How the US Benefits When China Turns Its Back on Bitcoin

0

,

In farmland on the outskirts of Kearney, Nebraska, there is a field full of modified 40-foot shipping containers lined up in rows. It’s set back from the main road and easy to miss; there are no signs and no tall buildings.

But as we approach, we notice one thing: it makes a lot of noise.

Each container is lined with huge industrial fans and filled with specialized computers. Inside, it’s windy and hums around 85 decibels.

“Our technicians always have some kind of hearing protection when they come in,” says Dave Perrill, CEO and co-founder of Compute North, which manages the facility.

Welcome to one of America’s largest data centers for cryptocurrency mining.

Here, thousands of computers are dedicated to solving a complex set of mathematical problems that verify blockchain transactions and, in doing so, create bitcoins and other cryptocurrencies. In industry parlance, this is called mining.

Until the middle of last year, most cryptocurrency mining like this took place in China, where the government had a recurring relationship with cryptocurrencies. Last summer, it went unplugged.

“We have certainly heard this news more than once, that China is banning crypto. But we had also heard the rumor so many times and it never came true. So when we first heard this one times, we kind of thought the same thing, didn’t we?” said Perrill. “And then all of a sudden we started getting phone calls.”

The calls came from operations trying to move mining equipment – ​​computers – out of China to set up in the United States. For Compute North, this was a godsend.

“We’ve doubled in size,” says Christopher Herbig, senior facility technician. “Like, we’ve been non-stop busy all summer. It’s just been crazy. And there’s more and more demand all the time.”

China cracked down on bitcoin mining and transactions last year

Why were all these Chinese bitcoin enthusiasts calling Nebraska? It turns out that big changes were happening in China.

For years, it was the global hub for bitcoin mining for one simple reason: electricity was cheap.

For decades, the local government has built dozens of hydroelectric dams and wind farms, mostly in remote areas. Regional power grids have yet to connect cities to many of these massive renewable energy projects, a problem called curtailment.

The reduction meant that much of this renewable energy was wasted – until bitcoin miners arrived about a decade ago, after bitcoin officially began trading globally.

“We have been kind of welcomed by local Chinese governments because we can buy electricity from them and we have good incentives to create local jobs,” says Abdullah Han, a Dubai-based Chinese bitcoin miner and founder of Meer Energy, which sells mining products. Equipment.

Bitcoin mining requires a lot of electricity to power all the computer servers, so crypto entrepreneurs like Han sometimes set up data centers directly in rural Chinese villages to harness these unused renewable energy sources.

“We enjoy the lowest industrial electricity price,” says Han. “Local governments would give us an industrial park and in that industrial park they would give us a lot of benefits of tax treatment and everything.”

As of September 2019, three-quarters of bitcoin mining worldwide was in China, according to the Cambridge Alternative Finance Benchmarks, a research center run by the University of Cambridge in Britain. But a backlash was brewing. The Chinese government has blamed unregulated cryptocurrency for an increase in financial scams and for funding nefarious activities like fraud or identity theft.

Separately, the Chinese central bank is also rolling out a state-run digital currency, which it encourages its citizens to use.

For years, China has made it difficult to buy and sell bitcoin in China by banning its citizens from registering accounts on cryptocurrency exchanges and shutting down third-party platforms that had provided a workaround. But authorities turned a blind eye to the bitcoin miners operating there at the time.

Last May, China banned financial institutions from using cryptocurrencies and pledged to “crack down” on mining. The following month, he banned power generation companies from supplying bitcoin, effectively stopping all mining. China had signaled several times before shutting down bitcoin mining, only to later reverse those measures. This time was different.

“The next day, we already heard about the closure of some mining farms,” ​​said Chinese miner KC Tang, who had operations in China’s Sichuan province and the Xinjiang region. “We are starting to realize that the government was serious.”

In September, China went further and banned all onshore bitcoin transactions.

The United States is a particularly attractive destination for Chinese bitcoin miners

Thus began what Chinese crypto enthusiasts call the “great mining migration,” as Chinese mining operations large and small unplug and move west.

Tang is trying to find a new country to install his mining hardware, which he estimates at “a few million pieces”, but high shipping costs and legal complexities of importing computer hardware have delayed his plans.

Kazakhstan and Russia are two popular candidates for relocating miners’ bitcoin-making computers because electricity is cheap, but the infrastructure isn’t great. Tang says he’s also worried about Russia taking over his servers.

Despite higher electricity and labor costs, the United States has reliable legal protections on private property, Tang said. Elsewhere, he says, “Maybe the governments not only shut down the operation, but they also take all your machinery. You could lose everything, so the United States is a safe bet.”

And that’s why a field in Nebraska is now buzzing with computers.

Nebraska is one of many US states welcoming foreign bitcoin miners

Almost overnight last summer, China’s hashrate share – the IT that creates bitcoin – fell to near zero. And as of last fall, the United States held the largest share, according to Britain’s Cambridge Center for Alternative Finance.

For Kearney, this has been a godsend. Until now, the city of about 30,000 people was perhaps best known outside of Nebraska as a pit stop on I-80, almost exactly halfway between San Francisco and New York.

Mayor Stan Clouse says unemployment is low, the population is relatively young, thanks to the city’s university, and land is plentiful.

“We’re quite diverse in our economic profile. But we felt technology was an area where we needed to step up, develop a tech park, recruit tech industries,” he says.

After a failed attempt to woo an investment from Facebook, the city tapped Compute North, which opened operations in 2019. Last summer, when crypto miners started fleeing China, it was about to expand.

Bureaucratic blockages in China, environmental concerns and infrastructure bottlenecks in the United States have slowed mining migration. But many cities across the United States are eager to set up facilities for miners and craft crypto-friendly regulations. Rockdale, Texas, a small town east of Austin, and Massena in upstate New York have already seen a surge in cryptocurrency mining.

Perrill says migration to the United States is good “because one of the criticisms of bitcoin is that it was controlled by China, in quotes – that if you had more than 50% of the hashrate, you could potentially make nefarious things. So the idea that it’s, you know, moved to the United States and branched out even more, I think overall it’s a good story.”

Compute North employs a dozen people – cryptocurrency operations aren’t very labor intensive. But the facility helped expand and stabilize Kearney’s power grid. Clouse, the mayor, says it has also increased the city’s tax revenue, allowing for new investments in the airport, which he hopes can help propel the economy.

Lamont Black, professor of finance at DePaul University in Chicago, teaches a course on blockchain – the decentralized ledger technology at the heart of cryptocurrencies. He says the flow of crypto mining to the US will also benefit the overall US blockchain ecosystem.

If the coins are minted here, he explains, it could spur investment and innovation around the underlying technology.

“We’re seeing an institutionalization of crypto becoming more mainstream, more regulated, and I think if we can facilitate that in countries like the United States, then I think that gives us a global competitive advantage,” he says. he.

And that edge could be crucial in an industry that proponents say could be as transformative as the internet itself.

John Ruwitch reported from Kearney, Nebraska. Emily Feng reported from Beijing.

Copyright 2022 NPR. To learn more, visit https://www.npr.org.
Share.

About Author

Comments are closed.