Why are Chinese bitcoin miners shifting their operations to Texas?
Due to China's restriction on cryptocurrency mining,
bitcoin entrepreneurs have fled to other countries. Many are migrating to Texas,
which is rapidly establishing itself as the world's next cryptocurrency centre.
When China declared a crackdown on bitcoin mining and trade in May, Kevin Pan, CEO of the
Chinese cryptocurrency mining startup Poolin, immediately booked a trip out of the country.
"We made the decision to permanently relocate.
[We will not return] in the future "The BBC was informed by Mr Pan.
Poolin is the world's second largest bitcoin mining network,
with the majority of its operations concentrated in mainland China.
The country accounted for over 70% of worldwide bitcoin mining capacity prior to the crackdown,
which put the price of bitcoin into freefall and caught miners off guard.
Now, China's "bitcoin migrants" are frantically seeking new homes, whether in neighbouring
Kazakhstan, Russia, or North America, because time is literally money for bitcoin miners.
"We needed to relocate the bitcoin mining machines," Poolin Vice President Alejandro
De La Torres explained. "Because each minute the machine is turned off, it is losing money."
The Poolin executives are among the numerous bitcoin miners who have recently relocated
to Austin, Texas, a city known to be part of America's untamed wild west.
Bitcoins are a type of digital currency that does not have a physical form;
they exist and are exchanged exclusively online.
They are created when a computer mines the money by completing a complex series
of mathematical puzzles; this is how bitcoin miners earn money by running the computers.
This requires much effort.
As a novel form of money that crosses national lines, there is a great deal
of uncertainty and the potential to violate official regulations - which is why bitcoin
entrepreneurs prefer low-cost electricity and a permissive regulatory environment.
The Lone Star State embodies all of these characteristics perfectly.
Bitcoin mining enters a new phase
Texas seemed almost immediately like home to Mr Pan. He was gifted an AR-15 rifle shortly
after his arrival, which he intends to use to "hunt pigs from a helicopter" one day.
While shooting ranges and Texas BBQ provide pleasant amusement,
the bitcoin miners are mostly interested in legal protection for their businesses.
"What occurred to us in China will not occur in the United States," Mr De La Torre asserts.
Greg Abbott, the governor of Texas, has been an outspoken proponent of Bitcoin. "This is a fact!
Texas will establish itself as the crypto industry's top "During June, he tweeted.
In the same month, Texas became the second US state,
after Wyoming, to include blockchain and cryptocurrency into its commercial legislation,
paving the door for crypto firms to operate in the state.
Numerous Chinese cryptocurrency businesses have sought stability and opportunity in Texas.
BIT Mining, based in Shenzhen, plans to invest $26 million in the state to develop a data centre,
while Bitmain, based in Beijing, plans to expand its Rockdale, Texas facility. This
modest town of approximately 5,600 persons was formerly home to one of the world's largest
aluminium mills and is now developing as the next worldwide centre for bitcoin mining.
There could be another underlying link between the business and the state,
as De La Torre asserts that bitcoiners and Texans share similar ideals. "Texans,
like bitcoiners, take their liberty and rights very seriously."
China's bitcoin crackdown, experts believe, was motivated by a desire for
greater control over financial systems, and it may prove beneficial to America.
"The migration favours the United States in terms of talent acquisition and advancing the
innovation ecosystem," says Kevin Desouza, a business professor at Queensland University of
Technology who has conducted research on China's digital currency policies.
According to Prof Desouza, bitcoin miners receive access to a vibrant and innovative
community as well as a broader range of financing sources in exchange.
Risks to the environment and politics
Apart from a solid regulatory environment,
Texas' energy-hungry sector is on the lookout for affordable electricity.
Due to its deregulated electricity grid, Texas boasts some of the lowest energy
prices in the world. Consumers now have more electricity providers to choose from,
which encourages companies to cut their prices in order to remain competitive. Bitcoin farms
can even sell excess electricity back to the grid during periods of peak demand.
Although El Salvador is on track to become the first country to adopt bitcoin as its national
currency, bitcoin miners prefer the United States because to its robust electrical infrastructure,
according to Mr De La Torre.
However, some analysts worry that the "Great Mining Migration" could have catastrophic
consequences as cities and towns struggle to keep up with the enormous energy demand.
Blackouts following a catastrophic snowstorm in February knocked down electricity to millions of
homes and businesses in Texas for days. Over 200 individuals perished as a result of this attack.
Bitcoin farms that remained offline during the blackout were rewarded.
Increased scrutiny of Chinese corporations in the United States may potentially draw attention
to these newcomers to mining. Texas has enacted legislation prohibiting "hostile foreign actors"
from gaining access to essential infrastructure, including the state's electricity grid. According
to reports, the new regulation was sparked by a Chinese billionaire's proposal to develop a
wind farm in south-west Texas. The project's detractors claim it might be used to hack into
the Texas electrical infrastructure and gather intelligence from a nearby US military post.
Prof Desouza notes that, while access to electrical grids is unlikely to be a problem
for bitcoin miners in the near future, political risk will continue to increase.
Bitcoin miners do miss one thing about China: low labour costs and rapid building.
While it takes up to five months to create a new bitcoin farm in China, Mr Pan estimates that it
may take up to 18 months in Texas. Global shipping costs have also increased during the pandemic,
considerably increasing the cost of moving mining rigs from China to the United States.
Despite the costly and lengthy process, Mr Pan maintains that his company is committed
to establishing a presence in Texas. "Because it's a free nation and there
are a lot of bitcoiners here," he explains, "we have a sense of 'whoa, family reunion.'"
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