Analysis: Limited Capacity, Logistics to Slow the Global Turn of Chinese Bitcoin Miners

  • Chinese bitcoin miners hit by state crackdown on financial risks
  • Bitcoin miners seek data centers with cheap power and cool weather
  • Likely geographic diversification after short-term disturbances

HONG KONG / SHANGHAI, July 7 (Reuters) – Big bitcoin miners fleeing China to escape state crackdown will take months to resume operation, as data centers from Texas to Siberia scramble to securing them space and electricity, while many small players may find it difficult to move.

Bitcoin is created or ‘mined’ by powerful computers, usually located in data centers located in different parts of the world, competing to solve complex mathematical puzzles in a process that uses electricity extensively.

Industry in China, which accounted for up to 70% of global capacity, is in disarray after the State Council, or cabinet, announced in late May a crackdown on bitcoin trading and mining targeting financial risks. Read more

Miners in China are closing down or are now looking to relocate, looking for tolerant authorities, low temperatures lest machines overheat and cheap electricity – ideally, excess energy from hydroelectric power stations or oil fields. that would be wasted.

The power consumed by bitcoin mining around the world in early July is equivalent to an annual consumption almost as large as that of Austria, according to the estimates of researchers at the University of Cambridge, even after falling by 50% since May .

While this move is expected to fuel the emergence of new mining centers in the longer term, for now miners face limited overseas data center capacity and logistical challenges.

“None of these guys go online in June or July,” said Thomas Heller, commercial director of Compass Mining, explaining that miners had to collect machines scattered all over China, test them, clean and pack them, ship them. abroad and go through customs. before installation.

Logistics are more difficult for small Chinese miners with less cash on hand to pay for shipping, and who are also unfamiliar with overseas operations and therefore may have difficulty finding accommodation centers in who they can trust, say the miners.

Nonetheless, Compute North, which operates data centers hosting bitcoin miners in Texas, Nebraska and South Dakota, for example, is accelerating expansion plans slated for next year to respond to “a massive influx of requests “from China.

“There’s no question in my mind that we’re going to see a lot of computers sitting in warehouses over the next six, nine, 12 months as the infrastructure catches up,” said Dave Perrill, CEO of Compute North.

“We are targeting the first and second quarters of 2022 for large-scale deployments… (but) it’s not a simple change, it takes a lot of complex engineering, procurement and construction.”

Moscow-based BitRiver, which operates data centers in Siberia that host 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 demand for space at its facilities will reach 1.5 million mining machines requiring up to 2.5 gigawatts of power, eclipsing the 125 megawatts of its current three data centers.

“We know that companies are leaving China because they are running straight to us,” BitRiver spokesman Roman Zabuga said.

SPACE SHORTAGE

According to an estimate by Adam James, editor-in-chief of OKEx Insights, China’s ban on bitcoin mining could lead to the disconnection of up to 90% of all mining operations in the country. Some miners throw machines in despair. Read more

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

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

The cuts in Chinese bitcoin mining, however, are not bad news for everyone.

“Our revenue automatically increased after several hundred thousand bitcoin mining machines suddenly went offline in China,” said Dale Irwin, president of Greenidge Generation, a bitcoin mining and power generation facility. based in New York.

The algorithm governing bitcoin keeps production at a steady rate, adjusting about every two weeks to require more computing power to generate bitcoin if many machines are mining, or less if less.

Since China’s crackdown, bitcoin’s computing power has hit its lowest level in six months.

Kevin Zhang, vice president of business development at Foundry, a U.S. mining, financing and consulting firm, said the crackdown could lead to longer-term geographic diversification.

“A lot of countries previously untapped by bitcoin miners, like South East Asia, South America or Australia will have an incentive to use their stranded renewable energy,” he said. “These energy markets were not necessary 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; Editing by Sumeet Chatterjee and Lincoln Feast.

Our standards: Thomson Reuters Trust Principles.

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