China cracks down on block reward miners bypassing regulators

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Block reward miners have begun the annual migration southbound from North China, according to local media, prompting authorities in the Southwestern provinces of Sichuan and Yunnan to crack down on BTC mining farms with direct power supplies—forcing some to shut down.

To reduce cost, block reward miners are switching from thermal powered facilities to hydro-powered operations. Both Southwestern provinces are rich in renewable hydropower energy, have naturally cold climates, and have an abundance of hydropower plants.

Block reward miners will travel interminable distances or take financial risks for the cheapest electric rates. The lower breakeven price to mine BTC makes running older commercial mining equipment like the Antminer S9 economically viable. They have been able to negotiate lower electricity prices by going directly to the plant operators instead of the government power grids.

These direct routes prevent local governments from sharing in revenue and economic benefits generated by the industry. The loss in potential revenue comes as state power grids generate less revenue than projected initially because of the coronavirus outbreak.

Local municipalities are encouraging block reward miners to set up operations in demonstration areas to help consume excess hydroelectric power during the rainy season. Officials intend this initiative to help cities recover from the economic losses brought about by the COVID-19 pandemic.

The recently issued ordinances exclude mining farms that work directly with regional governing bodies. Those most affected are small-scale hydropower plants working with BTC mining farms. Plant operators found to supply BTC miners without proper authorization violate the power purchase and sale contract signed with the State Grid of China and power laws.

An explosion at the Yunnan hydropower station injured five and killed six individuals. There have even been reports of block reward miners in Sichuan having issues with electrical shortages.

The issues have prompted government authorities to investigate all power plant operations using sizeable amounts of electrical resources. Local lawmakers in Dehong are accusing 64 block reward miners of operating illegally. In May, the financial administrator of Sichuan issued a notice to its subordinate offices curtailing block reward mining activities.

The notice states, “Hydroelectric power generation enterprises in our county shall immediately stop the investment of virtual currency ‘mining’ activities and not add new virtual currency ‘mining’ projects. Otherwise, our bureau will recommend the county people’s government to investigate and deal with illegal construction projects, take bans, fines, order self-demolition, and other administrative measures until it is handed over to the people’s court for compulsory enforcement.”

Reports out of China show the guidance has not been enforced and that everything continues to run regularly for now.