Bitcoin "mine" on the Dadu River: built into a hydropower station to purchase electricity at a low price

Editor's note: This article is transferred from "Zhongjin.com Huixin APP "

Like migratory birds, the mining machines that "mine" Bitcoin have migrated back to the Dadu River Basin in Sichuan.

Huixin learned that on May 28, the Dadu River entered its flood season, with rapid currents and rumbling sounds. Next to a power station in the mountains of Ganzi Prefecture, Sichuan, thousands of mining machines are in 24-hour operation. Inside the factory, workers are loading mining machines shipped from all over the country into the machine room.

A senior mining player in Sichuan said that mine owners do not mind the high mountains and long roads, and look for hydropower stations in deep mountain canyons, and then build mining plants in or near the power stations, just to purchase electricity directly from the power stations and save mining costs.

Huixin pointed out that it is generally recognized in the industry that 70% of the world's Bitcoin is produced in China, and 70% of China's mines are in Sichuan, especially concentrated in the Dadu River Basin.

However, in Kangding City, Ganzi Prefecture, Sichuan Province, the relevant management departments do not support Bitcoin mining. According to the relevant person in charge of the Kangding City Land and Resources Bureau, on May 27, the local government has set up a working group to conduct a survey in the area under its jurisdiction. If some factories are suspected of illegal construction, they will face penalties.

“Migratory Bird” Mine

In May, during the flood season in the south, returning to Sichuan and Yunnan from Inner Mongolia, Xinjiang and other places is an inevitable choice for mining players.

In early May, veteran player Xiao Wu (pseudonym) brought 3,000 mining machines and started looking for a mine in Sichuan. The mine on the banks of the Dadu River in Ganzi Prefecture is an ideal place, as there are many hydropower stations and the electricity price is relatively cheap.

Xiao Wu thinks that it is very appropriate for them to be described as "migratory birds". When the hydropower-rich Sichuan and Yunnan enter the winter dry season, the players migrate long distances to Xinjiang and Inner Mongolia to find thermal power plants. They return with the rising river water in May of the following year.

"The power plant directly supplies electricity at 28 cents per kilowatt-hour, which is very cheap." Xiao Wu is very familiar with this. Every cent saved will save "terrifyingly huge" costs for the entire mine. It's just that hydropower stops directly supplying the mine during the dry season, so they have to migrate north to "overwinter", even though the price of thermal power is more than 30 cents per kilowatt-hour.

Compared with building fixed factory buildings, after years of migration, some mine owners replaced the factory buildings with containers, which makes it easier to move between the north and the south.

These "migrant" mines have nearly 100,000 mining machines in large ones and only a few thousand in small ones. The so-called mining machines are actually computers, and the faster the computing speed, the better.

There are also mines that do not migrate. They choose to "sleep" in their original computer rooms for half a year.

Searching for electricity in the mountains

The only thing consumed by Bitcoin "mining" is electricity. For every coin mined, 50% of the proceeds are used to pay for electricity.

Being able to bypass the national grid and purchase electricity directly from power stations will save more costs. Most hydropower stations are located in deep mountains and valleys, and mine owners with strong capital can always find them and reach direct power supply agreements with them, which not only reduces the electricity price, but also saves the "grid access fee" from the national grid.

The hydropower station is also willing to cooperate with the mine. During the flood season, there is excess electricity. If the mine is not supplied directly, a large amount of excess water will be wasted. The wasted water can be sold for money, which provides both parties with the best reason for cooperation.

The mine located at the Jinkang Hydropower Station in Guza Town, Kangding City, can obtain 500 million kWh of electricity a year. Based on the price of 0.2 yuan per kWh, it has to pay 100 million yuan to the power station.

On the premise of getting electricity, the mine owner can invest tens of millions of yuan to build a factory in the power station and then "recruit investors". The mine in Jinkang Hydropower Station has 5 factory buildings and has installed 30,000 mining machines this year, and the full capacity will reach 50,000.

Players who come here after hearing the news need to prepay electricity and machine fees, as well as a deposit of several million yuan. "If the market is good, the mine owner can recover his investment in one year." Xiao Wu also mentioned that a small number of mine owners are not so trustworthy and will not return the deposit as agreed after the expiration date, or will not return it until a new deposit is received next year.

"The country has not made a clear statement on whether it supports Bitcoin mining or not." Xiao Wu said that when responding to inspections by local government departments, the mines would be euphemistically described as "big data projects", which is one of the reasons why the mine owners were able to land smoothly. "But it is not real big data computing, it is a dog meat under the guise of sheep meat."

So, we got off the expressway and took the national highway, then took the provincial highway, and then took the county highway. The mine was built deep in the mountains. The factory building is actually a steel structure board house.

A mine owner revealed that because the power supply agreement with the power station was signed slowly, the construction of the plant could not go through the environmental impact assessment and construction approval procedures first. "This is very common in the Dadu River Basin. After the construction is completed, we have to find a way to complete the formalities."

Crazy mining

On May 28, Bitcoin climbed to US$8,903 (about RMB 61,000), another new high since 2019.

Xiao Wu said that "miners" rarely speculate on Bitcoin themselves, but they pay close attention to the market. Starting from April 30 this year, Bitcoin started to rise, rising from more than 5,000 US dollars. In less than a month, it broke through the 6,000, 7,000, and 8,000 US dollar mark, and once approached 9,000 US dollars.

"This has led to more and more people engaging in mining." Xiao Wu said that although China has closed down Bitcoin trading platforms and deemed them illegal transactions, 70% of the world's Bitcoins are produced in China, and 70% of China's mining farms are in Sichuan. It is even rumored in the industry that Sichuan has become a natural "mining capital" for Bitcoin.

On May 28, at the Jinkang Hydropower Station under China Datang, the "mine" built a substation across the wall of the hydropower station and connected it to the factory building. The factory building was put into use in 2018, and the shortest one is only a few meters from the surface of the Dadu River.

When the power station discharges water, the mist splashes nearly 10 meters high and sprinkles into the mining area. The staff jokingly said: "This is natural cooling water shower."

The walls of the buildings in the "mine" are equipped with large fans that run at high speeds. In front of the fans in the factory, there are densely packed mining machines. In front of some vacant machine positions, many workers are busy installing mining machines. Outside the factory, you can hear the roar of the machines running.

The staff introduced to Xiao Wu that this place was invested and built by an enterprise in Zhuzhou, Hunan, and only models above S9 are accepted. The electricity price needs to be discussed with the person in charge of the company. More than 30,000 mining machines here come from Sichuan, Hunan, Jiangsu, Shenzhen and other places. The owners of the machines entrust their mining machines to the mine. After they pay the electricity fee, machine space fee, deposit, etc., they wait for the coins to be issued. The mining machines run 24 hours a day for half a year.

Although he is an experienced "miner", Xiao Wu cannot explain how Bitcoin is produced. What he understands is that Bitcoin is a set of specific formulas, and the current design is 21 million. A solution is announced every 10 minutes. Specially made computers use specific algorithms to solve the problem. The fastest one to solve the problem successfully gets a coin. This process is vividly called "mining".

Xiao Wu said that the investment in 3,000 mining machines cost more than 4 million yuan, and if the benefits are good, 10 coins can be produced per month, which is more than 500,000 yuan according to the current market conditions, and the cost can be recovered in one year. However, "mining accidents" happen from time to time. At the end of 2018, Bitcoin fell below the cost price, and many people's mining machines worth 2,000 yuan were "sold" for 200 yuan.

With the current market booming, Xiao Wu is also worried that mining will be stopped overnight. On April 8 this year, the National Development and Reform Commission announced the "Guidelines for Industrial Structure Adjustment (2019 Edition, Draft for Comments)" and solicited public opinions. Among them, virtual currency "mining" activities (the production process of virtual currencies such as Bitcoin) were listed as eliminated industries. "If there is no change in the final draft, mining will be illegal."

Government survey

In addition to being suspected of being illegally built in the power station, the "mine" hidden in the mountains also directly supplies electricity to the power plant. Is it suspected of violating the Electricity Law as Xiao Wu said? Many departments in Kangding City are keeping it a secret.

For example, has the "mine" of Jinkang Hydropower Station not undergone an environmental impact assessment? The relevant person in charge of the Law Enforcement Brigade of Kangding Municipal Ecological Environment Bureau pointed out that Jinkang Hydropower Station has a relevant environmental impact assessment on file.

However, the Jinkang Hydropower Station was built more than 20 years ago, and the "mine" was built in 2017. Does it need to be re-evaluated? The above-mentioned person in charge explained that the factory building has been completed and the illegal construction should be supervised by the land or housing and construction departments. "We only supervise their illegal behavior. They have not discharged sewage or waste residue into the river and other illegal behaviors, so we cannot investigate and deal with them."

On May 28, staff from the Kangding Municipal Development and Reform Commission Office responded that they had never received any application for approval for any Bitcoin mining-related projects.

The relevant person in charge of the Kangding Municipal Bureau of Land and Resources said that they had received reports from some towns and villages that there were suspected illegal construction of Bitcoin mining plants in their jurisdiction. On May 27, a working group led by the Bureau of Economics and Information Technology was formed to conduct a survey of the jurisdiction. "If the power station is within the approved land use scope and has legal procedures, the power station will verify whether the use of the plant is legal; if it is outside the planning scope and is built without approval, it will be investigated and dealt with."

"We are still in the investigation stage and the overall situation cannot be explained yet." The above-mentioned person in charge said that the working group led by the Economic and Information Bureau is still investigating whether the power station has sold electricity in violation of regulations.

In this regard, a deputy director of the Kangding City Economic and Information Bureau said that this was "public opinion" and would not respond too much. However, a staff member of the bureau said that Ganzi Prefecture had issued a document prohibiting Bitcoin mining, and they have not yet received the relevant project filing. "If Bitcoin is included in the investment promotion, it is not allowed. We also need to conduct data investigation on big data projects before making a decision."