A timeline of China’s bitcoin mining crackdown and how it goes beyond environmental concerns

Over the July 4 weekend, bitcoin miners witnessed a historical moment when the network’s mining difficulty fell by the largest amount in history.

This event marked the Season 1 finale of China’s crackdown on bitcoin mining, which, for the first time, resulted in the shutting down of millions of ASIC mining machines — unplugging about 90 million terahashes per second of computing power from the network. It was a seismic event that provoked local miners to start seeking refuge in neighbouring regions, like Kazakhstan, or to look even further afield.

But what was the main motivation behind such a heavy-handed move?

In the beginning, China started by targeting coal-based mining farms in Xinjiang and Inner Mongolia, suggesting the crackdown was due to environmental concerns. But when it started focusing on Sichuan, an area abundant in hydroelectricity, it undermined this narrative.

In this article, we take a chronological look at how the events unfolded and consider the more nuanced reasons behind the ban.

September 22, 2020

In retrospect, the whole series dates back to last year. 

On September 22, 2020, Xi Jinping, the general secretary of the Chinese Communist Party, pledged to make the country carbon neutral by 2060 in a speech at a United Nations General Assembly. 

In the following six months, he reiterated this goal another six times on various major global stages. As Chinese government mouthpiece Xinhua indicated, there was every evidence that suggested the Chinese leader was serious about the goal. 

February 25

It wasn’t long before that high-level direction started causing ripple effects. In late February, the government of China’s Inner Mongolia — once the third largest bitcoin mining hub in China — issued a proposal seeking to close down local crypto mining facilities.

The Inner Mongolia Development and Reform Commission explained that this was so the province could deliver better energy consumption metrics over the next five years. For context, the region was already falling behind other provinces in fulfilling energy consumption targets directed by the Chinese central government over the past five years. 

The local government ran a so-called consultation period for a week before implementing the proposal. The goal was to drive out bitcoin mining farms by the end of April. After the government’s proposal, miners started to move out to Xinjiang, Sichuan and Yunnan.

April 6 

On April 6, a group of Chinese public university scholars published a research paper about bitcoin mining on the online journal Nature Communications.

The main takeaway was that, without appropriate policy intervention, the bitcoin mining sector would have significantly undercut China’s carbon neutrality ambition in the long run. The paper, however, was based on fundamentally misleading assumptions.

The research paper reflected — and may have added to — the narratives surrounding the moves made by the Inner Mongolia government. It appears that the paper prompted policy makers to make moves in the months to come.

April 15 

Later that month, Chinese state-owned media reported there had been multiple security accidents in coal mines in Shanxi, Guizhou and Xinjiang provinces since March.

Following the media reports, Xinjiang ordered power plants in coal-based areas to conduct self-inspections on their security protocols. During these self-inspections, the plants cut off power for big data centers in the area.

This led to many miners in the region going offline, causing bitcoin’s total hash rate to plunge by 20%. It was the first known instance of bitcoin miners in Xinjiang collectively taking collateral damage.

Although most of the plants resumed power after a week, the event quickly made Chinese bitcoin miners realize they couldn’t afford to risk any potential single point of failure. They knew they had to quickly become more distributed.

May 18

Weeks after Inner Mongolia’s deadline for miners to close down, the provincial government set up a platform asking the general public to snitch on bitcoin mining facilities.

The government encouraged the public to inform officials through a dedicated hotline, email and mail address if they happened to know of any crypto mining operations that were still active. 

May 21

Three days later, China’s State Council — the central government’s cabinet — published a meeting memo where a financial committee mentioned that one of the measures to maintain financial stability was cracking down on bitcoin trading and mining activities. 

Bloomberg reported that the comment about bitcoin mining was sparked by concerns that the activity had led to a spike in the country’s coal-based energy consumption. Only the comment didn’t come from a committee in charge of the energy sector, rather the one whose mandate is ensuring China’s overall financial and economic stability. 

Notably, one goal of the crackdown on both bitcoin mining and trading cited in the meeting memo was to prevent “an individual risk from growing into a collective social risk.” 

Chinese business media Caixin later reported that the bigger reason behind the mining crackdown was to prevent the economy going from real to “fake” — in addition to carbon neutrality ambitions.

“Some publicly listed companies do not focus on their main business and all the while buy mining machines, invest in mining farms and set up crypto exchanges overseas,” one person close to the Ministry of Industry and Information Technology told Caixin.

This implies the government does not want to see its energy resources — regardless of what kind — being used to power an economy that it deems fictitious.  

The comment from such a high-level committee sparked fear among Chinese miners, so many started to look for alternative options while waiting for the hammer to drop.

May 25

Inner Mongolia was the first province that formally reacted to the State Council’s comment.

Building on the shutdown order it issued in March, the provincial government proposed eight measures that would be applied to any further bitcoin mining activities found in the region.

The target was not just bitcoin mining farms but also power stations that knowingly provided energy supplies. It even included network cafes that were mining crypto assets using idle GPUs or CPUs.

June 2

While miners in Northern China started to panic, a meeting in the South gave many miners hope that there would be room for survival, at least in Sichuan.

On June 2, government officials in Sichuan ran a seminar with representatives from both state-owned power plants and some bitcoin mining farm operators in the hydroelectricity hub. The agenda was for the provincial energy bureau to understand the impact of shutting down bitcoin mining facilities on the local hydroelectricity economy. 

Although there was no immediate outcome of the seminar, the meeting did strengthen some miners’ expectations that Sichuan would take a lenient position because mining operations in the region mostly don’t have anything to do with carbon dioxide emissions.

June 9

In Xinjiang, some local miners told The Block at the time that initially the local government was planning to give miners a grace period of two months and to have them close down by the end of July. But the government eventually turned away from that idea. 

On June 9, the Development and Reform Commission in Xinjiang’s Changji prefecture issued a document to officials in the Zhundong economic zone. The order was that power plants must cut their energy supplies to bitcoin mining facilities in the area by the end of the day.

The scale of the shutdown order was not immediately clear but the real-time hash rate among Chinese mining pools took a significant hit in the short term. Later on, it became clear that the impacted bitcoin miners in Xinjiang had between them nearly 2 gigawatts of capacity.

Qinghai, a much smaller region for bitcoin mining, relatively speaking, followed Xinjiang’s lead and issued an equivalent order on the same day.

June 11

At a time when the market was already fearful, any kind of rumor was likely to travel much faster than usual. 

A screenshot of a supposed government document from the Yunnan Energy Bureau ordering bitcoin mining facilities to shut down made its way into some crypto media publications — only to be corrected later on, as they believed it to be a counterfeit.

And yes, there were question marks about the screenshot of the document. It appeared that it could have been fake because its format did not look like a typical Chinese government document. But this didn’t mean that the government hadn’t issued a document with the same meaning — it could have been a reproduction.

In fact, the Yunnan Energy Bureau confirmed to an online inquiry from the general public on June 16 that there was indeed a government document issued on June 11 with the same file number and headline as in the counterfeit screenshot.

The nuance in the confirmed document by the Yunnan Energy Bureau was the same as what The Block described in an article on June 14: that the government was stepping up efforts to inspect and close down mining facilities that were using the direct supply electricity model — where miners received electricity directly from power plants — by the end of June. 

Police detectives in the Shuifu county of Yunnan had even pre-empted the government's direction. They had written an article on June 3 showing how they found a bitcoin mining facility locally and got them to shut down over 10,000 ASIC miners.

June 18

Back to Sichuan, where miners had recently had the seminar looking at the impact of shutting miners down on the local hydroelectricity economy. This positive momentum was reversed on June 17, when a rumor started to circulate that the hammer was going to drop the next day. 

As expected, it did. 

The first bunch of targets were 26 bitcoin mining firms. They were told they had to shut down by June 20. There was also a wider inspection set for June 25. 

Based on the names of these 26 firms, most of them were previously granted to operate legally in Sichuan's Hydroelectricity Consumption Industrial Demonstration Zone — meaning they were effectively getting punished for trying to operate legally and work constructively with the local government. 

The list even included one entity that was wholly owned by the State-owned Assets Supervision and Administration Commission, a government agency under the State Council that manages all state-owned assets and companies.

The shutdown order has not just led to ripple effects on private or state-owned companies, but it has impacted publicly listed companies too.

June 20 and beyond

As a result of the crackdown, Hong Kong-listed Loto Interactive warned public investors that two of its mining facilities in Sichuan had been closed down. It said that this could dash its revenues by 97%.

BIT Mining, the New York-listed bitcoin miner that owns Loto Interactive, then announced it is moving to Kazakhstan as well as overseas countries.

As The Block reported, however, the journey of Chinese bitcoin miners looking for new homes may not be an easy one, whether they want to go on the old Silk Road or cross the Pacific to a foreign land.

While Chinese miners struggle to get back online, the dropping hash rate is a boon for miners in the rest of the world. The bitcoin network’s difficulty level has dropped by 28%, making it significantly cheaper for everyone else to mine. And firms in the US and elsewhere, sensing the opportunity, are already ramping up production.