Paul Mackael says China’s cryptocurrency tightening regulations are not a “new development”. Since 2012-2013, China has been preparing for a dominant stance on crypto technology. Readers must be thinking, it just said regulations were tightened recently- Yes. China stepped up to ban cryptocurrency mining in the nation.
China’s Mining Hub
China is said to have the greatest number of miners putting labour to mine cryptocurrency with computational power, approximately 70% of the world’s bitcoin mining is done here. However, the People’s Bank of China (PBOC) put an umbrella ban on cryptocurrency and the respective financial institutions engaging in transactions regarding Bitcoin, in 2013. Further in 2017, ICOs and local cryptos were outlawed as well. However, cryptocurrencies were a legal tender, it was a high-spirited market for trading and mining cryptocurrencies.
Plausible Reasons For Chinese Government To Put A Ban On Cryptocurrency Mining
Lately, China has clamped down on bitcoin and other cryptocurrency miners in different provinces across China. This entirely comes down to Chinese mining centralization (of the decentralized virtual currency mining) has always been a major site for bitcoin extraction. This dominance over the mining activity in this country has been a major topic of critique for years. Mining centralization is dangerous, as it means that miners have more control over the network, with over 51% of the hash rate (a term used for measurement of “computational power per second” used during mining). Putting a stop to miners will eventually result in a fall down in the hash power. Miners have been constantly trying to avoid such regulatory laws clamping down upon them as a deduction in hash power will consecutively pave to slow transaction time in the exchange market and increase in transaction cost.
If you remember Elon Musk tweeting regarding concerns related to the environmental degradation caused by the heavy computational power needed to mine Bitcoin, and simultaneously China putting stricter bans on mining activities. [Bitcoins price reaching a low of around USD 30,000 from a mid-April peak of USD 65,000]
The environmental hazards caused due to crypto mining is legitimate, without a doubt. Only some part of the mining is done with the help of hydropower but mostly it is dependent on the dirty coal-fired power stations. The effect of mining through coal power in China is under-counted. There are numerous stories on the news that says there has been an increase in illegal coal mining to meet insatiable demand by these bitcoin mining firms. This is especially the case in states like Xinjiang and Inner Mongolia. Bitcoin Electricity Consumption index suggests that “ bitcoin mining consumes 133.68 terawatt-hours a year of electricity”.
As an example to this case, an extract from a piece of news dated back in the year 2020, “Bitcoin hash rate dropped 30% from all-time highs after an accident in Xinjiang region’s mining industry caused flooding and a gas explosion, leading 12 deaths and 21 workers trapped in site” – this has been the biggest fall in the hash rate noted then.
Sichuan has several hydropower power stations that provide renewable energy to miners. However it is an inconsistent mode of energy, there are periods of no-rainfall months which causes dry periods in the power station. During these times miners reallocate in deeper mines of Inner Mongolia or Xinjiang, using coal power. Due to these concerns, China in order to take a firm stance on the international power podium has targets to meet, where clamping down on Bitcoin miners will favour their goal. China claims to reach its peak greenhouse gas emission by 2030 and aims to turn completely carbon neutral by 2060. This makes the decision to put a ban on cryptocurrency mining legitimate.
Chinese authorities have asked to strictly stop any activities related to mining, as investigations will be held after several meetings conducted with the local Development and Reform Commission’s Energy Bureau, Chinese reports state. The investigation proceedings are said to continue till 25th June 2021. These steps have condemned Bitcoin and other crypto miners to move out of the country and re-allocate themselves.
Would also highlight, bitcoin mining is not a single-handed activity, thousands of miners interact on this platform and compete with each other. All of these are noted as transaction and activity reports in the blockchain. Blockchain is encrypted details of every sort of transaction made with the virtual currency. Although China claims it wants to curb down its concerns regarding fund laundering, scams, illegal trading &c. We should also notice the current battle to seek dominance with a political stance on the international podium. China has been fickle-minded with crypto-ban but off-handed on mining until lately.
China also launched its own central bank’s digital currency ‘YUAN’ after numerous regulations to ban crypto’. Stay tuned for further information.