China is in the midst of a sweeping crackdown on bitcoin mining, and it has been wreaking havoc on the network while also raising questions about the cryptocurrency’s future.
But one thing looks for certain: whatever that future is, China will be playing a much smaller role.
While China has cracked down on cryptocurrencies before by issuing new rules and closing exchanges, new enforcement targets the heart of China’s influence over bitcoin: the hash rate, or total computing power on the network.
China accounted for 65 per cent of it in 2020, but the crackdown has sent the global hash rate tumbling.
The State Council’s Financial Stability and Development Committee kicked off the crackdown in May, but it ramped up this month.
A dozen cryptocurrency-related Weibo accounts were purged and Baidu started censoring searches. Local governments in the country’s biggest mining hubs also leapt into action.
Inner Mongolia and Xinjiang, which became attractive to miners for their cheap coal-powered electricity, were the first to shut down mines.
Sichuan, known for its abundant hydropower, had been dragging its feet until it issued an order on June 19 for mining operations to stop, sending graphics card prices plummeting.
Authorities have also been making it harder to buy bitcoin, even though it is not prohibited under Chinese law.
The country’s central bank told several banks and mobile payments provider Alipay to cut off transactions related to the cryptocurrency.
Beijing has insisted this is all in the name of reducing financial risks, a tune the government has been singing for years.
But there could be another factor at play: environmental concerns.
Bitcoin’s blockchain requires a tremendous amount of power to mine the digital currency and verify transactions, running counter to Beijing’s plans for China to reach peak emissions by 2030 and become carbon neutral by 2060.
Some miners have tried to hold onto their operations in China, but avenues are quickly closing.
When the hammer finally dropped in Sichuan, the country’s last refuge for mining operations, businesses once held up as model companies for their role in consuming the province’s surplus electricity generated from clean energy became pariahs overnight.
Many bitcoin miners have already started packing up, with plans to uproot to the US.
Despite the bitcoin crackdown, China continues to embrace the underlying blockchain technology. President Xi Jinping endorsed the technology in 2019, spurring a flurry of industry activity.
The country has since committed to building an “advanced blockchain industrial system” supported through standards-setting and tax incentives.
Blockchain could also play an as-of-yet unspecified role in China’s central bank digital currency, known as the Digital Currency Electronic Payment (DCEP) system.
Very little has been revealed about the underlying technology, but the digital yuan is expected to function like cash, allowing people to transfer digital tokens that are part of the money supply.
China’s full embrace of blockchain flies in the face of its abject hostility towards the technology’s most prevalent use case.
But bitcoin enthusiasts might find some solace in Beijing finally enforcing its rules over mining.
Experts have previously warned about the dangers of having so much mining capacity under the purview of the Chinese government, so there could be little love lost as the sun sets on bitcoin mining in China.
Courtesy – SCMP