Chinese Bitcoin mining farms undergo massive migration to Ethiopia

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At one point, China’s bitcoin mining volume jumped to two-thirds of the global total.

From September 2019 to April 2020, Chinese miners’ share of the network’s total computing power reached more than 71 percent. With abundant and cheap electricity and hardware, China has become a popular destination for cryptocurrency companies.

Previously, bitcoin mining was concentrated in Sichuan, Inner Mongolia Autonomous Region, Xinjiang Uygur Autonomous Region, and Yunnan Province, all of which have the advantage of abundant and affordable power resources.

On April 14, 2021, the price of bitcoin reached an all-time high of approximately $64,870 per coin. Just over a month later, however, the price of the world’s most popular digital currency plummeted to $34,259.

The short period of time in which the price of bitcoin plummeted has a lot to do with the measures taken by the Chinese government to regulate virtual currency “mining” activities. One of the main reasons for the jump in the price of bitcoin is that China has begun a comprehensive crackdown on the cryptocurrency industry out of concern for the financial risks and excessive energy consumption associated with it. Bitcoin “mining” is a very energy-intensive process, and the application-specific integrated circuits (ASICs) used to mine bitcoin consume large amounts of energy.

In May 2021, China announced at a State Council meeting that the Chinese government planned to “crack down on bitcoin mining and trading. Local governments then moved quickly to revoke the licenses of companies involved in cryptocurrency mining, cut off power to mining facilities, and even gave some companies just seven days to shut down. By the end of June, 90 percent of China’s bitcoin mining centers were offline.

In September 2021, the National Development and Reform Commission (NDRC) and other authorities issued a circular on the regulation of virtual currency “mining” activities, which classified virtual currency “mining” as a phase-out industry and strictly prohibited virtual currency “mining” in the name of data centers. “Mining activities in the name of data centers are strictly prohibited.

Since then, bitcoin mining companies with nowhere else to go have been looking for suitable locations for their machines around the world. Chinese bitcoin mining companies quickly moved their operations to countries such as the United States, Canada, and Kazakhstan.

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Chinese investors are turning to the United States in large numbers, building or operating cryptocurrency mines in the hundreds of millions of dollars. The US state of Texas is the first to open its doors to cryptocurrency business. The state’s governor wants Texas to become the new global center for bitcoin mining. Shenzhen, China-based BIT Mining has also invested $26 million in a 57-megawatt facility in the state.

Chinese-owned or operated bitcoin mines have been found in at least 12 U.S. states, including Arkansas, Ohio, Oklahoma, Tennessee, Texas and Wyoming, and consume the energy equivalent of 1.5 million homes, according to the New York Times.

Beginning in 2022, however, several Chinese-operated bitcoin mines were exposed in the media, raising concerns not only about the U.S. government’s impact on the energy system, but also national security concerns.

In 2022, a Microsoft team assessing national security threats sounded the alarm when a Chinese-backed company broke ground on cryptocurrency mining in Cheyenne, Wyoming.

The mine was adjacent to a Microsoft data center that supports the Pentagon and just 1.6 kilometers from an air force base that controls nuclear-carrying intercontinental ballistic missiles.

The Microsoft team wrote in an August 2022 report to the Committee on Foreign Investment in the U.S., a federal agency that monitors threats to overseas investors, that the location would allow the Chinese to “conduct a full range of intelligence-gathering operations.”

Microsoft’s warning didn’t drop like a stone. The U.S. government is said to have been tracking the Wyoming operation ever since.

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The case of Jerry Yu, a 23-year-old “second-generation rich” international student at New York University, has put the spotlight on the case of a Chinese company opening a cryptocurrency mine in the US.

According to the New York Times, Jerry Yu owns a little-known $6 million cryptocurrency mine in a small town in Texas, but when a contractor sued the mine for failing to collect payments, Jerry Yu’s identity and means of moving wealth across borders were inadvertently exposed.

In the United States, Jerry lived a full “second generation rich” life. He lived in New York Manhattan condominium was bought for 8 million dollars. He also bought a majority stake in a cryptocurrency mine in Channing, Texas for $6 million. But these transactions were made through cryptocurrencies, not banks, and the process was not only anonymized, but also bypassed offshore transfers to prevent anyone from learning the source of the money flow.

This high level of secrecy allows Chinese investors to bypass the U.S. banking system and federal authorities, while skirting China’s various controls on capital outflows.

It was only when a series of lawsuits were filed by contractors hired by Jerry Yu for failure to collect payments, and a variety of information came to light, that the outside world learned of Jerry Yu’s cross-border wealth diversion tactics.

The Charnin mine was built on a sprawling site with dozens of buildings housing 6,000 specialized computers that mined bitcoin 24 hours a day, day and night. The investment records of Jerry’s mine can only be traced to the cryptocurrency trading platform Binance, where transactions are conducted offshore via Tether.

The exposure of these Chinese bitcoin miners in the U.S. has made it increasingly difficult for them to continue their quiet money-printing days. As a result, another major migration of Chinese bitcoin miners is in the works.

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Finally, on the other side of the world, Chinese bitcoin miners have found a new “haven” – Ethiopia.

 

Cheap electricity and friendly relations with China have made this Horn of Africa country a popular destination for Chinese bitcoin miners.

Last spring, cargo containers began to appear near a substation connected to the recently completed Grand Ethiopian Renaissance Dam, Africa’s largest. Inside were stacks of powerful, power-hungry computers.

This is a sign that Chinese bitcoin miners have arrived in the Horn of Africa. Chinese bitcoin miners have been traveling from country to country in search of cheap electricity and lax regulation since the Chinese government kicked them out of the country in 2021.

Facing political and economic headwinds, Chinese bitcoin miners have been lured by some of the lowest electricity costs in the world and an increasingly friendly government.

While Ethiopia still bans cryptocurrency trading, the country will allow bitcoin mining starting in 2022.

Over the past decade, Ethiopia has strengthened its ties with China, with several Chinese companies helping to build a $4.8 billion dam from which miners plan to draw power.

Ethiopia has become a rare opportunity for all companies mining raw cryptocurrency, but also a risky gamble.

Ethiopia’s low electricity prices and the current government’s surprisingly welcoming approach to bitcoin mining have rightly made the country an unexpected haven for cryptocurrency companies.

As the global bitcoin mining industry comes under increasing scrutiny for its energy-intensive practices, Ethiopia has become a surprising oasis, offering a rare respite for cryptocurrency companies facing growing concerns about climate change and power shortages. For Chinese companies, once giants in the bitcoin mining space, Ethiopia’s warm embrace with open arms also offers a chance for Chinese bitcoin mining companies to regain their dominant position.

However, this bold move by Chinese companies is not without risk. Considering that almost half of Ethiopia’s population does not have access to electricity and the country’s industrial capacity is far from full, bitcoin mining is a sensitive and delicate issue.

However, the promise of huge foreign exchange earnings is a tempting incentive for the Ethiopian government.

Mining services provider Luxor Technology has revealed Ethiopia’s rapid rise as a global destination for bitcoin mining equipment. The state-controlled electricity company has signed contracts to supply electricity to 21 bitcoin mining companies, dominated by Chinese firms, underscoring the enormous influence of foreign investment in Ethiopia’s booming mining sector.

The costs of bitcoin mining mainly come from investment in mining machines, logistics and freight, hosting fees (including electricity), machine depreciation, and machine maintenance. Of these, hosting fees (including electricity) account for the highest proportion, up to 45%.

So if the Chinese bitcoin mines pay their electricity bills in US dollars, it would be a considerable income for the foreign-exchange-starved Ethiopian government. However, if the local government then wants to share more delicacies from the miners, I’m afraid it won’t be an easily desirable transaction, because the investment records of the bitcoin mining farms can completely avoid being made in Ethiopia and completed outside the country.

At this point, the Ethiopian tax authorities are at their wits’ end?

However, the history of past Chinese investments in Ethiopia is enough to predict that the Ethiopian government will definitely not be satisfied with just the dollar revenue from electricity bills. Who’s to say they won’t want a few more spoonfuls of the huge profits from the bitcoin mine instead of just a few cups of coffee?

Let’s not forget that they are able to kill the chicken and take the eggs!

Perhaps one day the miners will suddenly realize that they are no longer wanted and will be forced to leave their bunks and flee in fear.

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