From the outside, it looks like the kind of huge industrial site typical of western China. A dry and dusty corner of the country where 3,000 people work.
But beyond the security gates of the main entrance, behind a padlocked and guarded door, there is something entirely different: a secret Bitcoin mining farm.
“The government in China, they have already closed some mining farms in Inner Mongolia, ”says the mine owner, who asked to be called Mr.
“We don’t know what their next move will be. So better stay low.”
Is the government aware of this?
“No, not now.”
We’re in a new Bitcoin boom – and that’s the frontier. It is a coal-producing region and this abundant energy is being put to a new use. 12,000 computers are hard and noisy at work, verifying transactions made around the world using Bitcoin.
In return, they earn the digital currency – around 1.5 Bitcoin per day, worth £ 60,000.
“This business is really profitable right now,” says MM. “And our plan is to grow this business. Just the land behind this building, we plan to build a factory twice the size.”
Bitcoin is on another bull run. The price hit an all-time high of £ 44,025.71 on March 13. Institutional investors, including Goldman Sachs and BlackRock, are piling up.
In February, You’re here bought $ 1.5 billion (£ 1.8 billion) worth of bitcoin and this month the company said it would accept the cryptocurrency as car payment.
This means that there is money to be made in the mining sector.
M previously worked in real estate finance but in 2019 he switched to Bitcoin. His first mining farm was in Iran, but he was deceived by his business partner there.
“The most important thing is safety,” says MM. “The people here, I know them. This place, I’m familiar. That’s why I like to choose a safer place.”
M. says there are hundreds of gray sites like his across China. Bitcoin mining is not illegal, although financial institutions are not allowed to handle Bitcoin transactions.
“It’s not entirely inaccurate to say that it’s like a wild west in China when it comes to Bitcoin mining,” says Nishant Sharma, the founder of Beijing-based BlocksBridge Consulting, which specializes in mining. Bitcoin.
“Chinese miners try to make a quick buck before something happens. And that something is usually related to the legalities around Bitcoin mining.”
China is the global hub for Bitcoin mining – it accounts for 65% of the global total, according to researchers at the University of Cambridge.
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But it also requires a huge amount of energy, which has raised serious environmental issues. The total power consumption of Bitcoin in the world is higher than that of Sweden, Argentina or the Netherlands.
And that’s why the authorities cracked down.
In early March, the provincial government of Inner Mongolia announced that all Bitcoin mines in the region would be closed by the end of April, to help it meet its energy consumption targets.
However, other places in China are happy to receive Bitcoin miners – especially in the southwest, where hydroelectric power is plentiful.
“Local governments have their own goals to achieve,” says Jiang Zhuoer, 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 publishes pro-government policies on it.
“China is a big country. It’s very complicated, but in general it has a neutral attitude [to Bitcoin]. “
Nishant Sharma argues that miners are adept at tapping into existing reserves of surplus electricity, to help their business, rather than adding new demand for electricity.
“Bitcoin is a little relentless in its quest for efficiency and energy production. Because energy consumes the majority of the cost of Bitcoin.
“So, miners will always find areas of the world that have a low-cost and sustainable energy supply.”
This may be true in the south, where renewables are plentiful – and, more importantly, cheap. But in the northern areas, the electricity tends to be dirty.
The reason M’s mining farm is inside an existing factory is because it can piggyback on 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 problem, in China at least, is a supply problem. The country continues to build new coal-fired power stations. They generate cheap electricity – which miners continue to benefit from.
There may be a sustainable future for Bitcoin mining. But it has not yet arrived in China.
How does Bitcoin mining work?
Mining is essential to the Bitcoin network.
This solves the “ double-spending problem, ” preventing people from spending Bitcoin they’ve already spent.
Miners are basically 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 across the network.
Miners collect hundreds of transactions in a “block”.
They then solve difficult math problems to verify that block and add it to the chain of past blocks – creating a public ledger of past transactions that is effectively impossible for anyone to edit.
The more computing power you have, the better your chances of solving these problems before anyone else.
And when the miners find out about the solution, they are rewarded with Bitcoin – currently the reward is 6.25 Bitcoins – worth around £ 270,000, depending on their value at the time.
Miners also receive transaction fees from users for including this transaction in the block.