China’s decision to ban Bitcoin mining has dominated discussions in the crypto space for the last ten days. BTC prices fell 12% since the news broke, an opportunity for many to buy the dip. However, the ripple effects of this one decision will affect the crypto community’s balance of power.
The government will “crack down on bitcoin mining and trading behavior and resolutely prevent the transfer of individual risks to the society,” said a statement issued by the Financial Stability and Development Committee of the State Council. Vice Premier Liu He, who is President Xi Jinping’s top representative on economic and financial matters, chairs this committee.
China is presently in the process of a comprehensive regulatory crackdown on its fintech sector. Jack Ma’s Alibaba is the present poster child, but the moves expand far beyond any one company. Companies such as Tencent have also been slapped with massive fines after being found guilty of monopolistic practices.
This isn’t the country’s first move against crypto either. The People’s Bank of China, which regulates financial institutions and drafts the monetary policy of the country, issued a statement in 2019 that “it would block access to all domestic and foreign cryptocurrency exchanges and ICO websites.”
Why would China ban Bitcoin mining?
There are several differing opinions as to the motivation behind this latest crackdown.
For one, China may be looking at Bitcoin as a hindrance to its ambitious climate goals. To give some context, Chinese President Xi Jinping committed China to achieve carbon neutrality before 2060.
The country is one of the largest greenhouse gas producers in the world, so these are clearly ambitious goals. Bitcoin’s environmental concerns may be one reason it finds itself under scrutiny. However, as we’ve already seen – this is a doubtful argument at best. Bitcoin is actually quite sustainable!
Others also believe Chinese authorities view crypto as a threat to its central bank digital currency – a crucial aspect of the country’s plan to become an economic powerhouse. And when all else fails, there’s always the standard “crypto allows money laundering” argument to fall back on.
Flawed reasoning aside, the impact of this decision is clear.
So, what now?
The crackdown has resulted in 90% of the country’s mining capacity shutting down. With over 65% of the network’s mining power allegedly located in the country, this is a significant shakeup in the network’s geographic distribution of hash power.
(Also, fun fact – The amount of electricity consumed by the Bitcoin network in one year could power all tea kettles used to boil water in the UK for 14 years. Thanks Cambridge)
The Bitcoin network’s processing power took a nosedive as bitcoin miners fled the country in what is being called the Great Miner Migration. Only time will tell who will rise to fill this gap. According to CNBC, Texas may be poised to pounce:
Despite a lack of reserves that caused dayslong blackouts last winter, Texas often has some of the world’s lowest energy prices, and its share of renewables is growing over time, with 20% of its power coming from wind as of 2019. It has a deregulated power grid that lets customers choose between power providers, and crucially, its political leaders are very pro-crypto – dream conditions for a miner looking for a kind welcome and cheap energy sources.
Many in the crypto community, myself included, have raised concerns about how heavily concentrated Bitcoin production was in China. On this front, this news is a definite win, as we move towards a truly decentralized global financial system.