Two prominent crypto mining scandals in 2021

The year 2021 has been quite eventful for cryptocurrency. Bitcoin has updated its all-time high and reached US$68,000. Many cryptocurrencies also experienced a significant surge in price, showing over +100% performance in a year. Crypto exchanges have seen an influx of new users who were searching where to buy Stellar Lumens with a debit card, as well as other cryptocurrencies. Institutional investors also started paying more attention to Bitcoin as a store of value and asset for diversification.

The mining hype accompanied the rise of cryptocurrency and many people outside the crypto industry were not so happy about that. Mining is a process where a machine solves complex mathematical equations to receive cryptocurrency as a reward for its work. Mining for major cryptocurrencies like Bitcoin and Ethereum requires huge computing power since there is high competition between miners.

The main mining event in 2021 came from China when the country decided to ban crypto mining on its territory. There was a series of mining crackdowns, and it led to a massive migration of miners outside China. Because of that, Kazakhstan has become the world's second-largest center for Bitcoin mining after the USA, top destination for Bitcoin miners, experienced a major energy crunch.

But many experts don’t see China’s ban as unexpected or scandalous. The People’s Bank of China is looking to launch its own digital currency (CBDC) — eCNY — in 2022. The mining ban is considered as one of the Chinese government's efforts to undermine common cryptocurrencies before the launch of its own CBDC.

However, there still have been dramatic stories that are usually considered as scandals and give the crypto mining industry a bad name. Let’s take a look at two of them.

Chia mining hype

Many people blame miners for GPU shortage and high prices for different devices. Nvidia even tried to rein in mining with a special limiter on the GeForce RTX 3060 graphics card focused on Ethereum. Miners quickly bypassed this limitation.

There were many views for and against blaming miners, but a lot changed in the spring of 2021. And that’s all because of Chia cryptocurrency. Chia Network was launched with the promise to clean up the environmental issues raked up by Bitcoin and other major cryptocurrencies. Unlike Bitcoin that uses ASIC hardware or Ethereum that involves GPUs, Chia Network uses hard drive storage for mining. The craze around Chia was massive, provoking a spike in prices for HDDs and SSDs.

But Chia has not become as green as it claimed. According to Fast Technology, 1 TB SSDs are expected to last the average customer around a decade under normal conditions, but Chia mining can wear out such pieces of hardware after just 80 days. Hard drive manufacturers have started rewriting their warranty agreements to reflect the reality of their components being used in Chia mining.

When Chia cryptocurrency became available for trading in early May, its price rapidly soared to more than US$1,900. However, the Chia price quickly moved to the negative zone, starting to plummet from June. As of 25 February 2022, Chia (XCH) was worth around $78 or 96% down from its peak.

Chia coin's price drop pushed miners to sell their second-hand SSDs at absurd prices. Many sellers didn’t mention Chia mining and its consequences, so a lot of buyers got almost worn-out hard drives. eBay was flooded with hard drives after Chia mining, and it enraged customers. So many online platforms warned users about this rampant issue. Taking into account the current Chia price, people started looking at Chia as an overhyped project or even a scam.

Chinese miners in Iran

Iran has been using crypto mining as a source of income for the state to evade the impact of economic sanctions and finance imports. In fact, according to research conducted by the University of Cambridge, crypto mining helped Iran contribute almost 4% to the global Bitcoin hash power in 2020, making the country a notable player in the Bitcoin mining market. But at the same time, Iran is cracking down on local miners.

In January 2021, Iran experienced several blackouts and power outages. The government blamed miners and started attacking big and small miners. Among the victims was a Chinese company that had opened a big farm in one of Iran’s special economic zones. Iran authorities shut down this farm a few days after a nationwide power outage.

This situation prompted anti-China sentiment in Iran as Twitter users started blaming Chinese crypto miners for the blackout. Iranians also criticized the government for its failure to meet the people’s electricity needs and “giving away” the country’s power to China. Iran’s government faced widespread protests, especially on social media, and temporarily halted the supply of electricity to all mining farms, including the ones operated by the Chinese. The mining ban helped the Iranian government calm down the public dissatisfaction.

Iran’s electricity consumption hit 40,000 MW in the first week of January 2021. At the same time, the total power consumption of both legal and illegal mining farms was estimated to be around 515MW. Particularly, Chinese mining farms consumed around 60 megawatts of power during one month, according to The Diplomat. It means the electricity used by the Chinese farms was a tiny fraction of the Iran’s total power consumption.

Local miners thought that the farm was shut down because Iran introduced increased tariffs for miners. But according to Mohammad Hassan Ranjbar, chairman of the Iran-China Investment Development Group that operated the farm, the company paid 4,000 rials per kilowatt, which is a high price. Ranjbar also claimed that this story could send Chinese investors away from Iran. But Chinese investors are still in Iran, and Iran continues attacking miners.

Recently, Iran banned crypto mining in the country until March 6 to save power and avoid blackouts this winter.

Author Bio: Abby Bootman

I’ve become interested in cryptocurrency since 2015 when it has started gaining popularity. With time I understood that future is after cryptocurrency. Nowadays this topic concerns each sphere of our life. I make research and write about the latest news on crypto.

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