Worries over speculation, environmental impact forced China to ban crypto mining

China, which accounted for 65 percent of all cryptocurrency mining in the world and mined 30 percent of all coins in 2020, banned cryptos in three phases last year. The move was to stop the digital currency from devaluing its fiat currency and replacing it.

Until the ban was imposed, which seems more stringent than 18 similar attempts since 2013, China was the most enthusiastic technology adapter. Its first cryptocurrency exchange, BCT China, opened in 2011; the Baidu search engine started accepting cryptocurrencies in 2013; and Bitmain, a crypto mining equipment manufacturer and mine pool operator, was set up in 2014.

The cryptocurrency was adopted by the population enthusiastically. The growth continued in 2016 and 2017 as miners, especially from poorer parts of the country, liked the anonymity mining provided and the rising value of cryptocurrencies. By 2020, 67% (hash rate) of global Bitcoin mining was happening in China.

Aware of the sudden and haphazard growth of the sector, the Chinese government banned initial coin offerings (ICOs) in 2017. The final cut came last year and the ban was imposed in different phases. In May, financial institutions were prevented from engaging in any cryptocurrency transactions. In July, crypto mining by domestic operators was banned. In September, all the cryptocurrency and related activities were declared illegal.

In July, Bishijie, a community of online cryptocurrency investors, stopped the operation of its website and app in mainland China. BCTChina announced that it had arrested crypto-related transactions completely.

But the ban does not mean that cryptocurrency has exited China. The government has proposed to bring out its own official, digital currency with more stable features built-in. The country’s 15th Five Year Plan states that the financial sector reforms will include developing an e-currency. It also states that the aim of the financial system should be to serve the real economy and not speculation.

The People’s Bank of China, in its working paper, gave an outline of its efforts to create e-CNY or the digital Yuan. The crypto ban is to make e-CNY more acceptable to the population.

There were also environmental concerns. Crypto mining activities consume humongous amounts of electricity. It is estimated that 0.5 percent of all energy generated in the world is used for crypto mining which is seven times the power consumed by Google. China, which has pledged to become carbon neutral by 2060, and the ban on cryptocurrency shows that the government is ready to take action to meet its environmental targets.

Most of the miners, mainly from Xinjiang, Sichuan, Guizhou, and Inner Mongolia; have relocated to countries like Russia, Kazakhstan, and the United States to continue their mining activities. The Cambridge Centre for Alternative Finance revealed that one-third of the Bitcoin hash rate is in the US now, a 428% increase from September 2020.