China is home to world’s largest cryptocurrency farms. Approximately three fourths of all the mining done globally is done in China.
However, this week the government seeks to put an end to the lucrative industry.
On April 8, China’s National Development and Reform Commission unveiled amendments to its guidance to the nation’s industrial structure, including categories that are to be restricted and eliminated.
Cryptocurrency mining was included among sectors to be eliminated immediately.
The new list is under public consultation until May 7.
Some of the primary reasons for the proposed end of Bitcoin mining:
- The NDRC’s cited non-adherence to relevant laws and regulations
- Unsafe practices
- Wasted resources
- Environmentally unfriendly operations.
According to Sustainability For All (a community created by ACCIONA), China contributes almost one third of the world’s pollution, twice the amount of the United States.
Some of the speculated reasons for the high pollution are a result of China’s rapidly growing industry, its population, and its heavy use of coal mining.
China’s government has not sat by idle to the pollution crisis at hand and the new amendments are an attempt to curb the use of energy and reduce waste.
Bitcoin mining is the processing of transactions in the digital currency system.
Different from a bank, the records of current transactions, known as blocks, are added to the record of past transactions, known as the block chain.
As the operation of managing transaction became more difficult and more “miners” joined the system, the simple CPU unit in a computer became unable to handle the task.
Powerful systems were used, and since 2013, special computing tools have been developed just for the purpose of mining.
Today, in a typical mining operation for Bitcoin, powerful banks of computers are grouped together to solve complex mathematical problems and get rewarded with Bitcoin (BTC).
A study from Nature Sustainability found that the three quarters of the worlds cryptocurrencies that are mined in China generate ten million tons of carbon dioxide emissions.
This is something the government does not feel translates to a valuable exchange of dollar for energy consumed.
The same study even provided evidence that mineral mining was a more energy efficient process for the dollar earned.
In contrast with Bitcoin mining, mineral mining has not seen steep increases in energy consumption and with the market value of cryptocurrencies rising, the energy required will only grow more out of control.
Worth noting, is that this is far from China’s first attempt to halt Bitcoin mining in the country.
In Fall of 2017, China banned cryptocurrency exchanges that served local customers.
Bitcoin prices took a dive around that time.
In January of 2018 China’s top internet finance regulator issued a notice demanding companies exit from the business.
The government at the time was then and still is concerned about the risk of speculation of virtual currencies.
Countries like the United States, Australia, and Canada became alternative locations for Bitcoin mining farm set-ups.
If the new rules are enforced by May 7, Chinese miners will have to give up their current bases in China and seek out foreign locations.
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Is the ban in China is a good thing after all?
With cryptocurrency mining currently being dominated by China, early concerns existed for potential centralization of the mining process.
Michael Zhong, analyst at Beijing-based crypto research firm TokenInsight, shared this view and said:
“Bitcoin mining will no longer be dominated by China, but become more decentralized."
The entire idea behind Bitcoin was a decentralized, P2P form of finance that was an opposite of the banking system’s level of control.
However, as Chinese mining farms controlled more and more of the block production process to validate Bitcoin transactions, they were effectively taking control of the network.
China’s ban also seems to address the risk of its own investors taking too much of the risk associated with cryptocurrency.
Despite the swift timeline for the ban to be in effect, the real highlight of the story is the resilience of Bitcoin itself.
Despite the announcement of the ban, the market was completely unaffected.
Today Bitcoin is trading above $5,200 USD and is up 40 per cent since the beginning of the year.
It is yet unknown what the future of Bitcoin mining will be, and if true decentralization will take place or if another nation will dominate the mining farm industry.