In Kongyu, Tibet, hydropower electricity is inexpensive, as are wages. And Chinese entrepreneurs are among the world’s most capable and least risk averse. This combination makes Kongyu in China’s western Sichuan province an ideal place for a bitcoin mining operation, as revealed by a Washington Post report.
Chinese mines comprise about 70 percent of the world’s bitcoin processing power. Chinese factories produce the cheapest microprocessors that run the mines. Chinese bitcoin exchanges represent a similar portion of global bitcoin trading.
Is such dominance good or bad for bitcoin’s future?
China’s rising domination of the estimated $9.2 billion bitcoin market capitalization is seen as an irony by those who remember when the industry was viewed as being dominated by libertarian crypto-punks. Others view it as a threat since China’s miners are opposing some of the reforms to improve bitcoin transaction speed as bitcoin use expands.
But Emin Gun Sirer, a computer science professor at Cornell University, thinks these concerns are exaggerated. Critics are overgeneralizing about Chinese miners, who Sirer said don’t work for one enterprise and are not colluding.
Sirer agrees, however, that China’s concentration of mining power has a risk. China’s government could, at least theoretically, take action to block certain bitcoin accounts.
The government would not be able to usurp funds, Sirer said, but it could halt fund movement. Such an action would be contrary to the type of government control that bitcoin was intended to prevent.
China is already using its digital marketing strength to change the Internet and sway the global discussion on surveillance and censorship.
In the Sichuan mountains, however, it is hard to envision any Chinese threat to bitcoin.
China’s government has not been particularly intrusive to date. The government banned banks from trading bitcoin in 2013, but individuals were permitted to trade, and miners were allowed to operate.
China’s bitcoin industry includes investors and visionaries. IT experts and electricians manage the operations.
Ryan Xu, a Chinese-born Australian, became interested in libertarian economics working in a nuclear power plant as a reactor operator. He views himself as a venture capitalist and a utopian.
Xu noted that governments worldwide are printing money and diluting personal wealth. The financial system, meanwhile, crashes every five to 10 years. He said the monetary system is ill and needs a cure.
In search of the cheapest power, Xu moved his mines from Iceland, to Georgia, to Washington State in the U.S., from China’s northern Inner Mongolia province, to its current home in Sichuan’s mountains.
Xu’s newest mine is being built between the concrete shell of a former power transmission station and a hydroelectric power plant, between Kangding and Kongyu.
Chinese power companies established hydroelectric plants in western Sichuan during the country’s economic expansion. When the economy slowed, they were no longer able to sell to the national power grid.
Eric Mu, chief operating officer at HaoBTC, noted that it makes sense for the power companies to sell electricity to anyone willing to buy.
Mu’s company employs 10 people in three mines, whom he pays 6,000 yuan ($900) per month, a decent salary in the region.
HaoBTC has another Sichuan mine and still another farther west in Xinjiang, with more than 11,000 machines that earn more than 80 bitcoins daily (worth more than $745,000.)
Chinese entrepreneurs are not the only ones active in the country’s bitcoin economy.
Many Chinese citizens are investing and speculating in bitcoin after being deprived of other good investment opportunities and a volatile Chinese stock market.
Bobby Lee, a one-time Silicon Valley engineer, established BTCC, China’s first bitcoin exchange. Lee said most of the clientele of casinos worldwide are of Chinese descent, reflecting a cultural instinct to gamble.
Bitcoin does face challenges. In addition to the recent Bitfinex hack, the bitcoin network is demonstrating signs of being overloaded. The network can process around three digital transactions per second, which pales in comparison to the 24,000 transactions per second that Visa can manage
The bitcoin industry has become divided about how to solve the problem of processing delays and increasing transaction fees.
Bitcoin developer Jeff Garzik said a technological fix is on the way that will allow the network to process tens of thousands of transactions per second.
Shirer, for his part, is not concerned about power being concentrated in China. He attributed this to the dynamism of the Chinese market.
Should the Chinese miners suddenly stop mining, other competitors would rise within 24 hours.
Meanwhile, China’s microprocessors keep on running.
Images from Shutterstock.
Last modified: March 4, 2021 4:51 PM