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Thursday, December 2, 2021

China’s exiled crypto machines drive global mining prosperity




China’s May ban on cryptocurrency mining has triggered an exodus of miners and a global competition to relocate the millions of bulky, power-hungry machines they use to solve complex problems and earn Bitcoin.

According to data collected by the British Financial Times, within a few months after the implementation of the ban, the world’s 14 largest crypto mining companies have moved more than 2 million machines out of China. Most of the machines were hurriedly transferred to the United States, Canada, Kazakhstan and Russia.

Bit Digital is one of the largest crypto mining companies listed in the United States. It has hired an international logistics company to extract its property from China and is still waiting for a batch of nearly 1,000 machines to be released from the New York Port terminal.

“We started our fleet migration in March 2020, and in hindsight this was a great move. When the ban was announced, we had 20,000 miners in China,” said Sam Tabar, Chief Strategy Officer of Bit Digital. However, the company said it had to abandon its 372 machines in China, which “have reached the end of their useful life.”

Data from the British “Financial Times” shows that since China implemented the ban, 8 of the 10 largest large public farms in North America have increased the number of machines in their fleets.

A treemaop shows where 14 major crypto mining companies send their Chinese machines

Sue Ennis, the company’s vice president of corporate development and investor relations, said that when the ban took effect, Hut8, a Toronto-based cryptocurrency mining company, received offers from panicked Chinese sellers. “We received calls from suppliers, which were very opaque and one-sided,” she said. “If it does not arrive or breaks down when it arrives, they will ask us to pay $20 million without recourse.” The company finally added 24,000 machines from the Chinese company MicroBT in June.

The analysis of the mining company Luxor Mining shows that the “crazy liquidation” triggered by the Chinese ban caused the price of the Antminer S19 popular among industrial and mining companies to drop by 41.7% from May to July.

Chinese crypto mining machine maker Bitmain, the manufacturer of S19, sold 30,000 machines to Las Vegas-based mining company Marathon Digital Holdings in August; Terawalf, Maryland, bought another 30,000. The company announced in June that it would suspend sales of its machines to “help the industry transition smoothly” and relieve “huge pressure” on the market.

Outside the United States, Kazakhstan has become a leading mining center. FT data shows that most of the machines shipped to Kazakhstan came from the Chinese mining company Bitfufu, which shipped 80,000 machines to farms in Kazakhstan, and BIT Mining, which shipped 7,849 machines before August.

Another beneficiary of the Chinese ban is Russia. Within a few weeks after China banned cryptocurrency mining, Moscow-based infrastructure custody company Bit Cluster received more than 5,000 machines from China, and the Russian cryptocurrency mining company BitRiver said that since the ban came into effect, it now hosts 1.8 million machines. Machines of Chinese miners in exile.

BitRiver spokesperson Roman Zabuga said: “The focus of the market has shifted from lack of equipment to lack of storage space.” He said that in the weeks before the ban, the company had to refuse to reach an agreement with a Chinese customer. According to the agreement, the customer hopes to sell another 1 million machines.

According to Jaran Mellerud, a research analyst at Arcane Crypto, after the ban, fewer than 700,000 Chinese machines have not restarted and are likely to be in storage. Since many of them are older generation machines, such as Antminer S9, it is less cost-effective to ship them to places such as the United States. In July, the price of S9 fell to US$367.

Man typing on a computer surrounded by encrypted devices
Crypto mining companies are facing competition from locals to build their own rigs © Andrey Rudakov/Bloomberg

This has led to the dispersal of older generation machines to less mature mining locations such as Venezuela or Paraguay, where regulatory stability is poor, but electricity prices are cheap.

Juan Jose Pinto, co-founder of Doctor Miner, a mining company in Caracas, said the Chinese ban “is a great opportunity.” “So far, we have contacted three different large Chinese miners to host approximately 7,000 machines,” he said. “If we have the resources, we can hold more events.”

Pinto said his company pays about $0.01 per kilowatt-hour for electricity, which means it can effectively use older, more power-hungry machines, such as Antminer S9s. Although these machines are wobbly and more prone to failure, Pinto and his team have found imaginative ways to keep them running.

“We have what we call a’cemetery’, where we put miners who are not working, but there are partial jobs,” Pinto said. “If I have one machine with four damaged parts and another machine with six damaged parts, I will combine them, hoping to make a good miner.”

Digital Assets, a company based in Asuncion, is preparing to host 15,500 miners in the next few months, but facing competition from some local Paraguayans, they have begun to purchase machines and mine independently.

Due to the economic downturn in Venezuela, mining cryptocurrency is a way for locals to increase their income. “People use only one machine for mining at home,” Pinto said. “In other countries, there are several big companies that own farms, and there are thousands of people who own small farms. It means a lot to them to make an extra $100 a month.”




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