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Where are the largest Bitcoin mines in the world?

Author: LB 2019-12-22 1085

If you drive from the capital of Sichuan province, Chengdu 300 km to the west you will reach a plateau that's 2500 meters above sea level. Altitude differences are significant in this area and it abounds in water. These facts trigger the rapid growth of power plants in the province and this also lead to cheap electricity prices.

We all know that when one wants to mine Bitcoin he/she needs to have plenty of cheap electricity available to solve complex mathematical problems. For the solution of these mathematical problems miners get Bitcoins as a reward and this encourages them to invest into additional mining resources. The mining process is essential for the Bitcoin architecture to operate and the competitiveness of the industry has already reach a level where it is not profitable anymore to use ordinary PCs for mining.

Amateur-operated small scale servers seem to be getting replaced by large companies who operate enormous server parks to mine Bitcoin 24 hours a day 365 days a year. Obviously, these servers require cooling and whether Bitcoin mining is profitable depends on the price of electricity.

As the block reward will never increase, the fact that the only way to make Bitcoin mining profitable is to transfer the mines to areas where electricity is cheap became clear for quick-witted Chinese investors.

There are hundreds if not thousands of power lines traversing Kangding (康定) in Tibet, China. Bitcoin miners seems to like this area and in certain mines operating more than 30.000 servers is not a rare phenomena. Chinese miners are proud of their mining activities that does harm the surrounding environment in Kangding, because they only make use of the natural altitude differences and utilize fast running rivers.

What is in the background?

A few decades ago, the Chinese economy started to boom in cities that were close to the sea. Some representative members are Shanghai, Guangzhou and Xiamen and these megalopolises required an enormous amount of electricity. Inner regions of China abound in natural resources. They have plenty of water, coal and altitude differences in inner China.

More than 20 years ago, the Chinese government launched a project called "西电东送". The direct translation of the Chinese characters would be electricity-from-the-west-sent-to-the-east. In other words, cheap electricity generated in Tibet and the nearby regions should be transferred to these booming cities.

Long story short, these power plants were built and cheap electricity is still available in these regions, however Shanghai and even other cities exhibited such an amount of growth that it turned to be more expedient to build new power plants near the shore instead of transmitting the electricity from inner China. Considering the losses one has to consider when using these long power lines, this makes sense.

The power plants in Tibet became less utilized and Bitcoin miners started to work on new mining projects. They made agreements with the local governments and they were treated very well in the region. This was mostly because these areas were much less developed compared to cities in Southern-China for example and local governments were desperately looking for financial aid. There are some agricultural activities in Kangding and tourism is something that provides income for the locals, but in general, residents are poor, because there is no stable economy. When Bitcoin miners appeared, they brought new opportunities for the locals, because they recruited workforce to install and maintain their Bitcoin mining servers.

1 kWh in Kangding costs 0.3 CNY, which is approximately 0.043 USD. This is significantly cheaper than in most developed countries for example in Europe or the US. The Bitcoin miners are aware of the fact that electricity prices in inner China can change. For example in autumn, when there is less water flowing from the mountains electricity gets more expensive. When this happens Chinese miners dismantle their servers, put them on a truck and move the whole Bitcoin mine to a region with cheaper electricity.

The final destination is Inner Mongolia

Many of these servers end up in Ordos, Inner Mongolia. Ordos is basically a ghost town with a lot of residental buildings with no residents. So instead of residents, they have coal there and this encites Bitcoin miners to come and build their enormous server parks. It is not only the cheap coal, but the cold winter is also a fact that creates a favourable Bitcoin mining environment.

There are some changes in 2017

The Chinese government realized, that if they keep electricity prices low it will lead to the exploitation of natural resources in the country so they stepped in and forced local governments to close their water hydropower plants. Only those who could make custom agreements with these local governments were able to continue their mining activities.

There were many miners who transferred their mines to the Xinjiang Uyghur Autonomous Region (XUAR). Autonomous regions in China are always more favourable for entrepreneurs, because Beijing's authority is not always presents in these areas. Nevertheless, many Chinese miners moved a significant amount of capital to other countries and they are planning to open crypto currency exchanges in Japan and Thailand. We learned the lesson. To stay competitive, one has to act proactively.


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