China’s internet finance regulator is asking local governments to strongly encourage firms to quit blockchain mining
The rise of Bitcoin, and really most cryptocurrency, has been tied to China. China is the home of cheap processors and cheaper electricity, so the complicated job of doing the math required to run the Bitcoin blockchain and mine the actual Bitcoins has largely fallen to Chinese entrepreneurs
According to a leaked memo, China appears to be clamping down on Chinese miners, which has been estimated to produce nearly three-quarters of the world’s supply of bitcoin.
The nation’s internet finance regulator is asking local governments to strongly encourage firms to quit blockchain mining which has resulted in an increase in power prices and has also issuied stronger environmental rules.
The ‘Leading Group of Internet Financial Risks Remediation’ — China’s internet finance regulator has advised all bitcoin miners that they should make an “orderly exit” from China because they have consumed “huge amounts of resources” and have resulted in an increase in power prices and and issuing stronger environmental rules.
Details of the memo were posted on Twitter by Chinese blockchain industry executive Elly Zhang and confirmed by Quartz.
The meteoric rise of bitcoin and the idea of cryptocurrency in general is unprecedented, and a couple of weeks ago the bitcoin price skyrocketed to almost $20000, and new miners and mining farms are being setup every day.
China does not have an issue with bitcoin mining itself, suggesting that powering computers specifically to dig up new coins is a waste of electricity – proposing restrictions on large mining groups that are located within the country.
While the issue with mining itself might not spell the end for the currency in China, the fact remains that a number of large bitcoin farms are located in Asia due to their low electricity costs. Taxing and otherwise increasing the charges of these large organizations may have a notable effect on the continued health of the currency worldwide.
A bitcoin price drop is to be expected following trepidation from such an influential government, but the crash is pretty significant considering how high the currency recently climbed.
China’s internet finance regulator does not control national energy usage but it is an influential political vehicle that’s led by the deputy governor of the People’s Bank of China (PBC), Pan Gongsheng. To remove miners, the group asked its local offices to look into policies around price, tax, land usage and environmental concerns.
The situation is complicated by the fact that many miners, and particularly those in China, make use of cheap power, or flock to locations where there’s excess capacity. In some cases, mining businesses partner with local governments to ensure a steady supply of electricity at discounted rates, with a portion of the profits returned to the local authorities. That’s offered a welcome economic boost in regions where more traditional industries are struggling.
China, like other nations, likely has other reasons for shutting down bitcoin, too. On top of the potential for economic chaos, cryptocurrencies are a lot harder to track than fiat currencies, and are often used by criminal and tax-avoiding companies. China, which exerts notoriously strong control over the internet and private businesses, has already moved to ban initial coin offerings and crytpocurrency exchanges.
Should the regulator succeed in banning blockchain/bitcoin mining this could potentially cripple Bitcoin mining, with estimations that 70% of the network is currently mined in China, and almost certainly will drive up prices: It’s basic economics. With far, far fewer people mining Bitcoin, there won’t be nearly as many Bitcoins to meet demand. That’s almost certainly going to drive up the price, although considering Bitcoin is built entirely on the faith people have in Bitcoin, a price collapse isn’t out of the realm of possibility. It’s also going to drive up the cost of Bitcoin transactions, which may be a moderating influence; it’s simply not cheap to use Bitcoins.