Mankiw Event: How can North American Bitcoin mining be more environmentally friendly?

Written by: Mankiw Law Firm

We were honored to have Mr. Lei Jun, a shareholder and partner of Bitforest, as a guest speaker at the Mankiw Afternoon Tea event on Friday. The content of this talk was very professional. From the perspective of an industry practitioner, Mr. Lei Jun gave an in-depth account of the current status and future of overseas crypto asset mining, and provided a lot of valuable first-hand information and insights.

After participating in the study, Liu Honglin, a lawyer at Mankiw Law Firm, compiled the shared content into a document and took this opportunity to share this valuable information with more friends who are interested in overseas crypto asset mining. The following is the core content shared by Mr. Lei Jun.

From traditional security to mining: a cross-border journey

At first, my career was in the traditional industry, mainly doing security, such as fire protection and camera installation. At that time, due to the project, I often contacted friends in some functional departments. One day, some miners found us and hoped that we could help find suitable power supply points in Xinjiang and other places. Through these collaborations, I began to get in touch with the mysterious industry of "mining".

Early domestic mining was very interesting. We miners found many "mines" with cheap electricity in Xinjiang. After doing it for a while, we realized that this industry is indeed very profitable, and the profits can even be described as "huge profits". Especially around 2017, the income from mining was very considerable, and at that time I began to devote myself to this industry. Gradually, I became a frequent visitor on the list and began to gradually understand more industry insider information.

The market was really thriving at that time. Many industry leaders, such as Bao Erye, Wu Jihan, and Zhang Nankang, all made their mark at that time. Bao Erye first mined in Inner Mongolia and Xinjiang, but later moved his mine to Sichuan due to policy restrictions and electricity costs. These early layouts also made me see the huge potential and market prospects of this industry.

The birth of Bitcoin and the concept of decentralization

When talking about mining, we must first talk about the background of Bitcoin's birth. Bitcoin was born during the global financial crisis in 2008, when the financial system had serious credit problems. There is a sentence in the Bitcoin Genesis Block: "The British Chancellor of the Exchequer is on the verge of implementing a second round of emergency bank assistance", which is a reflection on the government's policy of continuously printing money to save the market during the financial crisis at that time. Bitcoin was born in this context, and its original design was to establish a decentralized global payment network that does not rely on banks.

The Bitcoin network uses distributed ledger technology, and every participant can participate in bookkeeping. In order to motivate everyone to maintain the network, the Bitcoin system has designed a mechanism: whoever helps "bookkeeping" can get Bitcoin rewards. This reward mechanism has led to the birth of the Bitcoin "mining" industry.

Mining is not "mining ore" as the name implies, but using computers to perform complex data verification and calculations. The design of the Bitcoin network generates a block every ten minutes. Miners can successfully package transaction data into blocks by continuously calculating and finding the hash value that meets the conditions, and then receive Bitcoin rewards issued by the system. When designing Bitcoin, Satoshi Nakamoto limited the total amount to 21 million coins, and no one can change this total amount. This is also one of the core principles of the decentralized system.

In the early days, miners used ordinary CPUs with low computing power. Later, as the network expanded, people began to use more powerful GPUs, and finally developed into the current dedicated mining machines - ASIC chips. This kind of professional equipment has extremely high computing power and consumes more electricity. The essence of mining is to compete for the right to record through continuous calculations, and the Bitcoin obtained is a reward. This model is similar to the settlement in the banking system, but the difference is that this "bank" is distributed on thousands of mining machines around the world.

The glory of mining in China and policy transformation

China's Bitcoin mining industry started very early, especially between 2013 and 2021, when mining farms in Inner Mongolia, Xinjiang, Sichuan and other places once accounted for more than 70% of the global computing power. The advantage of China's mining industry lies mainly in its abundant power resources. Coal power in Inner Mongolia, thermal power in Xinjiang, and hydropower in Sichuan all provide miners with very cheap and sufficient electricity.

At that time, everyone knew that Sichuan was a "mining mecca" because hydropower was almost free during the rainy season, so many miners moved from Inner Mongolia and Xinjiang to Sichuan. You can see those mining machines moving one by one to the vicinity of the hydropower station. Everyone's strategy was very simple, which was "move to where the electricity is cheap." This flexibility also made China's mining industry glorious.

However, starting in 2021, the country has tightened its management of carbon emissions and energy consumption, especially in the context of "carbon peak and carbon neutrality", and has carried out a comprehensive cleanup of high-energy-consuming industries such as Bitcoin mining. Many mines were forced to close, and miners had to find ways to move their equipment out of the country. At that time, we saw that the golden age of the domestic mining industry ended overnight.

However, even with the tightening of policies, many miners continue to operate through various means. Some miners use special IP configurations to make the equipment look like it is overseas, but it is actually running domestically. This also reflects the "resilience" of the industry under policy pressure. With the changes in the domestic policy environment, we have turned our attention to overseas markets. When choosing a mining location, energy supply, electricity prices, policy environment, tax system, international valuation, etc. are all factors we focus on.

Finally, we chose Canada as the main location for Bitcoin mining. Canada has abundant power resources, especially hydropower and natural gas. Moreover, Canada has a stable political environment and transparent laws, which enables us to operate legally for a long time.

Especially in Alberta and British Columbia, where electricity resources are sufficient and electricity prices are relatively cheap, we found that not only can we get a stable power supply here, but it is also conducive to combining mining with green energy. Bitcoin mining machines generate a lot of heat when running, and we use this heat to heat the smart greenhouse, achieving the concept of "green mining".

Combining Bitcoin Mining with Green Energy

Bitcoin mining is usually known as "energy-intensive", but we have been exploring how to make mining greener, more environmentally friendly and more sustainable. By investing in local high-tech agricultural companies in Canada, we try to use the heat generated by operating mining machines to heat smart greenhouses. For example, in the Manitoba project, we introduced the waste heat from mining machines into the smart greenhouse for heating. Because Canada's winters are cold (similar to the natural environment of Heilongjiang in my country), it is not suitable for natural planting, and the cost of agricultural production is high. This approach not only helps agricultural companies reduce costs, but also enables us to achieve sustainable recycling of energy, which is environmentally friendly and efficient, and explores the possibility of sustainable development of crypto asset mining.

To engage in Bitcoin mining in Canada, you need to strictly abide by local laws and pay taxes as required. Our model is mainly through traditional equity financing, and the customer's funds are used for the long-term development of the enterprise, rather than simply for the purchase of mining machines. This approach can effectively reduce investment risks and ensure the stable operation of the enterprise.

In addition, Canada's policy environment is also very friendly. We work with the local government to promote the use of more green energy. This model has achieved very good results in the early stage of promotion, and we have won the recognition and support of the local government. For example, our smart greenhouse project in Manitoba is to help local agricultural enterprises through this "heat recovery" technology. This not only brings us a new source of income, but also greatly enhances our social influence.

From the perspective of the global market, the United States and Canada are undoubtedly the main centers of mining at present. Texas, in particular, has attracted a large number of miners by relying on cheap nuclear and thermal power. However, in regions with lower electricity prices, such as Africa and the Middle East, due to imperfect infrastructure, social security issues and uncertain political factors, although the electricity price advantage is huge, it is difficult to implement. North America has become the final choice for large miners to go overseas because it has perfect infrastructure, harmonious security environment and friendly policy support.

Although Bitcoin mining has experienced many ups and downs, it still shows strong vitality. By constantly exploring new business models, such as combining green energy and using natural gas to generate electricity to directly produce Bitcoin. We believe that this industry will continue to grow in the global market. Our goal is not only to mine more Bitcoin, but also to promote the industry to upgrade through actual business layout and cooperation with traditional capital, so that more elite talents and traditional capital from traditional industries can gradually enter the industry, thereby promoting the rapid development of the industry in an all-round way. From simply making profits by increasing the number of Bitcoins to upgrading to obtaining greater capital gains in traditional financial systems such as Nasdaq, we believe that through continuous innovation and technological upgrades, mining can become more environmentally friendly and efficient.

If you have any legal issues or business cooperation needs in crypto asset mining, you can also contact Mankiw LLP. We will provide you with professional support and solutions.