Digging deeper into the reasons behind China’s crypto regulation policies
In the latest addition to China’s cryptocurrency crackdown, the government of Sichuan province halted all crypto mining activities in the region. The efforts to restrict cryptocurrency mining have also spread to China’s northwestern province of Hebei. The cyberspace commission of Hebei announced on September 14, 2021 that it will cooperate with the central government’s efforts to curb crypto mining and trading.
Other provinces like Anhui and Gansu have also announced plans to restrict crypto mining. Inner Mongolia has gone a step ahead and even set up a hotline and email address where the general public can report crypto mining operations.
Banks in the country have now been instructed not to provide services such as trading, clearing and settling Bitcoin transactions. Alipay, the payment platform owned by Ant Group, made a statement in June that it would set up a monitoring system to track illegal cryptocurrency transactions.
The Chinese crypto crackdown stems from a need to meet environmental goals. Let’s try to understand why crypto mining is bad for the environment and how the Chinese regulation will impact the crypto mining business.
China’s energy efficiency mission
China hosts around 75% of the world’s Bitcoin mining capacity. This is due to the country’s pre-existing technology supply chains and extremely cheap electricity rates. In 2021, the Bitcoin mining industry accounts for approximately 5.41% of China’s carbon emissions due to electricity generation. The country has thus been on a mission to crack down on crypto mining.
China wants its CO2 emissions to peak by 2030 so that it can become carbon-neutral by 2060. The energy requirements of Bitcoin-mining have become a hindrance to this goal.
The impact of China’s crypto regulation
With China’s swift decision-making, 90% of the country’s Bitcoin mining capacity has now been shut down. The cryptocurrency lost more than 20% of its value weeks after the shutdown was instated in late June. After peaking at US$65,000 in April, Bitcoin’s value nosedived to US$33,333 soon after the crackdown began.
While the value of Bitcoin might have fallen, the crypto crackdown in China could possibly make mining much easier on a global scale. The total Bitcoin hash rate or power requirement went down from a record of 180.7 million terahashes (the unit used to measure the speed of crypto mining hardware) per second in mid-May, to around 116.2 million in late June after the crackdown began.
These are just the short-term effects of the crackdown. The long-term problem that emerges from this scenario is that the miners will leave China and move to countries where they can access cheap electricity. While China’s Bitcoin mining capital Sichuan at least partly relies on hydroelectric power, the same is not true for the regions these miners are moving towards. One such region is Kazakhstan. The country’s coal mines provide a cheap and abundant energy supply. With miners moving towards countries that rely on fossil fuels for electricity generation, this might end up impacting the environment more in the future.
Image courtesy of Creative Commons
