Chinese Hydroelectric Crackdown Could Herald the Demise of Cheap Bitcoin Mining

Chinese bitcoin miners are the latest tranche of the country’s cryptocurrency community to be hit by restrictions. This time it’s not the government but a subsidiary of the State Grid Corporation that has issued the decree, in a move which calls into question the country’s ability to sustain bitcoin mining operations. At present, both the bitcoin and bitcoin cash networks are heavily dependant upon the efforts of Chinese miners, who hold over 80% of the hashrate distribution.

See also: Russia Has Found Best Location for Crypto Miners

A Major Miner Incident

The notice posted by Sichuan Electric Power Company.

The cryptocurrency space has grown accustomed to the words “Chinese crackdown” being appended to one another. This year they’ve already been applied to ICOs and exchanges within the country, and it is no secret that the government isn’t enamored with mining either. According to Beijing’s Caijing magazine, hydropower stations have been ordered to cease all supply of electricity to customers involved in bitcoin mining.

Bitcoin mining has long been beyond the preserve of hobbyists, meaning that the only entities affected by the utility company crackdown will be operators of large mining farms. Sichuan Electric Power Company, a national supplier based in Chengdu in the southwest, has issued an edict declaring that it is henceforth illegal to supply electricity for bitcoin mining operations. Hydropower stations found to be flouting this order will be subject to “punishment”.

The End of Cheap Power?

Sichuan province is China’s bitcoin mining heartland. It is here that warehouses filled with row upon row of ASIC miners, mainly powered by cheap hydroelectric, can be found. The province is prized for its mountainous regions and vast flowing rivers and tributaries that have given rise to hydroelectric dams large and small.

During times of peak electricity generation, hydro plants have been left with a surplus. Up until recently, that excess water had gone to waste. Bitcoin mining provided a solution to that wastage, enabling hydro stations to make money and providing miners with cheap electricity. It was a symbiotic relationship that worked for both parties until now.

Shut It Down

The decree issued by Sichuan Electric Power Company doesn’t outlaw bitcoin mining, it should be noted. What it does do is signal an end to direct deals being cut between hydro plants and mining farms. If hydroelectric plants heed the warning, it could herald an end to cheap bitcoin mining in China. Without a steady supply of cheap power, mining profits may dwindle until eventually it is no longer profitable to keep rigs running. The crackdown shouldn’t affect larger mining operations such as Bitmain, who already have a deal in place to acquire electricity at competitive rates. For smaller mining operations which make the most of Sichuan’s rainy season, however, it could be game over.

Current hashrate distribution. Notable Chinese pools include BTC.top, Antpool, BW, and ViaBTC.

With winter approaching, a time when many hydroelectric plants power down, Sichuan’s mining farms would have been gearing up for a switch to more expensive sources of power in any case. The latest proclamation from Sichuan Electric Power Company won’t herald the end of Chinese mining, but it may hasten its retreat to pastures newly equipped with cheap power sources and zero state-level intervention.

There has been speculation for some time that given the legislative uncertainty surrounding bitcoin mining in China, the major pools may jump ship and take their operations overseas. Uprooting a major mining farm is no mean feat however and is an inconvenience and expense that miners could do without. With the mining climate becoming increasingly unfavorable in China, the door is open for another region to emerge as the new frontier in bitcoin mining. The smart money is on Russia to heed that call and take the reins.

Do you think the end of cheap hydro will send miners overseas? Let us know in the comments section below.

Images courtesy of Shutterstock.

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