Banning cryptocurrency in China: the scale of the tragedy

Bitcoin mining in China has dropped to near zero following recent government crackdowns. This has already had a huge impact on the entire market, including (especially) Russia. The changes concern not only enthusiasts, in the last month they are felt by everyone, even grandmothers from Irkutsk.

If you lived in a bunker:

Everybody fled from China. It got to the point that Russia has now become the third country in the world for bitcoin mining. And the second place – suddenly turned out to be in Kazakhstan, where for the last six months, seeing the seriousness of the party’s intentions, the Chinese have been exporting their mining farms.

Why does China need it

It would seem, what’s the difference if crypto enthusiasts (well, or solid business guys) mine different coins and bring dollars to the country. But the behavior of the Chinese leadership is not just a Russian “ban because we can.” They have three motives:

  1. China is trying to become an environmentally friendly country. And he signed several international treaties on this matter. Xi Jinping said last year that the country intends to peak its carbon dioxide emissions by 2030, then decline, and achieve carbon neutrality by 2060. But Bitcoin single-handedly threatened to thwart these plans. It was expected that without political intervention, the annual energy consumption of the blockchain in China by 2024 would be 300 TWh, (this is more than the entire consumption of Britain, and a third of Russia). This would result in an extra 130 million tonnes of carbon being released.
  2. The Chinese authorities believe that operations with cryptocurrencies may cause money to be withdrawn from the country. In September, they said bitcoin, ether and other digital currencies were disrupting the financial system and being used to launder money by criminal gangs.
  3. Perhaps most importantly, China views cryptocurrencies as a threat to its sovereign “digital yuan,” which has just recently entered a new experimental stage.

The digital yuan is electronic money issued by the People’s Bank of China and costs the same as ordinary paper banknotes in the PRC. Work on the introduction of a digital currency began at the end of 2019. It was tested in the cities of Shenzhen, Suzhou, Chengdu and the Xiong’an New Economic Zone near Beijing. In October 2020, the cities of Shanghai, Changsha, Xian, Qingdao, Dalian and Hainan Province were added here. And starting from this November, the pilot project will be launched all over the country.

After the Bitcoin ban, e-CNY’s success is now guaranteed. There are already 21 million private and 3.5 million corporate digital RMB wallets open. The total volume of transactions was 34.5 billion yuan (about $ 5.3 billion). The government is very active in pushing its project. In test cities, they pay utility bills and pay fines. Lotteries are organized for people: 200 thousand citizens have already received 200 digital yuan for free.

There is no place for “too free” bitcoin in the internal affairs of China. He was kicked out of the country in record time.

How it happened

It took only a few months for the miners to completely disappear from China. Given that in September 2019, the country accounted for 75.53% of the world’s cryptocurrency production.

But then bitcoin began to pour in the news – asking if it is so profitable, and telling how drug dealers are hiding behind it abroad. Banned ICOs and crypto exchanges. Smart businessmen quickly realized where the wind was blowing. China’s share of mining dropped to 46% by April 2021, even before new government measures were announced. By the way, independent data on countries is collected by the Cambridge Center for Alternative Finance (CCAF), their graphs can be viewed here

A senior official’s speech on May 21 signaled more serious repression was imminent. Chinese miners rushed to the exit. Global Bitcoin mining capacity fell 30% by early June. They say that hundreds of entrepreneurs loaded tons of iceics (!) Onto trucks, and almost overnight moved to neighboring countries – Kazakhstan and Russia.

By July, bitcoin hashrate fell by more than 50%. But then, as the CCAF data show, the recovery began. Miners have successfully restarted their operations in other countries. And now production is already close to the May values.

The main winner of this wave of migration was the United States, whose share in world production increased from 17% in April to 35% in September. In second place is Kazakhstan, with 18% instead of 8%. In third place is Russia, whose share of hashrate has grown from 6.8% to 11.2%.

Than it threatens us

The Chinese bans have affected the world of cryptocurrencies less than one might expect. The bitcoin price fell by 6-8% for several days (what a shock!), And then recovered. The hashrate did not seem to fall either. Yesterday analysis published by Luxor Technologies, a cryptocurrency mining company. It says that after a “staggering” halving, global production has now recovered to 103% of April values.

Americans on the Internet are celebrating victory. And not only because they are now the first in production. The main disadvantage of bitcoin and ether, which is constantly discussed in the media, is the impact on global warming. This prevents the industry from becoming mainstream once and for all.

Globally, mining consumes about 130 TWh per year – more than Ukraine, Sweden or Argentina. And, by data CCAF, only 39% of this electricity comes from renewable sources.

Now the advanced public has the hope that mining will move to more regulated and environmentally conscious countries. What will make Bitcoin more sustainable. And it will contribute to its widespread implementation.

Russia turned out to be one of the main “winners” in the list. Our hashrate has almost doubled. But most of this situation, to put it mildly, are not happy. The load on the country’s network will increase dramatically in the near future. In the State Duma yesterday, in order to congratulate the new arrivals, they already proposed tax mining cryptocurrency.

Governor of the Irkutsk Region wrote a letter Deputy Prime Minister Alexander Novak, in which he complained about underground miners. The letter says that in 2021, energy consumption in the region will exceed the level of 2020 by 60%. At the same time, the growth in electricity consumption for this year was initially set at a level of only 2.8%. If measures are not taken, power outages may begin in the region.

Well, one more small conclusion from all this. Bitcoin was once created as the only truly free currency. Not controlled by the governments of the countries. As you can see, this does not apply to China.

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