Several Chinese provinces and autonomous regions have also introduced strict policies banning bitcoin mining after Chinese authorities vowed in May this year to crack down on bitcoin mining and cryptocurrency trading in an effort to control financial risks. This comes after public security authorities recently arrested more than 1,100 suspects for using the ill-gotten gains from phone and internet fraud and other crimes to purchase cryptocurrencies (crypto-currencies) for money laundering.
Following Inner Mongolia, Yunnan, Xinjiang and Qinghai, Sichuan, China’s second largest bitcoin mining province, also introduced a ban on Friday to shut down cryptocurrency mining activities, according to Reuters and other media reports.
The Sichuan Provincial Development and Reform Commission and Energy Bureau issued a notice on the cleanup and shutdown of virtual currency “mining,” requiring the completion of key target screening and shutdown, as well as self-correction of power generation enterprises. The notice requires that the 26 suspected virtual currency “mining” projects reported by State Grid Sichuan Electric Power Company should be completed by June 20. The central power generation enterprises in Sichuan and provincial power generation enterprises should self-correct and immediately stop supplying power to such projects.
To gain market share, Chinese bitcoin miners have taken advantage of authorities’ lack of regulation and an overbuilt power generation industry to set up bitcoin mining operations near hydropower plants in Sichuan and Yunnan provinces, taking full advantage of the abundant hydropower generation resources there come summer, the report said. And each winter, when river flows are reduced, miners head north to coal-rich thermal power regions like Xinjiang and Inner Mongolia.
In China, bitcoin mining consumes a lot of electricity. Sometimes tens of thousands of computers are linked together to solve complex computational puzzles. According to a peer-reviewed paper published in April in the British journal Nature Communications, the bitcoin industry is expected to be among the top 10 power consumers in China, consuming as much electricity as industries such as steelmaking and cement production. This means that Chinese bitcoin miners will consume more electricity than the entire country of Italy.
In addition, the Wall Street Journal recently reported that legal bitcoin trading has not been approved in China, although Chinese entrepreneurs have been a major force in generating bitcoin for years. And recent warnings about a crackdown on cryptocurrencies have highlighted the cryptocurrency’s vulnerable position in China, potentially prompting some cryptocurrency miners to shift their operations to the West.
As much as three-quarters of the world’s bitcoin is generated in China, and government moves to crack down on cryptocurrency “mining” have had a huge impact on the global bitcoin market. But all of this doesn’t mean that bitcoin will dry up. Bitcoin mining in China may be slowing down, while elsewhere it may be accelerating.
According to Cambridge University, “miners” from other countries have been gradually eroding China’s bitcoin mining dominance for the past 18 months or so. The U.S. share is expected to continue to grow, having reached about 7% last year. While some industry forecasts suggest that the U.S. bitcoin market share could expand to 40% in the next few years, the bitcoin industry previously believed that China would take nearly half of the bitcoin mining market share.
Also according to Yahoo Finance, Texas in the U.S. has become a very popular destination for miners to travel to as China vigorously cracks down on cryptocurrency mining. CNBC estimates that probably more than half of Chinese mining activity will eventually move to Texas.
This comes after several Chinese regulators announced in late May that they wanted to guard against the risk of speculation in cryptocurrency trading. The central bank also banned financial and payment institutions from using cryptocurrencies to price products and services, and from conducting business related to cryptocurrencies. The State Council has also vowed to crack down on bitcoin (bitcoin) mining and trading. China banned the trading of cryptocurrencies back in 2019.
Not long ago, a number of widely followed accounts related to cryptocurrencies on the social media platform Weibo were blocked, all of which were noted as “in violation of laws and regulations.” Some analysts and financial regulators have said that Chinese authorities are expected to take more action, including more direct use of criminal law to punish those with illegal cryptocurrency activity. China’s move to restrict cryptocurrency trading and mining has exacerbated the wild declines in bitcoin and other markets.
There are also analyses that say Chinese authorities are stepping up their crackdown on cryptocurrency trading at the same time that China’s central bank is accelerating its own experiments with its own electronic currency system. The Chinese government clearly does not want to see bitcoin become popular as a medium of exchange.