China’s relationship with bitcoin has long been defined by regulation. As news of the country’s latest restrictions once again dominate the headlines, it’s important to put the new regulations in the context of the old ones.
China’s first major crypto law came in 2013, when the government recognized bitcoin as virtual property but banned it as a medium of transaction. In 2017, China’s central bank declared initial coin offerings (ICOs) illegal, causing bitcoin’s value to drop temporarily. As the currency’s trade restrictions are reiterated year after year, news of mining bans in several Chinese provinces are the latest cause for concern.
The announcement last week of a mining ban in China’s Sichuan province created an exodus of miners seeking refuge for their materials abroad. It is estimated that 90% of the country’s mining capacity will be closed following the recent bans. The news is important because Chinese mines fuel 80% of the world’s cryptocurrency exchanges.
As mining regulations have brought FUD (fear, uncertainty and doubt) to global crypto markets, causing the price of Bitcoin to drop dramatically, many experts remain optimistic about how Chinese regulations will boost the health of the world. long term of bitcoin. Here are 3 reasons why China’s mining ban may not be as bad as it sounds.
1. Bitcoin is NOT banned in China
As it stands, Chinese citizens are not required to hand over their property to the state. The terms “bitcoin” and “ban” have been used a lot in relation to the crackdown in China, but it is important to note that there has not been an outright ban on holding bitcoins and money. other cryptocurrencies.
The central bank of China is primarily concerned with the growing popularity of the cryptocurrency, as it directly calls into question the economic and financial stability of the country. By strengthening the enforcement of speculative crypto trading and mining, the Chinese State Council hopes that the country’s economy will be better protected from the savage volatility of the crypto market. However, this rhetoric used is far from new. The recent crackdown on financial institutions facilitating crypto payments is largely a reiteration of the 2013 and 2017 regulations.
While China has taken a more aggressive stance against bitcoin and crypto in general in recent months, some of the regulations mentioned could be subverted in the same way they always have been. When China imposed a trade ban in 2017 during the ICO boom, cryptocurrency trading continued, with many participants looking to foreign exchanges based in Hong Kong and Japan. As long as holding the assets themselves is legal, Chinese citizens may be looking for ways to get around restrictions on their trade. That, of course, could change if the Chinese government opted for stricter enforcement of existing laws.
2. Improving mining decentralization
While the exodus of miners may disrupt the crypto market in the short term, in the long term, increased decentralization promises to make the Bitcoin network less vulnerable to the rules and regulations of a single country. It is estimated that 65% of bitcoin mining takes place in China. With miners now being forced to relocate to other countries, the redistribution is expected to help allay previous concerns about China’s mining dominance.
It’s also worth noting that the conflict between bitcoin mining and national politics is far from new, with rumors of a Chinese mining ban dating back to 2018. In May, Iran announced a mining ban. temporary due to power shortages across the country. The news, coupled with the fact that 4.5% of all mining activity takes place in Iran, has caused a shift in the crypto markets, which is far from desirable in an already volatile space.
While Iran’s mining volume is paltry compared to China’s, the point remains: the risks and complications of mining will be less frequent if the miners themselves are more dispersed. And with this recent exodus, that’s exactly what could happen.
3. A greener crypto mining industry
With a significant portion of Chinese miners set to relocate to the United States, the exodus could actually be a positive step towards reducing bitcoin’s carbon footprint.
A landing point for Chinese miners could be Texas. The state benefits from some of the lowest energy prices in the world, a growing share of renewable energy sources and a deregulated electricity grid. Perhaps most importantly, he has one of the country’s most pro-crypto politicians as governor, Greg Abbot.
As it stands, North American miners use a wider range of energy sources compared to Asian-Pacific miners and tend to rely less on burning fossil fuels like coal. Miners in North America reported a 28% use rate of coal-fired energy compared to a 65% use rate by Asia-Pacific miners. North American choppers are also more likely to connect their operations to the shared power grid, which naturally diversifies the energy sources used.
North America also has a greater incentive to provide miners with renewable forms of energy, both on the open market and through government regulation, as the mining industry’s exorbitant use of energy continues to increase. subject to public scrutiny in the United States. In May, Elon Musk announced that his company, Tesla, would no longer accept bitcoin as a form of payment until the mining industry reached 50% clean energy use. In June, Senator Elizabeth Warren’s (D-Mass.) Ad criticized bitcoin for its negative impact on the environment, calling for increased regulation around the mining industry. Musk also heads the Bitcoin Mining Council of North America with MicroStrategy CEO Michael Saylor, a group dedicated to improving transparency and the use of renewable energy in the United States in bitcoin mining and fight against the environmental image of bitcoin.
Unlike the Chinese government, North American regulation will not be an “all or nothing” affair. President Joe Biden’s addition of several new crypto reporting requirements in his 2022 budget indicates that the country is heading into a future where crypto could be tightly regulated but not completely banned.
Mining will likely be made easier to use alternative energy sources over a period of several years, a more sustainable progress tactic than threats of an outright ban. While China has raised concerns about the environmental impact of hashing, this was far from the main issue.
Ultimately, China’s ban on mining and the reiteration of trade restrictions are emblematic of the many gripes investors have always had with bitcoin and cryptocurrencies in general. Despite all the promise, innovation and ingenuity that technology brings in the digital age, there will always be hurdles, like government regulation, to overcome. But these are widely viewed as short-term hurdles in a long-term game – those with the power to make cryptocurrencies like bitcoin as much as they can hurt them.