Analysis: Limited capacity, logistics to slow Chinese bitcoin miners’ global shift

  • Chinese bitcoin miners hit by government crackdown on financial risks
  • Bitcoin miners are looking for data centers with cheap electricity and cool weather
  • Geographical diversification likely after short-term disruptions

HONG KONG / SHANGHAI, Jul 7 (Reuters) – Major bitcoin miners fleeing China to avoid a state crackdown will take many months to resume operations as data centers from Texas to Siberia battle for space and to secure electricity for them, while many smaller players may have difficulty moving at all.

Bitcoin is usually created or “mined” by high-performance computers in data centers in different parts of the world that compete to solve complex mathematical puzzles in a process that uses intense electricity.

China’s industry, which accounts for up to 70% of global capacity, is in disarray after the State Council or cabinet announced crackdown on bitcoin trading and mining in late May to target financial risk. Continue reading

Miners in China are now closing or planning to move out, are looking for tolerant authorities, low temperatures to prevent machines from overheating, and cheap electricity – ideally excess electricity from hydropower plants or oil fields that would be wasted.

According to estimates by researchers from the University of Cambridge, the worldwide electricity consumption of Bitcoin mining at the beginning of July corresponds to an annual consumption almost as much as Austria’s, even after it has fallen by 50% since May.

While the move is intended to stimulate the development of new mining centers in the long term, the miners are currently facing limited data center capacities abroad and logistical challenges.

“Neither of these guys will go online in June or July,” said Thomas Heller, Compass Mining’s chief business officer, explaining that miners must collect, test, clean, and package machines across China, ship them overseas, and go through customs before installation.

Logistics are more difficult for smaller Chinese miners who have less cash to spend on shipping and who are also unfamiliar with overseas activities, so they may struggle to find hosting centers that they can trust, miners say.

Nonetheless, Compute North, which operates data centers that house bitcoin miners in Texas, Nebraska, and South Dakota, is accelerating expansion plans planned for next year to meet “a massive influx of requests” from China.

“I have no doubt that if the infrastructure catches up, we’ll see a lot of computers in warehouses in the next six, nine, twelve months,” said Dave Perrill, chief executive of Compute North.

“We’re aiming for Q1 and Q2 of 2022 for large-scale deployments … (but) it’s not an easy move, it involves a lot of complex engineering, sourcing, and construction.”

Moscow-based BitRiver, which operates data centers in Siberia that house bitcoin miners, has accelerated plans to build new facilities and expand existing ones to meet some of the demand from those leaving China.

BitRiver estimates that the footprint in its facilities will increase to 1.5 million mining machines using up to 2.5 gigawatts of electricity, dwarfing the 125 megawatts of the current three data centers.

“We know that companies leave China because they run straight to us,” said BitRiver spokesman Roman Zabuga.

SPACEKNAPP

According to an estimate by Adam James, a senior editor at OKEx Insights, China’s ban on Bitcoin mining could cause up to 90% of all mining in the country to go offline. Some miners desperately dump machines. Continue reading

Kazakhstan-based hosting center Hive Mining receives about four inquiries a day from potential Chinese customers about pricing, availability and regulations, said co-founder Didar Bekbauov.

Kazakhstan just doesn’t have enough operational data center space to house all of these miners, he said.

However, the slumps in Chinese bitcoin mining aren’t bad news for everyone.

“Our revenue grew automatically after hundreds of thousands of bitcoin mining machines suddenly went offline in China,” said Dale Irwin, president of Greenidge Generation, a New York-based bitcoin mining and power generation company.

The algorithm that controls Bitcoin keeps production at a regular pace and adjusts roughly every two weeks to require more computing power to generate Bitcoin when many machines are mining, or less when fewer.

Bitcoin mining computing power has hit a six-month low since China’s crackdown.

Kevin Zhang, vice president of business development at U.S.-based Foundry, a crypto mining, financing and advisory firm, said the crackdown could drive geographic diversification in the longer term.

“Many countries that have not yet been tapped by Bitcoin miners, such as Southeast Asia, South America or Australia, will be incentivized to use their stranded renewable energy,” he said. “These energy markets were not needed before.”

Reporting by Alun John in Hong Kong and Samuel Shen and Andrew Galbraith in Shanghai, additional reporting by Alexander Marrow in Moscow and Allison Lampart in Montreal; Adaptation by Sumeet Chatterjee and Lincoln Feast.

Our standards: The Thomson Reuters Trust Principles.

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