Is China’s ban on cryptocurrency mining really a bad thing?

Recently, the Chinese government has once again taken a firm stand and decided to step up its crackdown on Bitcoin mining due to concerns about retail investors, the issuance of digital RMB, and environmental issues. This may cause trouble for cryptocurrencies in the short term, but in the long run, it will actually make Bitcoin and all cryptocurrencies more efficient and decentralized.

Throughout the history of Bitcoin, China has been at the forefront of technological innovation and digital asset mining, partly because mining hardware companies such as Bitmain are located in China. Since 2017, China has begun to regulate crypto trading activities. Currently, retail investors are not allowed to participate in trading digital assets for the sake of investor risk protection. In 2021, Vice Premier Liu He proposed to crack down on cryptocurrency mining at a meeting of the Financial Stability and Development Committee of the State Council. The policy caused an uproar in China's mining industry, and many Bitcoin mining plants were shut down in various places including Inner Mongolia and Xinjiang.

The reasons for this crackdown policy are as follows: First, China is about to release the digital RMB, and other cryptocurrencies will threaten its dominance. If only one digital payment can be adopted, the digital RMB will inevitably compete fiercely with Bitcoin. When the digital RMB is promoted nationwide, the government may cancel the crackdown policy on cryptocurrencies such as Bitcoin and allow them to become popular again. Second, China hopes to achieve the goal of carbon neutrality by 2060, and the large-scale use of coal-fired power generation in Bitcoin mining runs counter to China's goal of energy conservation and emission reduction, so most of the closed mines are from provinces that use coal fuel. Miners in areas that use hydropower or other clean energy are still continuing to work, but some still feel the threat of the policy and decide to leave China.

This move has led to a large outflow of Bitcoin miners, and also caused a significant drop in Bitcoin computing power (the right to record in the Bitcoin blockchain, in Bitcoin, miners will be rewarded with a Bitcoin if they first calculate the target hash value), and the security of the Bitcoin network has also declined. At present, although it is harmful and has no benefits, in the long run, the transfer of mining is actually beneficial to the future development of Bitcoin.

Before the crackdown on Bitcoin mining, about 65% of the Bitcoin computing power in the entire Bitcoin network came from China. China controls most of the Bitcoin computing power, which is not conducive to the network health of cryptocurrencies in other countries. Now, these miners are forced to disperse around the world, which also means that this pie will be replanned.

The outflow of cryptocurrency mining helps solve carbon emissions and environmental problems. Now Bitcoin advocates like Tesla have also stated that they will no longer accept Bitcoin for car purchases until the environmental pollution problem of Bitcoin mining is solved.

The carbon emissions of a Bitcoin transaction is 750kg, which is equivalent to the electricity consumption of an average American family for 54 days. For socially responsible investors, the huge resource consumption will make them hesitate. Using green energy to reduce carbon emissions will be a way for Bitcoin to attract more investment and the sustainable development of digital assets in the future. Bitcoin miners leaving China will go to places with the cheapest electricity, and renewable energy is currently the cheapest.

China's crackdown on cryptocurrency mining will cause market volatility and a drop in Bitcoin's hashrate in the short term, but it will have a positive impact on future development. Most cryptocurrencies and mining are still in their infancy, and this is just a small pebble on its way to the world.