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For the past two weeks, top headlines from the crypto space have been on the Chinese crackdown on cryptocurrencies and Bitcoin mining. The country has embraced the technology underpinning bitcoin and has ambitions to implement its digital yuan managed by its central bank. China is now attempting to push its cryptocurrency activities forward.
On the other hand, Beijing is trying to ban crypto mining since they require vast amounts of electricity, often from coal-fired power stations, while the country has vowed to reduce carbon emissions.
Why Beijing is Cracking Down Mining
The economics of Bitcoin’s mining industry requires that the miner pursue the cheapest electricity available – often, it has been coal-fired power stations in China.
CaiXin magazine, the most recognized Chinese financial official, has made a report, according to Wu Blockchain, on why it is planning to crack down on Bitcoin mining and cryptocurrency.
The first reason is that Chinese listed companies only buy mining machines and build mines but do not necessarily do their own business. Inner Mongolia’s energy consumption reduction is also not up to Beijing’s standard, making it the most active to crack down on mining.
The magazine also highlighted that mining is of no use to the real China economy and even seizes the production capacity of other sectors. Beijing also believes that crypto is a bubble, and there is a high risk of transferring this to the elderly. The elderly widely have less investment experience, and this poses a significant threat to their income.
Is the Mining Crackdown a Bit Too Much?
After a meeting between leading Bitcoin miners and Elon Musk, a new Bitcoin Mining Council has been set up to improve the sustainability of the cryptocurrency. This came after Tesla announced that it would not receive Bitcoin payments due to environmental concerns.
So the idea of promoting sustainable use of energy in processes of cryptocurrency now being supported by Elon Musk of Bitcoin Mining Council seems bizarre.
All in all, research from a university group indicated that, by April 2020, China represented over 75% of Bitcoin mining. The authors have estimated that 40% of Chinese Bitcoin mining is coal-fired.
Even if the Chinese government manages to fight the mining activities, miners are likely to continue to use electricity from fossil fuels in countries such as Russia. American miners may sincerely want to label their activities with a green energy label – but the broader Bitcoin market might make this either unreasonable or irrelevant.
Since the State Council’s crackdown notice, local authorities in the main mining centers of China have begun banning crypto-mining operations. Few miners have minimal idle capability on sites overseas and aim to go underground, which may only be feasible for some of the largest miners. Having a mining crackdown might not just be a good idea after all.