Wednesday, May 25, 2022

U.S. vs China: The Battle for Bitcoin Mining Supremacy | WSJ

– This is aBitcoin mine hidden deep in the mountains of Sichuan in China. (speaking in foreign language) – And its rival is on the other side of the planet at a former factory that used to make denim for Levi's. – You see the transformerslined up on the outside. We have a lot of megawatts. .

– These two miners make money by providing the massive computing power that's required to process and record a high volume ofcryptocurrency transactions. Business was soaring as Bitcoinhit new highs in early 2021. – It's hard to sleep. You go to bed at night andyou wake up and you look and you go, “Holy crap, it's still up. – Last year,China controlled 70% .

Of the global processing power that runs the Bitcoin network and that means the majority of the cryptocurrency'sglobal transactions are routed throughthese computers in China and recorded by miners here. So a group of US minersis raising hundreds of millions of dollarsto win a larger share of Bitcoin's processing power. .

– When capitalism in theStates decides it wants to get into market, get into an industry, it moves heavy capital there. – They saytheir work is also meant to protect Bitcoin. Industry insiders saythe Chinese government has already cracked down onsome crypto entrepreneurs and could potentiallydisrupt global trading by asking miners in China .

To block certain usersfrom making transactions. – It's better forcryptocurrency to be spread around the globe. So that Bitcoin cannot be manipulated by any single government. – I think there will be competition. There's more and more human resources, technology resources that we're putting into this particular new segment. .

– The battleover Bitcoin mining will decide who controlsthe infrastructure that powers the cryptocurrency. (speaking in foreign language) – Yulong Liu started mining during the previous Bitcoin rally in 2017. And this is one of the sites he works with that has mined about 8,000 Bitcoins over the past three years, .

Generating about $28 million in revenue over that time period. (speaking in foreign language) – Minersneed cheap electricity, which is abundant in someparts of China thanks to dams and coal power plants that were built by thestate in the past decade. That electricity then powers fast machines that are necessary tosolve mathematical problems .

In order to eventually mint new coins. China is home to the vast majority of mining equipment production and so miners like Liualways have speedy access to the best technology, like this cooling system. (speaking in foreign language) – But theindustry in China lives with uncertainty. .

Liu asked to keep the location of the site a secret becausehe says he's not sure if the government will crack down one day. While mining itself isn't illegal, virtual currency trading and crypto exchanges are banned in China because they're seen as risky to the country's financial system. In the past few months, .

Bitcoin industry insiders have said that Beijing accused some Chinese miners of money laundering and froze their credit cards, making it difficult forminers to pay operating costs. The Chinese government did not respond to a request for comment. So to help miners develop their business despite the risks, .

Liu offers loans so miners don't need to go through Chinese banks. His company Babel Financelends cryptocurrencies to about 300 miners, including the owners of this site. – So that they can purchase more equipment at a lower cost and then maintaining the machine itself, including repairs. .

– And Chinese miners are now facing growingcompetition from overseas. – In the United States, we have massive infrastructure, power infrastructure andbuilding infrastructure that's already been built out and we can convert facilities into large data mining facilities. – RussellCann is an American miner .

Who scouts the US for abandoned factories and converts them into mining facilities. His goal? Raise cash to developindustrial-scale mining in the US where until a few years ago, most miners ran small DIY operations. – This is myhousing for my computers so that the heat is vented outside. – So Core Scientific .

Has built a team with former executives from Microsoft and Myspace and put together anambitious business plan. – We have Ernst & Youngaudit the financials. We have a strong balance sheet. We check a lot of boxesfor institutional investors that a Chinese miner does not check. – The strategy worked. In the past two years, .

The company has raised $95 million and secured a $20 million loan to install mining rigs in facilities including a former denimfactory in North Carolina and a former carpet factory in Georgia. Core Scientific's power infrastructure can handle the latest mining equipment, which Cann says usuallyconsumes approximately 100 megawatt hours ofelectricity to mine one Bitcoin. .

That's the same amount of electricity used to watch televisioncontinuously for about 98 years. And tunnels that were once used to cool the factory are now being used to keep chips from overheating. – We've got the ability to process 200,000gallons of chilled water through these pipes tokeep the temperature in the building down. .

– Cann hopes allthis will help him offset a long-running technological disadvantage. He was usually about fourmonths behind his Chinese rivals when it came to accessing the latest rigs and the price tag wassometimes 50% more expensive. Others are using thesame playbook as Cann, creating corporationsthat attract the support of institutional investors who then help fund high-tech mining sites. .

Industry insiders and academics who study mining say that the US efforts canbe good for the future of the cryptocurrency because the original goal of Bitcoin was to create a currency that couldn't be controlled by one entity. – The dream was that wewould reimagine finance without gatekeepers and what did we get .

After 11 years? We got different kind of intermediaries. Now mostly nameless, mostlyunder the covers in China. – Emin Gun Sirerruns a blockchain startup and is also an associate professor at Cornell University. He studies the vulnerabilitiesof cryptocurrencies and says Beijing mightintervene in the market. – This is an enormous issue. .

These miners, they couldreceive injunctions that compels them to act in a certain way. – One request he says could be to ask minersto exclude certain people who want to spend or acceptBitcoins in the network, essentially blocking transactions. This is what Bitcoinacademics call censorship, similar to how content and accounts can be blocked on socialmedia platforms in China. .

– The Chinese government would say that the money at certain addresses must not move and itcompels the Chinese miners to not include certain transactions so they can selectivelysensor certain users of a blockchain. – The Chinesegovernment did not respond to a request for comment. Babel Finance says if miners in China .

Are asked by the governmentto intervene in the network, they would have to comply. But that would slow down their operations and eventually diminish theirglobal processing power. But US miners aren'timmune to facing scrutiny from financial regulators at home that have proposed plans to hold the industry tothe same standards followed by traditional financial institutions. .

The more immediate resistance to US miners could come fromlocal communities concerned about the environmentalimpact of Bitcoin mining. – Bitcoin mining consumes enormous amounts of energy so all energythat goes to miners is energy that's being directed away from other more useful uses. – Cann says nearlyhalf of the electricity used by Core Scientific comesfrom carbon-free sources. .

Because China's miners aren't part of a corporate structure like in the US, Liu says that they can operate faster and spend less on operating costs. – If you multiply the operational costs, China still has the advantage. China will be on the frontof the curve into the future. – 2021's all about expansion and we've built infrastructure, .

We've built the software,we've built the team to be a long-term player in this market. (upbeat music)

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