China’s bitcoin miners produce an estimated three-quarters of the world’s supply of bitcoin, making it a major player in the cryptocurrency. Last September, the Chinese government pushed to cease bitcoin trading but now China’s regulators appear to be targeting Chinese bitcoin miners in an effort to get them to exit China.
Why is China a hub for bitcoin miners?
China has attracted numerous bitcoin mining pools and individual bitcoin miners due to the availability of inexpensive power, the easy access to local chip-making factories and the plentiful supply of cheap labour. The computers used for bitcoin mining tend to guzzle power, they need this to be able to perform the complex calculations on blocks of data which maintain the Bitcoin network and thus earn currency for users.
The Leaked Memo
A leaked document from ‘The Leading Group of Internet Financial Risks Remediation’ says that bitcoin miners should be encouraged to make an orderly exit from China due to the negative impact of bitcoin mining activities.
According to Beijing (Reuters), the Chinese government has told China’s Central Bank that they should spur the local government to regulate the power usage to bitcoin miners in an effort to sway them to desist their activities.
In light of the government restrictions, top Chinese bitcoin mining-collective Bitmain has already decamped and relocated to Singapore. BTC.Top has announced plans to open a new facility in Canada while ViaBTC has opened facilities in both Iceland and America.
Why the clamp down on bitcoin mining?
According to the leaked memo, Chinese bitcoin mining has caused environmental damage due to the huge amounts of resources it requires to mine currency. While China does not historically have the best reputation for being concerned with pollution, when you look at the amount of power required to mine cryptocurrency and the large scale mining which is taking place in China, this does raise a legitimate concern.
The government has also said that bitcoin mining draws much-needed power away from other areas in less developed provinces. Most of China’s cheap electricity comes from coal-fired power plants – very low-cost but also detrimental to pollution levels. Bitcoin mining leaves a substantial carbon-footprint per transaction, especially somewhere like China that doesn’t rely on renewable clean energy.
The memo also indicated that bitcoin was stoking rampant speculation, which could have a destabilising effect on the economy. Xinhua has reported that the Chinese government is strongly committed to reducing financial risk and excessive leverage, which could potentially threaten China’s economy.
What does this mean for Bitcoin and other Cryptocurrencies?
According to Quartz, Pan Gongsheng, deputy governor of the People’s Bank of China (PBoC) believes that cracking down on bitcoin is the right move and that it will eventually die out.
Fortune has taken a more optimistic view, predicting that the decline of Chinese mining could create more opportunities for new operators elsewhere and would ultimately benefit the cryptocurrency ecosystem by reducing the risk of having such a high volume of miners located in a single authoritarian state.