One comment which I haven't seen come up much is bitcoin mining doesn't actually have to be "profitable" to be useful. For example, if you live in a country that has restrictions to prevent capital flight (i.e. extra taxes on money transfers to foreign accounts, etc...), ignoring the potential criminality implications, mining bitcoins at a "forex loss" and transferring those bitcoins may still be a better net financial option than just transferring the money in whatever your native currency is.
I believe China used to have some pretty significant restrictions to prevent capital flight - I wonder if that has something to do with this mining operation.
This is actually a remarkably good point. The key concept here is that Bitcoin mining -- even at a "Forex loss" -- will essentially trade electricity for Bitcoins, which can be used to purchase other currencies. Depending on what the miner values their local currency at, this can still make financial sense.
As an example: suppose you are a resident of country X, and you have 1000 XUnits that are valued at 1000 USD, but there are capital flight restrictions such that you can exchange your 1000 XUnits for only 300 USD. And suppose that you need to exchange your XUnits to USD, for whatever reason. You then use your XUnits to buy electricity and mining hardware, and generate Bitcoins, and sell them for 750 USD.
Note that you could try to do the same with e.g. steel, barrels of oil, or widgets, but with hardware you'd be subject to import/export taxes, and the entire operation would have much higher overhead costs (comparatively, setting up a mining farm is pretty cheap).
Because the local currency would have to go trough the banking systems and if the seller's account is in any other country, then exchange restrictions are applied just the same.
They have paper money, which you can exchange for BTC. Money exchangers have been doing this for centuries with different commodities to skirt around regulations, and BTC, gold, or jade figurines are all the same at the end of the day if there's an agreed value for them.
Well, yes.. but the person giving you paper money in exchange for BTC will make their own exchange rate based on the capital risk incurred in transacting volatile goods, which is very different than transacting gold or jade figurines. Unless of course you meet a BTC collector who has no immediate plans on capitalizing on his investment.
Also in some places you can probably [illegally] bypass the electric meter and leech someone else's electric supply - with bitcoin you can cash that electric in as money. Having seen images of the ratsnests of cables that festoon the pylons in some areas of China I can imagine it might be relatively easy to hookup a couple of jumpers and get some "free" bitcoins.
China may be a developing country, but it's not a messy place where people steal electricity like in much poorer south east asian countries.
Electricity is very reasonably priced (especially in rather rural areas where the factory is based) and there are tons of people with money in China that are always looking for potential high yield investments - sometimes with cash that cannot be invested in ventures that can be traced back to them due to it's dubious origins.
I was thinking this sort of thing,http://blogs.ft.com/photo-diary/files/2014/09/electric.jpg - but thinking about it China shouldn't have the issues with multiple utility companies hanging their wiring everywhere, perhaps I mis-remembered and it was another country.
>not a messy place where people steal electricity //
FWIW I wasn't suggesting that such a place be messy, the cause of this sort of cabling [dis]arrangement isn't related to hygiene; nor that Chinese are more prone to steal electricity just that complicated webs of cabling (as in that Kathmandu photo) could make it difficult to tell easily that someone had put in an extra line.
Bitcoin is a lousy medium for illegal activity. Every transaction is logged for all eternity just waiting to be de-anonymized.
Besides, Singapore implemented this functionality long ago. Sell Chinese goods at breakeven (or even a loss) to a corporation in Singapore, which realizes the profits. Singapore is the busiest trans-shipment port in the world [1].
Do you really think while China has been booming economically for decades - that those with money still didn't know how to off-shore it and were waiting like a bunch of patient school boys for the solution that is bitcoin?
Buying bitcoin might have made sense for a regular chinese lee, but it cannot actually handle any real transaction demands.
Doesn't matter if they already have the means; always helps to have a Plan-B... or C, D, E and F. I also suspect that not everyone knows every trick and/or some people are more comfortable with certain methods than others.
The past was the past. Huge crackdown on corruption and graft is making it much harder to offshore. Even if they can get it out, people are watching their spending habits outside of China.
I'm Chinese and I don't think this is the case. Investing in mining bitcoins is just like investing in any other industries, in its nature. The reason why some Chinese businessmen prefer this over the others is that it's newer, less competitive, cheaper, more global and under no governmental regulation at all, which makes it a business-as-u-go or a gamble with great odds. Chinese are good at these kinds of things.
I believe China used to have some pretty significant restrictions to prevent capital flight - I wonder if that has something to do with this mining operation.