Having banned the exchanges where cryptocurrencies like Bitcoin are traded, the Chinese government is now cracking down on the plants where such currencies are mined.

The Yingjiang Administration Bureau for Industry and Commerce, which enforces enterprises and consumer protection laws, issued a notification to the Bitcoin mining facilities operating in China’s Yunnan province. The bureau sought the said businesses to register themselves with their Power Supply Bureau. In case of non-compliance, it warned them with power cuts, threatening the very core on which their mining operations are based.

#btc mining facilities in Yunnan province are facing another round of compliance check. Failure to do so will result in power cutoff from the grid. pic.twitter.com/S8udtDrbvX — Red Li (@redtheminer) November 12, 2018

The notification surfaced after big mining facilities were found to be using the state-sponsored cheap electricity to mine cryptocurrencies. The authorities found that a majority of these low-level but high income-based businesses were functioning in the grey areas of the law. They were receiving an unlimited supply of electricity without a check, even though they didn’t have an official business name.

The Power Lies Within

China accounts for the world’s highest computing power devoted to the crypto mining operations. It has made the country headquarters to some of the biggest crypto mining firms, such as Beijing-based Bitmain. These companies not only make crypto mining hardware but they also operate large mining pools – where groups of miners bring their machines together to improve their chances of finding the next block.

Cheap or subsidized electricity is the main advantage for Bitcoin mining companies in China. In the coal-abundant Yunnan province, for instance, the authorities offer companies the power at a subsidized rate of only 4 USD per kilowatt-hour. This is way less than the electricity tariffs in European countries and the US. It allows crypto mining firms to reap enormous benefits, a process that so far has gone unchecked due to the youth of the industry.

Reports indicate that miners also reached out to local hydro-power stations for an even cheaper electricity slab. There is a possibility that many mining firms enjoyed mining cryptos at the electricity rate of just a few cents per kilowatt-hour – again, in a legal grey area. The Yingjian administration notification also ordered such power plants to stop providing cheaper electricity to their local mining facilities.

Compliance Looming

As a part of regulatory reform, the Yingjian administration decided to impose new legal parameters on the local Bitcoin mining businesses. The office now wants them to register them with their real names, undergo tax inspection, show their source of funding, and even guarantee the power supply they require every month.

The notice from Yingjiang regulator referred to a case from the Xingjiang region where a mining company was told to shut operations from November 5, citing non-compliance. A letter of guarantee – translated from Chinese – from the mining company read:

“Our company will obtain a real name as per the norms of the Public Securities Department for higher standard execution. In the meantime, not only will we stop our mining operations, but we would also make sure not to offer any of our services to our customers.”

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