Inner Mongolia’s withdrawal of the virtual currency mining industry in order to complete the dual control of energy consumption is an example, and it will not be extended to the whole country.
Original title: “Interpretation of “Encrypted Mines” in Inner Mongolia Clearing Out: Uncovering the “Data Center” camouflage, where is the mining space? 》
Author: Da Wen
At the end of February, the Inner Mongolia Development and Reform Commission solicited opinions on the “Several Safeguard Measures for Ensuring the Completion of the “14th Five-Year Plan” Energy Consumption Dual Control Target Task (Consultation Draft)” (hereinafter referred to as the “Consultation Draft”). Currency mining projects will all exit before the end of April 2021.
During the “14th Five-Year Plan” period, the scale of data center construction shall be controlled in a reasonable and orderly manner, and new virtual currency mining projects are strictly prohibited.
The consultation draft was proposed by the Inner Mongolia Autonomous Region due to the unfinished task of the 2019 dual energy consumption control target.
On February 2, the National Development and Reform Commission and relevant departments conducted an assessment of the implementation of the total energy consumption and intensity dual control measures of each province (region, city) in 2019 and the completion of the target, and the assessment result was in Inner Mongolia where the assessment result was not completed. The autonomous region circulated and criticized it. The “Draft for Solicitation of Comments” also clearly pointed out that the goal is to ensure the completion of the autonomous region’s “14th Five-Year Plan” energy consumption dual control goals and tasks.
This “draft for comments” has a very strict attitude towards virtual currency mining projects. In addition to proposing to control the scale of data center construction in a reasonable and orderly manner, and prohibiting new virtual currency mining projects, it also plans to comprehensively clean up and shut down virtual currency mining. Projects, and all exit before the end of April 2021.
It is worth noting that the “Consultation Draft” classifies virtual currency mining as “backward and excess capacity”, which is tied to the elimination category of the “National Industrial Policy Guidance Catalog” (2019 Edition).
Other “backward and excess capacity” also include coke (blue charcoal), calcium carbide, polyvinyl chloride (PVC), synthetic ammonia (urea), methanol, ethylene glycol, etc. It is not the first time that virtual currency mining has been classified as backward production capacity. Xinjiang, Inner Mongolia and other places have introduced policies to restrict or prohibit local mining operations.
Why is mining backward production capacity?
The main reason why virtual currency mining business is restricted in the above-mentioned provinces is that the income of mines is not transparent and does not greatly promote the growth of local property value.
Taking the Inner Mongolia Autonomous Region as an example, the “Draft for Comments” has clearly defined the energy consumption dual control target: in 2021, the region’s energy dual control target is a 3% reduction in energy consumption per unit of GDP, and the increase in energy consumption is controlled at about 5 million tons of standard coal , The total energy consumption growth rate is controlled at about 1.9%, and the energy consumption per unit of industrial added value (equivalent) drops by more than 4%.
The key indicator here is energy consumption per unit of GDP, which is also the main basis for judging what is backward production capacity. In other words, from a regulatory perspective, mining business is an industry with high energy consumption and low output value. But as we all know, in the context of the soaring Bitcoin price, mining can actually make huge profits.
Why is there such a situation where the government believes that it is not profitable, but the mines actually make a lot of money? This is directly related to the actual operation of the mine.
Linkedde App interviewed several mining practitioners in this regard and found that in actual operations, most mines will register in the name of a data center and declare corporate income in the amount of custody fees and service fees.
The owner of the mine, Zhang Long, told Lende App to establish a project with cloud computing and big data data center, and then settle in the park through the investment promotion policy of the high-tech industrial park. The actual main mining business is an open secret in the industry. “Many areas have subsidies for data centers, especially electricity bills,” Zhang Long said. “Project approval will also be much easier.”
Compared with real data centers, virtual currency mines have lower construction costs and more extensive management. Small mines will not be equipped with UPS (uninterruptible power supply), cooling air-conditioning and noise reduction equipment, and the noise in the computer room is as high as 100 decibels or more, which may even cause hearing damage to maintenance personnel.
The tax blind spot of the mine
The energy consumption of the mines also far exceeds that of the data centers. At present, the capacity of a single cabinet server in a mainstream data center is generally 16-20, while the number of mining machines in a single cabinet in a Bitcoin mine can reach dozens of units.
On the other hand, the rated power of a single mining machine is much greater than that of a rack-mounted server. Take the Antminer S9 as an example. The rated power of the S9 is 1320W, while the rated power of a general rack-mounted server is about 500W.
Take the Beijing Telecom Sanyuan Building Internet Data Center as an example. The data center can provide services to Beijing and part of Hebei. It has 268 server cabinets. The total IT power is about 944.5kW after removing the power consumption for heat dissipation and lighting. It consumes less than one thousand kilowatt-hours of electricity per hour.
However, a medium-sized mine owned by Zhang Long that deployed 5000 Ant S9 mining machines consumes as much as 6,500 kWh per hour in cabinets alone, which is more than six times that of Beijing Telecom’s Sanyuan Building Internet Data Center.
In contrast to high energy consumption, the tax revenue contributed by mining farms to local finances is much lower than that of data centers. Although the overall income of the mine is very substantial, it mainly comes from digital currency transactions and value-added, which is also a “blind spot” in taxation.
Taking Zhanglong’s mine as an example, with a Bitcoin price of 50,000 US dollars, the daily output value of 5000 Ant S9 mining machines is about 130,000 yuan, the electricity cost is about 50,000 yuan, and the monthly net profit is about 2.4 million yuan. But these proceeds will not enter the corporate accounts at all, will not generate any tax for the local finance, and of course will not be included in the local GDP.
Regional differences in mining development
There is no doubt that the mine can neither provide tax revenue for the local finance, but also consume a lot of energy. It is a certainty that the local government will clear it out. So does this mean that the country will clear the virtual currency mining industry?
Taking Sichuan Province, a major mining province, as an example, according to the announcement issued by the National Development and Reform Commission, Sichuan Province has overfulfilled the 2019 energy dual control target task. Unlike Inner Mongolia, which mainly relies on thermal power, Sichuan Province, as my country’s largest hydropower generation province, has installed hydropower capacity of 83.01 million kilowatts by the end of 2020, and the scale of construction is about 40.1 million kilowatts.
However, the abundant hydropower in Sichuan Province cannot be completely consumed. Affected by various factors such as the phased imbalance of supply and demand, the obstruction of the construction of outbound passages, and the weak adjustment capacity of hydropower stations in the province, Sichuan Province has experienced various levels of “abandonment of water” every year since 2012, with a maximum of 14.1 billion kilowatts in 2016 When the surplus hydropower was unable to access the Internet, the power generation revenue of about 4 billion yuan from hydropower stations in the province was lost.
In this context, the construction of mines in Sichuan Province will not affect the completion of the dual energy consumption control goals, but will help increase hydropower consumption, reduce waste, and increase fiscal revenue.
Therefore, it can be considered that the withdrawal of the virtual currency mining industry in the Inner Mongolia Autonomous Region in order to complete the dual control goal of energy consumption is an individual case and will not be extended to the whole country.
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