IN THE HENGDUAN mountains of Sichuan province, swollen brown rivers and trees heavy with ripe mangoes do not evoke digital wizardry. Yet until recently, there were buildings here with rack upon rack of specialised computers. They were often near hydropower plants that supplied them with electricity from dams. They needed lots of power. Their machines were used for “mining”, a process that involves validating transactions conducted in bitcoin and other digital currencies by solving cryptographic puzzles. In return, they received newly minted coins. The buildings were recognisable by their huge cooling systems: usually a wall on one side covered in giant fans to draw in air.
But across Sichuan, the fans have stopped whirring. In May, a government committee tasked with promoting financial stability vowed to put a stop to bitcoin mining. Within weeks the authorities in four main mining regions—Inner Mongolia, Sichuan, Xinjiang and Yunnan—ordered the closure of local projects. Residents of Inner Mongolia were urged to call a hotline to report anyone flouting the ban. In parts of Sichuan, miners were ordered to clear out computers and demolish buildings housing them overnight. Power suppliers pulled the plug on most of them.
The clampdown has had a global impact. Bitcoin’s “hash rate”, a measure of the computational power being used by the world’s mining machines, has fallen by half in recent weeks. Its “difficulty rate”, which rises and falls as computers join or leave the mining effort, last week fell to an all-time low. China had accounted for about 65% of bitcoins earned through mining, according to the Cambridge Bitcoin Electricity Consumption Index. But analysts think about 90% of its mining has now ceased. Chinese miners are selling their computers at half their value.
China’s mining boom began in 2017, after a surge in the price of bitcoin caught the attention of local entrepreneurs. The country was already making most of the machines that mine bitcoin globally, as well as the tailor-made chips on which they run. It also had the capacity to produce more power than it needed. In 2018 this excess amounted to 70 terawatt-hours (TWh), equivalent to Switzerland’s total energy production. Rather than let the surplus go to waste, plants sold it to mining farms. The seasons would determine where those farms operated. After the end of Sichuan’s drenching summer rains, when prices there would rise, miners would drive their machines to somewhere near a cheaper source, usually coal-fired power plants thousands of kilometres away in Xinjiang and Inner Mongolia. (Energy from solar and wind power is not reliable enough to power non-stop mining.)
In 2017 China, fearing a loss of financial control, banned cryptocurrency trading. But local governments still welcomed the miners: they were a source of taxes and other levies. In…