all those valuable computers. Connecting the computers and preparing them for operation can take some cases up to 18 months to reach operational status.
Most miners have paid upfront for new devices and are now seeking a new address and place to host them, but this time they want to ensure that the new locations will not change. For many, this means trying to connect with energy sources based on renewable energy, which the Biden administration has indicated is the future of the American electrical grid. Chinese clients seem willing to pay higher prices to secure green certification.
Sam Doctor, the director of strategy at BitOoda, stated, "Every discussion we've had has started with the potential power source for the site. What is it? If it's coal, the conversation ends. If it's gas, we might consider it... clients are looking for renewable energy sources, and that is a really important step in greening Bitcoin."
