A special report on the recent floods across China's Sichuan province has uncovered an extraordinary story of resilience, discomfort, tragedy, and rapidly changing economic circumstances experienced by the the people who make up the world's largest concentration of small-time bitcoin miners. Originally reported by Chinese…
A special report on the recent floods across China’s Sichuan province has uncovered an extraordinary story of resilience, discomfort, tragedy, and rapidly changing economic circumstances experienced by the the people who make up the world’s largest concentration of small-time bitcoin miners.
Originally reported by Chinese news resource Yiben Blockchain (一本区块链) via Jiemian, the report follows the story of Li Yang, the owner of a relatively small bitcoin mining farm in an area dotted by hundreds of similar-sized bitcoin mining operations.
As earlier reported on CCN, severe floods in the Sichuan region took out a substantial amount of the bitcoin network’s hash rate, after devastating a large amount of mining equipment housed in several makeshift “farms” in the mountainous area.
According to the Chinese report, the Sichuan mountains are home to more than 5 million mining rigs. It has been estimated that up to 70 percent of the bitcoin network’s hash rate originates from China, and of this capacity, as much as 70 percent is based in Sichuan.
For the first time, an insight is given into the lives of an estimated 25,000 people who live lonely, secluded lives in the mountains, surrounded by thousands of ASIC mining rigs. Li Yang is one of these people, attracted to the isolated region because of its low electricity cost, courtesy of twenty nearby hydropower installations along the Lancang River basin.
Li describes a somewhat dystopic existence with no human contact, surrounded only by birdsong and the mechanical roar of mining equipment, with only WeChat and games for company.
“Do you know what I am most afraid of? It is power outage and loneliness.”
In times of high water, electricity costs as little as 0.08 yuan/kWh — three times less than the Chinese national average. Several enterprising people set up mining farms here in partnership with investors who contribute toward the cost of equipment in exchange for a share of earnings.
In June, however, life changed dramatically for much of Sichuan’s “mining army” as floods ransacked the area, destroying tens of thousands of mining rigs and sending several thousand bitcoin miners into an unprecedented struggle for survival.
The flooding cost Li 10 million yuan (~$1.5 million) in equipment and lost income. According to him, a few enterprising cloud computing companies saw an opportunity to build their infrastructure cheaply after the flooding. In the aftermath of the floods, they flocked to the Sichuan mountains to buy scrap mining equipment at 50 yuan (~$7.40) per unit.
The total number of mining rigs lost is estimated at 20,000, with financial losses totaling 100 million yuan (~$15 million).
According to the report, even before the floods, this mining model was on its last legs, threatened by the entry of mining “whales” into the industry, threadbare profit margins, and excess computing power, leading to reduced block rewards for small-time mining farm operators. Large firms are also launching their own managed machine mining services, which smaller players cannot compete with.
The floods have provided extra incentive to move away, and a large number of miners have decided to move their operations from Sichuan to Xianjiang in search of better operating environment.
The move is described as “the largest computing power migration in history.”
According to Li, the last available space for small-scale miners like him is being taken away, and he is ready to withdraw his investors’ money and exit the bitcoin mining industry. In his words:
“It is really impossible to do it. Every month, the custodian will pay the electricity fee of 500 yuan per month to a mine owner in advance, and the mine owner will run the electricity bills.”
Ultimately, the report concludes, bitcoin mining is becoming an increasingly centralised and corporate-dominated activity. While it may be too soon to declare the end of Sichuan’s 25,000-strong mining army, it seems as if the future of bitcoin mining holds no space for miners like Li.
The full Jiemian report can be seen here.
Images from Shutterstock
Last modified: January 24, 2020 11:04 PM UTC