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Chinese Miners are Tightly Controlled and Exploited by Power Plants

On June 22, after more than a year of silence, Bitcoin again reached $10,000. “Mining” is listed as a top priority as wet season in Sichuan, a southwestern province in China is approaching. However, miners are now facing a great challenge.

Since 2017, Bitcoin miners have gradually become popular customers among small and medium-sized hydropower stations in Sichuan. It should have been a win-win situation as miners getting low-cost electricity and hydropower in Sichuan to be digested. However, things go contrary against miner’s wishes, miners are tightly controlled and exploited by power plants. Some miners even were forced to sell off their mining farms and ran away.

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The wet season of 2019 has come, but Zheng, a miner in Sichuan, still hasn’t woken up from a nightmare a year ago. One day in September 2018, he was woken up by a phone call from his shareholders. Their partner, a hydropower station owned by a large power group in Sichuan, asked him to pay a fine of 400,000 yuan for breach of contract.

June 2018, Zheng decided to set up mining farm in Sichuan, but the power plant proposed that the mine must be built in one month, otherwise Zheng would have to pay a fine of 20,000 yuan a day to the power plant. Considering the wet season is approaching, Zheng still signed the contract with the power plant. “We are a friend, it’s just a contract. We won’t stump you,'” as the power plant said.

In order to put into operation as soon as possible, Zheng and his team start construction in the rain. But the completion of the mining farm was still delayed by one month. The power plant suddenly turn hostile and asked Zheng to pay a fine of 400,000 yuan for breach of contract, and his attitude was very tough. In addition, the power plant pointed out that the electricity price agreed in the contract is the pre-tax price. If Zheng wants to use electricity normally, he must pay another 16% tax. As a result, the cost of electricity has risen from 0.15 yuan per degree to 0.174 yuan. After experiencing numerous setbacks, Zheng transferred the mining farm to a mining group and left.

“In the mining circle, many contracts between miners and power plants often have no legal binding. As soon as the price of Bitcoin surge, the power plant will find an excuse to raise electric charge.”

Most of the hydropower resources in Sichuan are concentrated in remote mountainous areas. Mining farms are often built in auxiliary industrial parks of power plants, and place for mining farms is provided free of charge by power plants. It means that the power plant controls the mining farm completely.

Russia's crypto-businessman Dmitry Marinichev's virtual currencies mining farm operates in a former Soviet-era car factory warehouse in Moscow, July 26, 2017. "The form of currency we are used to is about to disappear," predicts Dmitry Marinichev in the deafening hum of hundreds of computers stacked on shelves hard at work mining for crypto money. Individuals, or firms like Marinichev's, provide the computing power to run the so-called blockchain which records the world's virtual money transactions. In return for providing that service they receive virtual money, of which bitcoin is the most popular, as payment -- a process bitcoiners call "mining". / AFP PHOTO / MAXIM ZMEYEV / TO GO WITH AFP STORY BY Maxime POPOV (Photo credit should read MAXIM ZMEYEV/AFP/Getty Images)

In the mining circle, it is not rare that miners take the initiative to break contracts with power plants., power plants often become victims once a bear market comes. The price of mining machine also dumps when bear market comes. As miners’ income is no longer enough to cover electricity costs, they often choose to run away.

Because electric power can not be stored in large quantities and transferred to other areas, during the wet season of Sichuan from May to October every year, a large number of hydropower resources will be wasted. In fact, the emergence of Bitcoin mining has relieved the situation. Now some hydropower stations no longer receive miners, but buy their own mining machines, recruit miners. It is said that large miners are jointly building hydropower stations in Sichuan to get rid of the situation of being controlled by plant powers. But now miners are expecting an new industry standard to restrain all the parties.

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