In case anyone thought Xiao’s case was a one-off, prosecutors in Guangxi Province in August charged four executives at the Chinese Filecoin mining firm Shenzhen Shikongyun Technology with organizing and leading a pyramid scheme involving more than RMB 600 million (US$83 million). The firm allegedly defrauded people of money by enticing them with high returns if they agreed to buy or lease its mining equipment.
The question now is if China’s underground crypto miners will be deterred. In mid-2022, there were dozens of reports in the media about how China was re-emerging as a mining hub thanks to covert operations. The proof was supposedly in the hashrate, which jumped to 21.1% in the spring of 2022, according to the Cambridge Center of Alternative Finance (CCAF).
We do not expect crypto mining to fully disappear from China, but we also do not believe that many people in the country will want to risk a lengthy prison sentence or large fine to engage in an activity that is clearly illegal. We also note that due to the huge amounts of electricity mining consumes, it is unlikely underground miners can thrive without at least implicit support from local government officials. Risk-wary officials will not want to tempt fate the way Xiao Yi did.
That said, China’s economy has been struggling under the weight of stalled structural reforms, falling foreign direct investment, a troubled property market and uncertainty about government support for the private sector. Some people may see underground mining as attractive if their overall economic prospects are weak.
Meanwhile, some Chinese crypto miners have set up shop in the United States, raising national security concerns. The New York Times reported in October that there are China-linked Bitcoin mines at least 12 states, including Arkansas, Ohio, Oklahoma, Tennessee, Texas and Wyoming, Mines owned or operated by the Chinese together use as much energy as 1.5 million homes. At full capacity, a Cheyenne, Wyoming, mine alone would require enough electricity to power 55,000 houses.
It seems odd that an activity banned in China would be both legal in the U.S. and pose a national security threat – but that appears to be how at least some observers in the U.S. see the situation. They are concerned that the mines could actually have ties to Beijing and be used to disrupt America’s grid.
It seems more likely that Chinese miners with the means and risk appetite to set up a business in a mercurial industry are taking advantage of energy-friendly and other pro-business policies in America’s red states.