The need to plan the affairs of state for China has always been a challenge. Feeding nearly 1.4 billion people and coordinating the world’s largest manufacturing industrial complex, when scant resources are available domestically, requires a long-range plan. One agency, the National Development and Reform Commission (NDRC), is one of 26 cabinet departments that is charged with “studying and penning economic reform strategies and policies to be executed at local level governments”. Six months back, it had designated crypto mining for termination, but after review, it has recanted.
The NDRC publishes a catalog every so many years that categorizes business sectors into three categories – those designated for encouragement, restriction or elimination. The agency was formed in 1998, and it published its first planning “Catalog” in 2005. Another tome followed in 2011, with the next edition scheduled for implementation on the first of January in 2020. As part of their process, the agency released a preliminary “draft” version back in April, ostensibly for public comment.
According to Coindesk:
The initial draft of the latest catalog update was released in April this year, which classified “virtual currency mining, such as the production process of bitcoin” under the category to be eliminated, recommending local governments to phase out bitcoin mining from the country that’s estimated to account for half of bitcoin’s global hashing power.
The proposed catalog in April sent shockwaves through the only crypto industry that had escaped the nation’s ubiquitous ban on all things crypto – mining operations. It was estimated that, at one time, as many as 80% of tokens mined in the crypto-sphere were mined in China, thereby providing the vast majority of hash power supporting various networks, while also providing billions of dollars of foreign exchange capital inflows into the Middle Kingdom.
The consequences of the “threat” in April has been that miners have begun a lengthy decentralization process by establishing new “mining rigs” in countries where laws are more accommodating and where electricity is more abundant at cheaper prices. The new countries that head the list are Norway, Russia, Venezuela, and Paraguay. It is now estimated that less than 60% of tokens mined now come from China.
Bitmain, the world’s largest mining consortium, is the biggest player in China, and its headquarters is located in Beijing. It recently announced that it was planning an Initial Public Offering (IPO) on the Nasdaq exchange in the United States, as well as building, in partnership with the Canadian firm of DMG, the largest mining operation to date in Rockdale, Texas.
The June 2019 CoinShares Bitcoin Mining Network Report, according to Bitcoin Magazine, notes that the overriding variable in these relocation decisions is finding cheap and reliable electricity:
Chasing down the cheapest power remains the cornerstone of capturing competitive edge in Bitcoin mining. Power is the single complexity of the mining ecosystem that can be controlled or confined. You may not be able to control hashrate, price, or hardware costs/specs, but locking yourself into an advantageous electricity contract will allow for flexibility and profitability.
The NDRC noted in its press conference that it had received over 2,500 comments on various topics in its initial draft document. Thankfully, the comments related to mining must have been persuasive.