China’s largest bitcoin producing provinces have intensified a crackdown on cryptocurrency mining in the latest sign of how global authorities are toughening their stance on the rapidly growing digital asset markets.
The country’s bitcoin mining operations, the power-hungry process of computational puzzle-solving that creates new units of the virtual currency, have been in retreat since May when the government confirmed a ban on cryptocurrency transactions and warned of the risks of using them for payments. Bitcoin prices plunged after the announcement and are currently trading at about $30,000 below the April peak of almost $65,000.
China’s latest intervention places further pressure on what was once one of the world’s most vibrant markets for trading and mining digital currencies. It comes at a time when many governments are scrutinising the industry’s affect on the environment and determining the types of financial oversight that should be applied to cryptocurrencies.
Earlier this month, global regulators called for digital currencies to carry the toughest bank capital rules of any asset, with the Basel Committee on Banking Supervision warning that the growing use of crypto assets “has the potential to raise financial stability concerns”.
A wave of despair hit China’s cryptocurrency mining community this week after officials in all of China’s hubs for mining operations followed Inner Mongolia and released further measures targeting bitcoin creators. The northern region had banned mining and introduced a telephone hotline for reporting on suspected operations in May.
Sichuan, a hydropower-rich province in south-west China, has ordered the 26 largest local mines to stop operating as an investigation is conducted, after a series of meetings by the local Development and Reform Commission’s Energy bureau, Chinese media reported on Friday.
The probe, which will last until June 25, has been taken as a warning by many bitcoin miners that it was time to pack up and relocate outside of China.
A video of employees at one large mine shutting off their computers’ servers appeared to capture the sense of finality and was shared widely by Chinese cryptocurrency enthusiasts online.
Owing to its abundant supply of renewable energy from an extensive dam network, Sichuan had been seen as a location of last resort for mining operations pushed out of provinces that rely on coal-fired power plants for electricity.
Governments in leading cryptocurrency mining locations Xinjiang, Yunnan and Qinghai also this month announced plans to shutter mining operations.
Local governments are under pressure from Beijing to reduce energy intensity — carbon dioxide emissions per unit of gross domestic product — as China aims to reach peak output of greenhouse gas by 2030 and achieve “carbon neutrality” by 2060.
Analysts have regularly pointed out that running the computers needed for bitcoin production is bad for the environment. Cambridge university’s Bitcoin Electricity Consumption index suggests that bitcoin mining consumes 133.68 terawatt hours a year of electricity, more than Sweden did last year.
Crypto mining advocates, however, say at least part of the energy used is from clean sources, some of which may have otherwise gone untapped because they are in areas off typical energy grids.
Despite measures in 2017 and 2019 to tamp down bitcoin trading and investment, China remained the main global hub for creation of bitcoin and accounted for up to 75 per cent of the world’s mining, according to pre-crackdown estimates.
Guan Dabo, an economist at Tsinghua university in Beijing and an author of a study estimating bitcoin mining’s contribution to China’s carbon emissions, said that reallocation of the miners to a place with a cleaner electricity supply had only ever worked as a temporary compromise.
“[Bitcoin mining] doesn’t do any good to the national economic development or social development,” he said. “On the other hand, it consumes a lot of electricity that could be used for other purposes, especially at a time when provinces are facing electricity shortages.”