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Virtual Currency Mining, Real Job Firing

The headmaster at a school in China learns the hard way that stealing electricity and bandwidth doesn't pay.

One of my favorite, go-to clips as a management professor and consultant is a classic from the hit TV series, Seinfeld. This is when George Costanza is confronted by his boss over what he did on the job (we'll leave those details out here...), but pleads his ignorance on the matter and makes the case of his innocence simply on the fact that nobody had told him that THAT was wrong! 

And so one can only imagine the lively conversation that took place recently in China over a matter that ended up sinking the career of a Chinese school principal. Like George, what he did might not have been explicitly stated as being "wrong" in any written policy or guideline, but obviously it was.

The Curious Tale of the Cryptocurrency Mining School Principal in China

Every once and awhile, you run across a story that makes you just say "Wow!" This is one of those.

It all started with a report from China’s Xinhua news agency, which, with no built-in English translation on their site, looks like this:

Fortunately for those of us in the West, the story was picked-up by the South China Morning Post, and their story, "Chinese headmaster fired after stealing school’s electricity to mine cryptocurrencies," began to go viral and gain the attention of major media outlets around the world, leading to stories in CNet, the BBC, Newsweek, and others. 

Mr. Lei Hua was—until recently—the headmaster of a middle school in the Chinese city of Chenzhou, which has a population of approximately 600,000 and is located in the Hunan Province in Southeast China. Like so many of us these days around the world, Hua wanted a "side hustle," and he chose to get involved in mining cryptocurrency.  

In June 2017, he spent approximately 10,000 yuan (approximately $1,440) on a mining machine and set-it up at home to begin mining for the cryptocurrency, Ethereum. However, he soon discovered what those involved in mining for Bitcoin and a whole host of cryptocurrencies globally know, it takes a whole lot of electricity to power these mining machines. This is because these computers ideally run all day and all night running the computations that underlie digital currencies. In Hua's case, that single mining machine ended up using right at 21 kilowatt-hours of electricity per day. So to Hua, the math was simple: whatever real yuan he would earn from mining the Ethereum would be greatly diminished by having to pay higher utility bills at home.

So, being the head of the school, Hua made a fateful, "George Costanza-like" decision ("Was that wrong...."). After a short time, he decided to simply take his machine to work, set it up there, and start mining for Ethereum, putting the electricity on the school's tab.  Suddenly, without having to pay for the electricity, his cryptocurrency mining became a whole lot more profitable with zero overhead! Seeing the yuan begin to roll-in, Hua decided to double-down—and then some—on his initial investment. From July 2017 to June 2018, he spent a grand total of 40,000 more yuan (almost $6,000!) on seven more mining machines and hooked those up at his school as well, using a whole lot more of the school's electricity—and their Internet bandwidth. 

And for a short-time, Hua's side-hustle became very profitable—even as the price of Ethereum fluctuated greatly (mostly sliding downward), together with Bitcoin and most other virtual currencies. His second in command, the deputy headmaster, even got into the act. From news reports on the matter, it was unclear whether Hua's deputy was "invited" into the scheme—or he invited himself into it upon learning what his boss was up to at the school. However, it came about, in January of this year, the vice principal added a ninth mining computer to the school's network in the facility's physics lab.  

Now, you know what inevitably happened—folks around the school eventually noticed what was going on. Having nine cryptocurrency computers running 24/7 did garner attention, as those machines generated a lot of noise—and a lot of heat. Teachers complained about the constant whirring noises they were hearing—even to the point of upsetting their students' studying and rest times. Students and teachers noticed that their Internet connections got really, really slow. The school's financial manager noticed that their electricity bill was going up, up, up for unknown reasons. People complained to Hua as headmaster, but he brushed aside the complaints and attributed the rising electrical costs and uncomfortable conditions to the school's old heating and air conditioning systems. 

And for a while, the headmaster's actions placated people at the school. However, when teachers discovered the source of all the noise, a classroom on the fifth floor of the school where Hua had set up his secret Ethereum mining operation, the jig was soon up. China is still China, where narcs and snitches are still just part of the way things work. And so the headmaster and his deputy were reported to the local arm of the ruling Communist party, the Jiahe County Commission for Discipline Inspection and Supervision. Hua was soon removed as headmaster of the school and his deputy received a "severe reprimand." Hua was stripped of his position as a local Communist party official, and both had to turn over to the state all the cryptocurrency that they had mined—along with being made to reimburse the state for the additional 14,700 yuan (over two thousand US dollars) that their operation had cost the school in electricity.

Now, according to cybersecurity experts, what Hua decided to do is, while not common, not unprecedented, either. In fact, similar actions have occurred all over the world as employees sought to use their employer's facilities and resources to mine cryptocurrencies. These incidents—that we know of—have taken place in all kinds of environments, from US companies to Canadian universities—even a top-secret Russian nuclear research facility where workers were using a sophisticated supercomputer for Bitcoin mining!  

And so what "lessons learned" can we take from all of this. To me, the message is simple. This tale from far away is just another instance to demonstrate how—with the advent of technology and shall we say, employee "inventiveness," one can never have an employee handbook and/or management guidelines that cover every possible instance. The secret to real organizational success is developing ways both to nip such actions in the bud and to prevent them from happening in the first place from an awareness within the organization's culture. 

You simply can't—and shouldn't—try to write rules to cover everything. If you do, you will find your organization with an employee handbook that is inches thick and megabytes in size in PDF format. You will have a managerial policy guide that basically tries to cover every possible supervisory action. And while this may ensure—to some degree—predictability, you may well stifle the creativity and innovation that is needed—often taking place at the edge of the organization and in the "gray area" of the rules (says he whose university has a drone policy for its campus!).  

We do need rules that allow for some bending, but certainly not for the George Costanzas and Headmaster Huas of this world to do obvious wrongs. It is a continuous, delicate dance for all in administration today, made all the more so with advances in how and where we work and the technologies we use in our jobs. However, trying to be all-knowing and all-seeing as an organization—or as an individual manager—is an impossible task. So, we need to have the culture built and maintained in our companies, our organizations, and in our schools and other government agencies that are the right balance between stifling and permissive. And hey, all of us can rejoice that we don't have to answer for our work—or personal—actions to the local Commission for Discipline Inspection and Supervision! I'm sure that is very "educational"—or "reducational" as they might say in China.

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