Behind the "blunder" of banning Bitcoin production: Bitcoin mining machines can earn 300 yuan a day

With the closure of all domestic Bitcoin trading platforms, the frequent buying and selling of Bitcoin has gradually faded from the sight of ordinary investors, but Bitcoin mining has never stopped.

Recently, a notice issued by the Danba County Power Supply Branch of the State Grid Sichuan Ganzi Prefecture Electric Power Co., Ltd. disrupted the work of the miners. The document, titled "Emergency Notice on the Prohibition of Bitcoin Production", stated that the Danba County Power Supply Branch required all hydropower stations connected to the grid to stop Bitcoin production, saying that Bitcoin production was an illegal operation. From the date of the notice, all connected power stations must stop Bitcoin production.

It is understood that the production of Bitcoin requires Bitcoin "mining machines" to perform "hash collisions" 24 hours a day to compete for the right to record the blockchain. Whoever records the account will be rewarded with the latest Bitcoin, and this process requires a lot of electricity. Power supply constraints mean that Bitcoin miners will face unemployment.

According to the Beijing News, the head of Danba County Power Supply Branch said, "The notice is real, but the wording is wrong. It was hastily written by the company department when dealing with large-scale power cuts, rather than an official company document. The original intention was not to refer to Bitcoin mining as illegal operations, but because some small hydropower stations failed to give priority to meeting the local people's livelihood electricity needs, violating the requirements of the power purchase and sales contract with the company."

Some industry insiders believe that even if Bitcoin mining is banned in Sichuan, it will not have an impact on the overall situation. "At most, it will reduce a small part of Sichuan's computing power, which is just a drop in the bucket and has almost no substantial impact on the overall Bitcoin mining."

Data shows that China accounts for 81% of the computing power, Iceland accounts for 5%, Japan accounts for 3%, the Czech Republic accounts for 3%, Georgia accounts for 2%, and India accounts for 2%. Most of this 81% of computing power is concentrated in Guizhou, Henan, Tibet, Inner Mongolia, Sichuan, Liaoning and other regions with cheap electricity.

According to the Internet Finance News Center, the electricity cost of operating a Bitcoin "mine" accounts for about 60%-70% of the operating cost. The average cost of a mining machine is 10,000 yuan, and it can mine about 0.006 bitcoins a day. The actual power of a mining machine is about 1400W, which is about 33 kWh in 24 hours. Based on the household electricity price of 0.55 yuan per kWh, the daily electricity bill is about 18 yuan. On November 15, 2017, based on the over-the-counter price of Bitcoin of 50,000 yuan, the mining value of a mining machine on that day was about 300 yuan, and the net profit was about 282 yuan.

In fact, on September 4, the central bank and seven other ministries and commissions issued the "Notice on Preventing Risks of Token Issuance and Financing" (hereinafter referred to as the "Notice"), which stopped ICO (initial coin offering) and pointed out that ICO was suspected of engaging in illegal financial activities and seriously disrupted the economic and financial order. The central bank and seven other ministries and commissions required a comprehensive cleanup and rectification of transactions of financing tokens and virtual currencies in China, and stated that token issuance and financing is essentially an act of illegal public financing without approval, and all types of token issuance and financing activities should be stopped immediately.

However, the Notice does not explicitly mention virtual currencies such as Bitcoin. So far, there is no specific regulatory policy to define Bitcoin transactions.

It is worth noting that on September 15, Li Lihui, head of the blockchain working group of the China Internet Finance Association, publicly stated that "digital tokens" are not real legal tender, let alone digital currency.

Li Lihui believes that it is necessary to clearly distinguish between legal "digital currency" and "digital tokens" or virtual currency. "Digital tokens" represented by Bitcoin and Ethereum have no country, no sovereign endorsement, no qualified issuing responsible entity, and no national trust support.