Is the Chinese Cryptocurrency Mining Ban Bad for Bitcoin?
Recently, the Chinese government has doubled down on their stance on cryptocurrencies, and have said that they plan to “crack down on Bitcoin mining” due to their concern for retail investors, planned release of their digital Yuan, and the environmental problems with Bitcoin mining. However, this will only be a short-term issue for cryptocurrencies, and will make Bitcoin more efficient and decentralized in the long term.
Throughout the history of Bitcoin, China has been a center of innovation and a central location for the majority of the digital asset’s mining power. This is in part due to Bitmain and other companies that make Bitcoin mining hardware being situated in the country. However, since 2017, China has begun regulating the trading of cryptocurrencies, and currently does not allow for retail investors to buy or sell digital assets in order to protect investors from risk.
In 2021, Chinese Vice Premier Liu He said that the country would crack down on cryptocurrency mining, which sent shockwaves through the Chinese mining community. Many provinces, including Inner Mongolia and Xinjiang, have started shutting down Bitcoin miners, and it does not look like this trend will stop anytime soon.
There are a couple reasons for the sudden crack down. First, China is releasing their Digital Yuan in the near future, and any cryptocurrency is a threat to its dominance over the digital payment industry. If Chinese citizens only have one option for digital payments, it will gain much more adoption than if it has to compete with Bitcoin. Once the Digital Yuan is established and adopted across the country, the government may reverse their decision and allow Bitcoin and other cryptocurrencies to be prevalent in the country.
The possible second reason for the restriction is because China plans to be carbon neutral by 2060, and the high amounts of miners using coal power is significantly hampering their plans. The places with the most mining shutdowns are the provinces where the majority of energy consumption comes from coal, which is incredibly environmentally unfriendly. In areas where hydroelectric power and clean energy are more common, miners have continued to operate, though some are planning to leave the country in order to avoid being shut down next.
These developments have led to a mass exodus of miners from China, which has caused the hash power of the Bitcoin network to decrease over the past months, making it less secure. Though this seems like a serious issue, the moving of mining power will actually be incredibly beneficial to Bitcoin in the long run.
Before the mining bans, over 65% of the entire Bitcoin network’s hashing power was based in China. This is concerning, as China effectively has control over the majority of the hashing power, and any government with control over a decentralized currency is dangerous for the health of the network. Now, miners will be forced to disperse across the world, meaning that no one country will be able to control the network.
Furthermore, the cryptocurrency mining exodus will help with the carbon emissions and environmental concerns related to mining. Right now, proponents of Bitcoin like Tesla have stated that they will no longer accept Bitcoins as payment for their cars until the environmental concerns related to Bitcoin mining are solved. Currently, one Bitcoin transaction releases nearly 750kg of carbon into the atmosphere and uses as much electricity as a typical American home would use over 54 days. These numbers are unacceptable for socially conscious investors, and the proliferation of green energy will decrease the carbon emissions drastically, leading to greater investment in Bitcoin and a more sustainable future for the digital asset. Miners that are moving from China will go to places where the electricity is cheapest, and the current cheapest forms of electricity are all renewable.
Even though the short-term impact of China’s action towards cryptocurrency mining will cause volatility and a decrease in hashing power, the long term implications will be overwhelmingly positive. Much like the rest of cryptocurrency, the mining industry is still in its infancy, and events like these are mere bumps in the road for this industry to become mainstream around the world.
By Lincoln Murr