This is a Bitcoin mine hidden deep in the mountains of Sichuan in China.
“The fan blows all the heat out of the building,” he said in foreign language.
And its rival is on the other side of the planet at a former factory that used to make denim for Levi’s.
“You see the transformers lined up on the outside. We have a lot of megawatts.” said Russell Cann, Chief Success Officer, Core Scientific.
These two miners make money by providing the massive computing power that’s required to process and record a high volume of cryptocurrency transactions.
Business was soaring as Bitcoin hit new highs in early 2021.
“It’s hard to sleep. You go to bed at night and you wake up and you look and you go, ‘Holy crap, it’s still up’.” Russell Cann said.
Last year, China controlled 70% of the global processing power that runs the Bitcoin network and that means the majority of the cryptocurrency’s global transactions are routed through these computers in China and recorded by miners here.
So a group of US miners is raising hundreds of millions of dollars to win a larger share of Bitcoin’s processing power.
“When capitalism in the States decides it wants to get into market, get into an industry, it moves heavy capital there.”, he said.
They say their work is also meant to protect Bitcoin.
Industry insiders say the Chinese government has already cracked down on some crypto entrepreneurs and could potentially disrupt global trading by asking miners in China to block certain users from making transactions.
“It’s better for cryptocurrency to be spread around the globe. So that Bitcoin cannot be manipulated by any single government,” according to Russell Cann.
“I think there will be competition. There’s more and more human resources, technology resources that we’re putting into this particular new segment,” said Yulong Lu, Managing Director, Babel Finance.
The battle over Bitcoin mining will decide who controls the infrastructure that powers the cryptocurrency.
Yulong Lu speaking in foreign language: “It’s a cooling panel made of wood.”
Yulong Liu started mining during the previous Bitcoin rally in 2017.
And this is one of the sites he works with that has mined about 8,000 Bitcoins over the past three years, generating about $28 million in revenue over that time period.
Yulong Lu speaking in foreign language: “The power cords have to be huge because it uses so much electricity.”
Miners need cheap electricity, which is abundant in some parts of China, thanks to dams and coal power plants that were built by the state in the past decade.
That electricity then powers fast machines that are necessary to solve mathematical problems in order to eventually mint new coins.
China is home to the vast majority of mining equipment production and so miners like Lu always have speedy access to the best technology, like this cooling system.
Lu speaking in foreign language: “Fans can get dusty and outdated, but these oil cooling machines don’t collect dust.”
But the industry in China lives with uncertainty. Lu asked to keep the location of the site a secret because he says he’s not sure if the government will crack down one day.
While mining itself isn’t illegal, virtual currency trading and crypto exchanges are banned in China, because they’re seen as risky to the country’s financial system.
In the past few months, Bitcoin industry insiders have said that Beijing accused some Chinese miners of money laundering and froze their credit cards, making it difficult for miners to pay operating costs.
The Chinese government did not respond to a request for comment. So to help miners develop their business despite the risks, Lu offers loans so miners don’t need to go through Chinese banks.
His company Babel Finance lends cryptocurrencies to about 300 miners, including the owners of this site.
“So that they can purchase more equipment at a lower cost and then maintaining the machine itself, including repairs,” Lu said.
And Chinese miners are now facing growing competition from overseas.
“In the United States, we have massive infrastructure, power infrastructure and building infrastructure that’s already been built out and we can convert facilities into large data mining facilities.”
Russell Cann is an American miner who scouts the US for abandoned factories and converts them into mining facilities.
His goal? Raise cash to develop industrial-scale mining in the US, where until a few years ago, most miners ran small DIY operations.
“This is my housing for my computers so that the heat is vented outside,” Xander said.
So Core Scientific has built a team with former executives from Microsoft and Myspace and put together an ambitious business plan.
“We have Ernst & Young audit the financials. We have a strong balance sheet. We check a lot of boxes for institutional investors that a Chinese miner does not checks,” Cann said.
The strategy worked. In the past two years, the company has raised $95 million and secured a $20 million loan to install mining rigs in facilities including a former denim factory in North Carolina and a former carpet factory in Georgia.
Core Scientific’s power infrastructure can handle the latest mining equipment, which Cann says usually consumes approximately 100 megawatt hours of electricity to mine one Bitcoin.
That’s the same amount of electricity used to watch television continuously for about 98 years.
And tunnels that were once used to cool the factory are now being used to keep chips from overheating.
“We’ve got the ability to process 200,000 gallons of chilled water through these pipes to keep the temperature in the building down,” said Jack Lewis, Facility Manager, Core Scientific.
Cann hopes all this will help him offset a long-running technological disadvantage. He was usually about four months behind his Chinese rivals when it came to accessing the latest rigs and the price tag was sometimes 50% more expensive.
Others are using the same playbook as Cann, creating corporations that attract the support of institutional investors who then help fund high-tech mining sites.
Industry insiders and academics who study mining say that the US efforts can be good for the future of the cryptocurrency, because the original goal of Bitcoin was to create a currency that couldn’t be controlled by one entity.
“The dream was that we would reimagine finance without gatekeepers and what did we get after 11 years? We got different kind of intermediaries. Now mostly nameless, mostly under the covers in China,” said Emin Gun Sirer, CEO of AVA Labs & Associate Professor of Cornell Univeristy.
Emin Gun Sirer runs a blockchain startup and is also an associate professor at Cornell University.
He studies the vulnerabilities of cryptocurrencies and says Beijing might intervene in the market.
According to Emin: “This is an enormous issue. These miners, they could receive injunctions that compels them to act in a certain way.”
One request he says could be to ask miners to exclude certain people who want to spend or accept Bitcoins in the network, essentially blocking transactions.
This is what Bitcoin academics call censorship, similar to how content and accounts can be blocked on social media platforms in China.
The Chinese government would say that the money at certain addresses must not move and it compels the Chinese miners to not include certain transactions so they can selectively sensor certain users of a blockchain.
The Chinese government did not respond to a request for comment.
Babel Finance says if miners in China are asked by the government to intervene in the network, they would have to comply.
But that would slow down their operations and eventually diminish their global processing power.
But US miners aren’t immune to facing scrutiny from financial regulators at home ,that have proposed plans to hold the industry to the same standards followed by traditional financial institutions.
The more immediate resistance to US miners could come from local communities concerned about the environmental impact of Bitcoin mining.
“Bitcoin mining consumes enormous amounts of energy so all energy that goes to miners is energy that’s being directed away from other more useful uses,” Emin said.
Cann says nearly half of the electricity used by Core Scientific comes from carbon-free sources.
Because China’s miners aren’t part of a corporate structure like in the US, Lu says that they can operate faster and spend less on operating costs.
“If you multiply the operational costs, China still has the advantage. China will be on the front of the curve into the future.” Lu said.
“2021’s all about expansion and we’ve built infrastructure, we’ve built the software, we’ve built the team to be a long-term player in this market. Cann Said.
Transcript from Youtube
Chinese bitcoin miners have long dominated the global processing power that runs the bitcoin network with sophisticated equipment and access to cheap electricity. But now, a group of U.S. miners with deep pockets wants to conquer a greater share of the industry. Photo illustration: Clément Bürge
