China’s escalated crypto mining crackdown sparks a new round of cat and mouse play

Since this summer, Chinese government agencies and state-owned enterprises have taken coordinated measures to detect abnormal energy consumption and track down IP addresses that are part of hidden crypto mining operations. 

In a new round of cat and mouse play, Chinese miners are now finding new ways to stay in the mining game and maintain their slice of a crypto market that has rebounded since May.

Although many large bitcoin mining facilities in China have shut down over the past few months, a growing number of small and decentralized mining operations — including those run out of people’s homes — now use graphic processing units (GPUs) to mine ether and other proof-of-work cryptocurrencies.

Jiangsu, one of the several Chinese provinces to have experienced power shortages since last month, said last week that it has detected over 4,500 IP addresses in the region that are believed to be associated with crypto mining. 

Those addresses had a combined computing power of over 10,000 terahashes per second that consumed about 260,000 kilowatt-hours of energy every day.

The government said most of the mining activities are centered in the cities of Nanjing, Suzhou and Xuzhou, and 21% of the IP addresses are located inside government agencies, public schools and enterprises.

That’s a sign that Chinese provincial governments have become increasingly savvy about crypto mining and are getting help from not only the energy sector but also internet service providers (ICPs) in order to systematically track down and clear out mining operations.

IP addresses

On Tuesday, a picture of what appears to be a government investigation in Shanghai started circulating among the Chinese crypto mining community. 

The image (shown below) shows half of the first page of a stack of paper that documents miner IP addresses in Shanghai and the IP addresses of the mining pools to which they are connected to, as well as the corresponding cryptocurrencies they are believed to be mining. Mining pools aggregate the hash rate from individual miners so that they can mine together and receive payouts proportionately based on the percentage of their contributions. 

The visible portion of the list predominantly showed IP addresses associated with ether mining.

One active GPU miner told The Block that since Chinese law enforcement already knows the various IP addresses of major crypto mining pools, it’s not difficult for them to also track down the owners of individual IP addresses in China that are connected to the pools with the help from state-owned ICPs, namely China Mobile, China Unicom and China Telecom. All of the IP addresses shown in the picture above used internet services from China Telecom’s Shanghai Division.

Some retail mining participants in China also started sharing anecdotes of them receiving calls earlier this month from ICPs that questioned them over suspected mining and subsequently sent staff for on-site inspections, based on chat group messages seen by The Block.

Now Chinese miners are sharing tips with each other in various Telegram groups on how to use virtual private networks (VPNs) to first disguise their IP address and then connect to overseas services. 

In fact, shortly after Sparkpool, once the largest Ethereum mining pool in China, announced its closure, another large Ethereum mining pool, F2Pool, also updated its terms and services to state that it does not accept customers that are connected to it from inside China. That means users need to figure out how to obfuscate their IPs first.

After Sparkpool’s closure, the other two leading Ethereum mining pools have gained a notable market share. Ethermine has topped the list while F2Pool has more than doubled its hash rate since earlier this month.

Energy consumption

But obscuring IP addresses alone may not be enough, especially for larger operations that refuse to forsake their crypto mining profits in China.

As The Block reported last month, China’s electrical utility has been refining its ability to detect mining operations, targeting abnormal energy consumption among residents and businesses. 

To counter that, market participants have either chosen to limit their uptime throughout the week or source energy from elsewhere. 

Another active GPU miner told The Block that one workaround is striking deals with existing industrial factories whose normal daily businesses already consume a lot of electricity. 

As such, setting up medium-sized mining operations at these factories can help miners fly under the radar, although the miner in question said that relies heavily on trust and personal relationships given the risk of being reported.