China Central Television Questions If Bitcoin Mining Sites Should Pay Taxes and Electricity Consumption Should Be Supervised
CCTV-2 and CCTV-13 aired a report on bitcoin mining sites in Kangding county of Sichuan this Tuesday. The report focus on controversial issues like bitcoin taxes and illegal electricity consumption. It quoted one expert, Li Aijun, president of Institute of Internet Finance Research of China University of Political and Law, seeing bitcoin mining as akin to commodity production that should pay income taxes. Here is the full episode.
A local driver get excited to hear that journalists come to find out how large-scale bitcoin mining works. He reveals that he himself is a bitcoin amateur. He says that he invests less than 100,000 RMB in bitcoin mining and starts to make noticeable gains in 6 months or 7 months at large.
But when be asked what exactly is bitcoin, the driver says it’s something interesting and profitable, but honestly he doesn’t know how to explain it.
This is a three-story mining site. When you approach it, you hear the enormous noise and see 10-odd large fans in the wall running.
The mining site is more like a server room. Each of the three story is congested with storage racks on which mining rigs are put.
“You need a computer to start the mining operation system. It’s the same as setting up a wireless router,” says Wang, a boy in his 20s, now owns 5 mining sites.
“We are a middle-sized mining factory with 5000 bitcoin miners. We still have room to run another 5000 mining machines.”
Wang tells reporters that they could mine 16 BTC per day, or 300,000 RMB.
The manager says that as bitcoin price surges, more people are joining the race of setting up a mining site here. Plus, some would come here to rent several mining machines. He would simply write the client’s name on a piece of paper and put in next to mining rigs.
An operation manager Xu explains that they tried to mine bitcoin in the USA and Iceland, but now they are all coming to China. Worldwide, 70 percent of bitcoin mining sites are based in China and most of them are in Yunnan, Sichuan, Inner Mongolia and Xinjiang. Why they prefer remote mountainous areas in China?
Though in remote areas, you can see electric transmission lines everywhere around the mining site. Where does electricity come from?
“It’s directly transmitted from nearby hydropower stations. This is mainly why we set up the site here. Bitcoin mining is electricity-consuming and 50 percent of our profits goes to electricity bill.”
Wang says they consume 60 million KWh per year, roughly about the same electricity consumption of a small town of 100,000 people in China.
In China, the price of electricity for industrial users is 0.7 yuan per KWH. But the price is 0.3 yuan for bitcoin mining.
“The price is the outcome of our negotiation with the hydropower station. Put simply, we made a deal with them and give them part of our profits. They provide electricity, we provide machines, and we share the profits. It’s win-win.”
“Bitcoin mining is really a tricky thing. We are not able to do anything about it at the moment because we don’t have any info about their electricity consumption. It’s actually a violation for hydropower stations to directly support them.”
According to an officer at State Grid Sichuan Electric Power Company, local government investigated these mining sites before, but nothing happened.
Wang says he has been in the industry for 6 years and he never pays bitcoin taxes.
“Why should I?…We are mining bitcoin, it’s all about computational power. It’s like playing games. Why should we pay taxes for playing games?”
With the rise of bitcoin mining business, there is a huge demand for mining rigs. Chai works for the largest bitcoin miner distributor in Sichuan.
“We could sell about 1000 mining machines per day and it’s about 300,000 every year. The price for each machine is about 3000 RMB and our annual sales volume surpasses 1 billion RMB. We have customers all over the world. I’d say 30 percent of our clients are foreigners.”
Bitcoin regulation has always been a touchy topic to countries all over the world. The Chinese government defines it as a special commodity, or a virtual commodity. America defines it as a commodity, Germany sees it an alternative means of payment and in Russia a foreign currency. But Li Aijun explains that these countries are not recognizing bitcoin, they are just make it clear the scope of bitcoin adoption.
“In 2014, US derivatives regulator considered to regulate bitcoin. They made it clear that bitcoin futures and leverage transactions are only allowed on platforms and exchanges with certifications. “
Plus, Li says that mining is another expression of manufacturing. To mine bitcoin, you are not just playing a game. Instead, you trade it on the market. Then you should pay taxes as common manufacturers do.
As to the risks with Bitcoin, Li believes that bitcoin must be kept under strict supervision.
“We should focus on risk prevention and mitigation. If bitcoin serves as an easy tool for money laundering, then the PBOC should be the watchdog. And other departments should be responsible for preventing other risks involving in bitcoin.”
Villagers in the mountainous areas never expect themselves to have the chance to learn the new tech. As local governments are tearing their hair out over regulation policies, an increasing number of electricity-driven bitcoin mining sites are making their money here.