China crypto miners plot their next moves to evade crackdown

China imposed a sweeping ban on Bitcoin mining and trading in late May.
China imposed a sweeping ban on Bitcoin mining and trading in late May.PHOTO: REUTERS

BEIJING (BLOOMBERG) - The title of the forum was arcane even by cryptocurrency standards: Web 3.0 Blockchain Application Cum Computing Power Overseas and Distributed Storage Conference.

But attendees of the event in Chengdu, China, were clear about why they turned up in the middle of a government crackdown on Bitcoin mining. They are looking for ways to stay in crypto, even if it means testing their luck in lesser-known parts of the ecosystem that may or may not incur the wrath of Beijing.

While plenty of miners have fled China, these crypto diehards are betting they can continue to thrive under Communist Party oversight by shifting into lesser-known tokens and decentralised storage technologies with names like Filecoin, Swarm, Silicoin and Chia.

It is a high-risk wager at a time when President Xi Jinping's government is ramping up scrutiny of energy-intensive industries and anything that could pose a risk to financial stability.

Filecoin is a "grey area business that hasn't yet caught regulators' attention", said Tom, who works for a Shanghai-based firm that makes mining machines. Like many of the people interviewed for this story, he asked not to use his full name given the sensitivity of the topic in China.

Despite the steady drumbeat of headlines on China's crypto crackdown, the mood at the Chengdu Marriott Hotel Financial Centre was generally upbeat.

At a pre-conference schmoozefest not far from the hotel, attendees toasted each other with Moscato rose wine and Harbin beer, while nibbling on yam chips, platters of fruit and mini-cakes.

A miner surnamed Li said she was initially upset after China imposed a sweeping ban on Bitcoin mining and trading in late May, but had since moved into Filecoin mining, which she hoped would be more stable since it was "less energy consuming".

Wang, another miner at the party, said he was investing heavily in Ethereum and planning to more than double from 30 the number of mining complexes he runs across eastern China, including one on Shanghai's Chongming island, an area known for its wetlands.

Mr Zhu Can, whose firm Smart Cloud Computing owns data centres and assembles machines, is betting on Swarm. The coin's miners are rewarded for the data storage and processing services they provide that are then used in the so-called distributed storage ecosystem as payment for data interactions, Mr Zhu said. He was optimistic the government would endorse the digital asset even as it cracks down on other areas of crypto.

"It's just like back when the Internet was here and a lot of people used the technology for frauds," Mr Zhu said. "That's something that must be cracked down by the government."

China has banned crypto exchanges and initial coin offerings but has not barred individuals from holding virtual currencies. Anhui province pledged earlier this month to shut down all crypto mining projects within the next three years, following similar efforts by Inner Mongolia, Yunnan and Sichuan. China also arrested more than 1,100 people last month for involvement in activities that used cryptocurrencies for money laundering.

Mr Tan Weizhe, managing partner of Zhizhen Capital, said many Chinese miners are adopting a wait-and-see approach for now. Still, he expects a big shift overseas to occur around China's National Day holiday in October, given the more favourable legal environment in places like the United States. His firm offers mining power migration services and runs crypto mining operations in the US, Canada and Australia.

"Mining machines are considered personal property in a democratic country and thus somewhat sacred and inviolable," Mr Tan said.