What are the reasons for China to clamp down on Bitcoin mining?

Annual spring rains bring trucks full of computers to hydroelectric dams, where businessmen can take advantage of cheap electricity to mine bitcoins.

Writer Charlie Campbell said in a report published by the American "Time" magazine that China holds about 75% of the world's bitcoin mining capacity due to well-established technology supply chains and very cheap electricity, and cryptocurrency mining requires a huge amount of computing power, which makes energy consumption A major burden to the industry.

This means that during the summer, when it rains, miners flock to hydroelectric plants in Sichuan, which has ample supply, and local governments often offer power for a low price to attract jobs and boost GDP numbers.

In late May, China's central people's government signaled a crackdown on cryptocurrency mining, causing the price of bitcoin to drop by 30% and creating hardships for the entire industry, which has lost more than $1 trillion in value.

Liu He, deputy head of the Central People's Government, told a group of financial officials that the government will clamp down on Bitcoin mining and trading activities to ensure financial stability, and although individual miners and traders may be able to evade oversight, larger commercial miners are likely to consider centralized trading positions. Alternative mining with less stringent regulatory requirements, analysts say.

A number of companies involved in cryptocurrency mining have begun to cease operations in China (Reuters)

suspension of mining operations

In the past weeks, companies involved in cryptocurrency mining have suspended operations in China, crypto exchange Huobi has suspended mining hosting services as well as some trading services, and cryptocurrency miner CashCow said it will stop selling machines to customers. In China, it said in a statement that it would "support all kinds of laws and regulations in the country."

Meanwhile, CEO of BIT TOP, which accounts for more than 18% of the Bitcoin mining hash rate in China, announced the suspension of its domestic operations, writing in his account on the social networking site Weibo Essential in North America, it is not worth the regulatory risk."

environmental losses

The surprise crackdown was largely driven by the inherent speculative nature of cryptocurrencies, as well as the Chinese Communist Party's intense aversion to risk or anything outside its control.

Complicating matters further, the massive environmental toll of cryptocurrency mining is undermining Chinese President Xi Jinping's ambitious promise to make China carbon neutral by 2060.

Prior to the campaign, Bitcoin mining in China was expected to generate more than 130 million metric tons of carbon emissions by 2024, according to a study published in the scientific journal Nature Communications. It ranks 29th among the world's largest energy consumers on the list of countries in terms of energy use above Argentina, which has a population of about 45 million.

Although cryptocurrency mining during the summer months benefits from sustainable energy sources thanks to torrential rains, winters in China are barren, which means that miners have to look for cheap alternative electricity supplies, and solar and wind farms do not produce enough constant supplies to run mining operations. around the clock, and as a result miners often turn to the only affordable alternative, coal.

Mining rigs are pushed thousands of kilometers across China to power plants in Inner Mongolia or Xinjiang province, and with the passing of the seasons, what some consider the world's greenest industry - converting surplus renewable energy into cash - quickly becomes dirtier, especially as it is based on burning Coal to create currency.

The digital currency mining industry achieved a profit of $ 1.7 billion in April, and despite the fact that mining is digital and not physical, it also means that the bitcoin currency mimics some of the properties of gold, which is arguably the most successful medium of exchange in history, which is still a high-value asset. value despite the passage of thousands of years.

After China announced that it had taken strict measures against bitcoin mining, the value of the currency fell by about 30% (Reuters)

focus problem

Cryptocurrencies may have been invented to circumvent government control. In contrast, China's regressive culture of regulation has allowed it to dominate the industry, and even with the latest crackdown, Beijing has not supported or allowed financial institutions to trade cryptocurrency, but has turned a blind eye to mining that was already subsidized. from some local governments.

The contrast has become stark, with dozens of tech companies with lavish offices in Shenzhen and Shanghai claiming to be involved in artificial intelligence, big data processing, or using blockchain for commercial purposes, but in reality they make their money mining cryptocurrency in remote dams and power plants. .

After China announced that it had cracked down on the industry on May 21, the value of the bitcoin fell to $35,263, and the high concentration of mining activity in a country threatens the entire system that supports cryptocurrencies, and vulnerabilities arise when this mining capacity is concentrated in One place, and one of the main security pillars of the blockchain technology that underpins cryptocurrencies is the transparency and verification of transactions in general.

What if a large percentage of Bitcoin miners decided - perhaps by order of the government - to manipulate in a certain way?

This could potentially split the Bitcoin market, or at least create enough uncertainty to cause it to turmoil.

Beijing’s recent campaign allays concerns about this scenario. In contrast, the Bitcoin boom in China has sowed discord in other markets, where increased demand for graphics cards, which are popular with gaming enthusiasts and require big data processing, have sent their prices up 25%. , disrupting the gaming and artificial intelligence sectors globally, and the amount of energy required for mining could be a problem in regions that suffer from fluctuating energy supplies.

What's next in Bitcoin mining?

Prior to this latest campaign, efforts were being made to clean up the Bitcoin mining sector. In addition to consuming a huge amount of energy, mining machines generate a huge amount of heat and need to be cooled by fans, which in turn consume more energy. Technological advances, such as cooling computers with water, can help reduce consumption rates.

In more ambitious plans, some cities in Xinjiang are experimenting with using the high temperatures released by mining machines to provide heating for the community.

The impact of cryptocurrency mining, on the other hand, is not limited to the climate. Before the crackdown, the bitcoin price hike encouraged tech experts across China to turn computers used for artificial intelligence or big data processing into mining operations.

The writer suggests that the price of Bitcoin will recover from the current recession, but miners will mostly avoid China, and there has been a gradual transfer of Bitcoin mining operations to countries with cool year-round temperatures and steady renewable energy supplies, such as Canada and Iceland.

In this context, cryptocurrency specialist Nishant Sharma said that Bitcoin is attracting more capital in the West, especially in North America because the industry has become predominantly institutionalized, in light of the lack of clarity in China.

Analysts said the regulatory crackdown is likely to prompt large commercial mining operations to flee China en masse in search of alternative hosts, such as Mongolia, Kazakhstan and Afghanistan.