The rise of overseas mining: the United States builds factories in batches, and Malaysia becomes a paradise for stealing electricity

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As 2020 begins, China's dominant position in the Bitcoin mining industry is facing challenges.

Data from the University of Cambridge shows that from September 2019 to April 2020, China's share of Bitcoin computing power fell from 75.62% to 65.08%. However, countries such as the United States, Kazakhstan, and Malaysia are on the rise.

Kazakhstan introduced miners to support the local economy. Small towns in the United States encourage mining because of the surplus of electricity resources. The reason for the rise of mining in Malaysia is ridiculous: here, if you are caught stealing electricity for mining, you only need to pay the electricity bill and you will not go to jail.

At present, some Chinese miners are going overseas or planning to go overseas. However, going overseas also means more risks: political turmoil, policy changes, and betrayal of partners may make miners lose all their money.

But there is no doubt that mining capital is gathering at the top, both at home and abroad. The days of small and medium-sized miners will become increasingly difficult.

01 The rise of overseas mining

As the center of the global Bitcoin mining industry, more than 70% of the world's Bitcoin computing power was once located in China. However, in the past year, this number has changed significantly.

Data from the Cambridge University Center for Alternative Finance shows that the computing power of China's Bitcoin mining farms has dropped from 75.62% in September 2019 to 65.08% in April 2020.

During the same period, the computing power of mining farms in the United States increased from 4.06% to 7.24%, and the computing power of Kazakhstan increased from 1.42% to 6.17%. The Bitcoin computing power in Russia, Malaysia, and Iran also continued to grow and began to divide China's share.

Average monthly computing power share of different countries (April 2020) Source: Cambridge University Center for Alternative Finance

Among these countries, Kazakhstan has become the leader in computing power growth - the country's Bitcoin computing power has increased by 334% in the seven months from September 2019 to April 2020.

The rise of Kazakhstan's mining industry is due to local support for Bitcoin mining.

Since the collapse of the Soviet Union and the independence of Kazakhstan, the country's economy has been highly dependent on the export of mineral resources such as oil and coal. In order to get rid of its dependence on mineral resources, Kazakhstan has turned its attention to digital currency.

Data shows that Kazakhstan has 3,500MW of excess electricity. If this electricity resource is sold to miners, the country is expected to earn an additional $1 billion in revenue each year.

In June this year, Kazakhstan's Minister of Innovation and Aerospace Industry announced in parliament that it plans to attract 738 million yuan in digital currency mining investment within three years, and announced that mining will be tax-free.

At the same time, the Bitcoin mining industry in the United States is also booming. Today, the United States has become the second largest Bitcoin mining country after China.

"Many of the new mining machines recently launched by Bitmain have been bought by American customers, with one order being tens of thousands of units," Yunnan miner Wan Qiang told Yiben Blockchain.

In June this year, the US mining company Core Scientific announced that it had purchased 17,600 Ant S19 mining machines from Bitmain.

The Ant S19 mining machine is the latest mining machine from Bitmain and is also one of the most energy-efficient mining machines on the market. The price of a single unit is 14,000 yuan.

Core Scientific claims that this is the largest S19 order from Bitmain. The company operates five Bitcoin mining farms in the United States with a total power capacity of 450MW, equivalent to a medium-sized thermal power unit.

In the United States, some power plants have also started mining businesses. For example, a natural gas power plant in New York, USA, purchased 7,000 Bitcoin mining machines to consume excess electricity.

Bitcoin mining machines installed in power plants. Image source: BlockPitch

In addition to the United States and Kazakhstan, another rapidly rising mining power this year is Malaysia. And Malaysia's advantages in attracting miners are ridiculous.

In the mining circle, Malaysia is nicknamed "the paradise of electricity theft". A miner told a blockchain that if you are caught stealing electricity in Malaysia, you will not be sentenced, but only need to pay the electricity bill.

Therefore, there are even mines that use stolen ID cards to sign rental contracts with landlords, and then run away if they are caught stealing electricity.

Bitcoin mining machines seized by Malaysian police Source: Nanyang Daily

According to the Malaysian media Nanyang Daily, there were at least 50 cases of stealing electricity for mining in Malaysia in 2018. From January to July 2020, the number of cases of stealing electricity for mining increased to 94.

02 Mining overseas

There is no shortage of Chinese miners in overseas mines.

As early as the beginning of 2018, Reuters reported that Bitmain planned to build a mining farm in Quebec, Canada. The report said that Bitmain was selecting a site for the mine and had begun negotiations with the power department.

Quebec is located in southeastern Canada and is the largest province in Canada. The local water resources are abundant, the electricity price is low, and the temperature is low, which can save the cooling cost of mining machines.

In October 2019, Bitmain reached a cooperation with Canadian mining company DMG, which will assist Bitmain in managing multiple mining farms in North America. Bitmain's Texas mining farm, which has 15,000 mining machines, is managed by DMG.

"The specific form of cooperation is very simple. Bitmain provides mining machines and hires some local employees as managers." Wan Qiang told Yiben Blockchain, "DMG, as the local boss, is responsible for arranging power supply and local government relations."

In fact, it is not difficult to open a Bitcoin mine in the United States. The story of Bitmain building a mine in a small town in Texas illustrates this point.

The mine is located in a small town called Rockdale, where the population has doubled to more than 5,000 since Alcoa opened the country's largest smelter in 1952.

But with the decline of the American manufacturing industry, the smelter gradually ceased production after 2008, thousands of people lost their jobs, the town government lost a major source of tax revenue, and two local hospitals went bankrupt.

In 2018, Bitmain came to Rockdale and announced that it would build a Bitcoin mine here. It will accommodate more than 300,000 mining machines and provide 400-600 jobs for the local area.

Although Bitmain has since significantly reduced the scale of its mining farms for its own reasons, it has still deployed 13,000 mining machines locally and provided employment for dozens of people.

Bitmain's mining farm in Rockdale Source: Governing

Soon after, some American mines also flocked to Rockdale to mine locally. An American company called Whinstone also helped build a park in the area and sponsored three poor middle school students.

The mining machines of Bitmain and Whinstone are placed in the abandoned factory of Alcoa. The local mayor Chris told the American media "Governing": "It's really cool to see new things replacing old things."

Outside analysts believe that Bitmain is building mining farms around the world, especially in North America, in order to avoid compliance risks in the domestic mining market - if domestic laws prohibit mining, they can directly move the mining machines in domestic mines overseas.

A Chinese person working in the blockchain business in Africa told Yiben Blockchain that Canaan has also been looking for partners in Africa recently, trying to expand its mining business to Africa.

03Uncertain future

On this planet, miners are like nomads who live by following the water and grass. Wherever there is cheap electricity, there you will find miners.

The rapid development of mining in overseas countries is also directly related to electricity prices.

For example, Kazakhstan is one of the countries with the lowest electricity prices in the world, with some areas costing less than 1 cent per kilowatt-hour.

The United States also has its own advantages.

The latest official data released by the U.S. Energy Information Administration shows that in April 2020, the average electricity price in the United States was 10.42 cents per kilowatt-hour, equivalent to about 0.72 yuan. Compared with domestic electricity prices, this price is not advantageous.

However, the special national conditions of the United States may give miners the opportunity to get extremely low electricity prices.

First, the United States consists of 50 states, and the electricity prices vary greatly from state to state. For example, the electricity price in Hawaii is as high as 30 cents per kilowatt-hour, while the average electricity prices in Washington State and Texas, which are favored by miners, are 8.08 cents and 8.47 cents per kilowatt-hour, respectively.

Secondly, the industry pricing strategy of electricity prices in the United States is different from that in China. China's power industry focuses on people's livelihood, and residential electricity prices are lower than industrial electricity prices; while in the United States, it is the opposite, with residential electricity prices much higher than industrial electricity prices.

For example, the residential electricity price in Washington State is 9.67 cents per kilowatt-hour, while the industrial electricity price is only 4.77 cents per kilowatt-hour, or about RMB 0.33.

In this state, the average price of industrial electricity is only 0.33 yuan. This means that in some areas of this state, there will definitely be electricity prices lower than 0.33 yuan.

Finally, the U.S. electricity market is highly market-oriented. As early as the 1990s, the U.S. liberalized the free electricity sales market, allowing power plants to find customers and negotiate electricity prices directly.

In recent years, the US manufacturing industry has continued to be depressed, industrial electricity consumption in many areas has dropped significantly, and there is a surplus of electricity resources. This gives miners a certain advantage in negotiations with power plants.

"Places like Rockdale used to have an aluminum plant. The aluminum plant is a big consumer of electricity. If it stops production, how will the power plant that supplies it survive? At this time, if a mine comes in and is willing to fill the electricity shortfall, the power plant will definitely offer a cheap enough electricity price." A mine owner told Yiben Blockchain.

Although the U.S. mining industry is booming today, most domestic miners are still hesitant about going overseas.

"Mining in a foreign country is too risky because you are unfamiliar with the place." Wan Qiang told Yiben Blockchain, "Those people in the mining circle who advocated mining in Iran last year are basically silent now."

The reason why the mining craze in Iran has subsided is simple: Iran’s political situation has been unstable in the past year, and the entry and exit of mining machines and the operation of mines have been affected.

"Chinese miners who go overseas to mine are relatively passive. It is difficult to control all kinds of relationships abroad," Wan Qiang said. "In some small countries, even if you have a relationship with the president, when the government changes and the new president takes office, the relationship will be gone."

He pointed out that the most important thing for Chinese miners going overseas is to form a bond of interests with local partners, to make money together and to be interdependent.

"Some Chinese miners who go overseas are most afraid of being used by local partners first and then harvested," he explained. "Mining machine manufacturers like Bitmain can control the supply of mining machines in the mines, and the locals will definitely not dare to neglect them. But small miners may not be sure."

Miner Lao Ding believes that since 2018, there have been miners in the domestic mining circle trying to go overseas. But to this day, it is still not a big trend for Chinese miners to go overseas.

Many miners have stated that since the halving of Bitcoin production this year, the capital concentration effect of the mining industry has become more obvious.

"Whether staying in China or going overseas, the future of the mining industry will be dominated by large companies and big capital such as Bitmain and Canaan," said Wan Qiang. "They often build large mining farms with tens of thousands or hundreds of thousands of mining machines, and it is difficult for small and medium-sized miners to keep up."

The rise of overseas mining is quietly changing the global mining landscape.

However, most Chinese miners said that in the short term, China's dominance in mining will be difficult to shake. China is still the most suitable country for miners.

But when it comes to industry participants, with the intensification of mining mergers and the increasingly obvious head effect, the fate of small and medium-sized players, both at home and abroad, is already at risk.

*The interviewees in this article are pseudonyms.