China To Ban Crypto Mining – What you need to know

On April 9th, the National Development and Reform Commission (NDRC) of China came out with an important announcement. The state planning agency is considering the complete ban of crypto mining in the country. Given the fact that China hosts the majority of mining pools, this could lead to detrimental effects for the crypto industry.

That being said, the plan has yet to go beyond a proposal.

China & Cryptocurrency

To provide context, we need to take a closer look into China’s relationship with crypto as a whole. Since September of 2017, the authorities have been promoting what is known as the “blockchain over Bitcoin” approach. This is around the time of the occurrence of a crackdown on local ICOs (Initial Coin Offerings) and crypto exchanges. Currently, people can hold cryptocurrencies, but they cannot trade them.

The one group that has been subject to the most serious repression is the local mining industry. In February of 2018, a report by CNN Money said that the Chinese government made crypto miners make an “orderly exit” from the industry. This was primarily due to issues pertaining to taxes and also dangers to the environment. The article further states that:

China has shown its willingness to crack down on other aspects of the cryptocurrency industry. It forced exchanges inside the country to shutter trading operations in September. And it’s now reported to be moving to block the websites of overseas trading platforms.”

According to a Quartz article, the Leading Group of Internet Financial Risks Remediation (China’s top Internet-finance regulator) wants local authorities to force miners to shut down their business. They want the authorities to, “…use measures linked to electricity price, land use, tax, and environmental protection, among other things.”

Furthermore, the agency supposedly wants regional authorities to submit regular progress reports. These reports should be detailing the existing mining facilities within their area of authority.

In response to China’s plans to ban crypto mining, the country’s largest mining players chose to do one of two things. They could either move shop or change their main line of business. Bitmain, the Chinese ASIC chip manufacturer and mining outfit, took to using artificial intelligence as an alternative revenue source.

Miners & Pools

Bitmain’s former co-chief executive, Jihan Wu, said, “As a China company, we have to be prepared.” The company was also planning on running a mining operation in Rockdale, Texas. Later, they had to suspend the plan because of the market collapse earlier in the year.

Even with China saying they will ban crypto mining, the area is still a prominent mining hub. In fact, a majority of the largest Bitcoin mining pools are under the control of Chinese organizations. The University of Cambridge conducted an earlier study surrounding this. They made the argument that Chinese dominance in mining is made possible thanks to cheap electricity. Not only that, but they also use available land in various provincial areas. Such places include Xinjiang, Inner Mongolia, Yunnan, and Sichuan.

Where else do they go?

There were reports around this time that indicate over two-thirds of global mining pools are in China. There was an additional analysis made by Nature, which shows that three-quarters of cryptocurrency miners are in China. Many of these miners dedicate all their computing power to validating blocks on Bitcoin, Ethereum, and other cryptocurrencies. They use cheap computing power, hardware, and cheap electricity. Moreover, there is a pool of people who receive motivation by the profit level that can be made.

ban crypto mining

A number of miners have gone to Iran and other jurisdictions. However, they found many of the same restraints that they experience in China. Their mining rigs were banned at the border and corrupt players were looking for their profit shares.

What about the environment?

As you may recall, a reason for this proposed crypto mining ban is that they want to aid in the protection of the environment. Does any of this pertain to the environment in any particular way? No, not really.

While the Chinese state is indeed addressing environmental and energy concerns, labeling crypto mining as wasteful doesn’t make much sense.

If you do some digging, you’ll find that the ban proposal has little to do with environmental waste. The surveillance system the state is building on top of each citizen and every communication will consume more power than their analog equivalents. This system is one that aims to absorb monetary information.

Instead, the crypto mining ban has much more to do with a sense of control. To elaborate, who has control over the blockchain in use and capital flows both within and without China. Through a self-contradictory perspective, the centralization of mining pools in China is becoming a concern. This is especially true when it comes to consolidation of the network hash rate. 60-70% of Bitcoin’s network hash power used to be in containment in China.

Anyway, the ban on crypto mining may end up strengthening blockchains, Bitcoin, and other cryptocurrencies. The irony, of course, is that if the ban goes through, this could lead to an array of benefits.

Community reception to China’s Crypto Mining Ban

In spite of – or regardless of – the potential increase in strength, the ban will undoubtedly have an impact. It will affect the global crypto industry; something that Mark D’Aria (a mining consultant of Bitpro Consulting LLC) believes. He once said to Cointelegraph:

Short term, it could be extremely disruptive. There will certainly be many winners and losers in the mining industry, as non-Chinese miners would benefit in the short term from significantly reduced difficulty, and from inexpensive surplus hardware as it filters out of China.”

He goes on to argue about the dominating effect of the crypto mining ban:

If it was decreed that all miners were to shut down immediately, all of that hashrate lost in an instant could significantly disrupt the technical operation of the Bitcoin blockchain, slowing it down significantly until the next difficulty reduction. If this ban was implemented shortly after the last difficulty adjustment, this transitional period could last months.”

Ultimately, D’Aria explains that in a worst-case scenario, following a total cryptocurrency mining ban, it could take months for the network to bounce back. Regardless, the Bitcoin blockchain should be safe in the long run.

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