Categories: Bitcoin

China Moves To Squeeze Out Bitcoin Mining

China has opened a new front in its attempt to crackdown on bitcoin within its national borders with a move to eliminate the nation’s massive bitcoin mining industry.

On the orders of a multi-agency task force, regional authorities have been instructed to “actively guide” firms currently mining bitcoin in their region away from the activity, according to documents reviewed by The Financial Times.

The new guidance is of a piece with other recent regulatory moves China has been making as it attempts to limit the reach of the bitcoin industry — like shutting down local bitcoin exchanges and outright banning ICOs.  The newly minted push to tamp down on mining issues from the fact that the complex computational task required to “mine” bitcoin uses a fantastic amount of power. As of 2017, electricity demand for bitcoin mining rose to about 20.5 terawatt-hours a year, according to BNEF. That equates to more than half the 38 terawatt-hours of electricity used annually by the world’s biggest miner (as in literal, pull materials out of the ground mining), BHP Billiton Ltd.

In China, miners have flocked to regions where electricity is unusually inexpensive due to coal or hydroelectric power.  Xinjiang, Inner Mongolia, Sichuan and Yunnan have been particularly popular. Firms mining bitcoin have also taken to moving to remote locations, not registering a company and engaging in the mildly illegal activity of purchasing electricity directly from power producers rather than grid operators.

How big an effect will the move have? Depends.

China mines a lot of bitcoin — about three-quarters of the world’s supply, according to Liao Xiang, chief executive of Lightningasic, a Shenzhen-based mining operation.  And though China has moved aggressively to grab global leadership in a variety of strategic technology segments, including artificial intelligence and robotics, bitcoin apparently is not making the list of things strategically important enough to be a leader in.

Bitcoin mining “consumes a large amount of electricity and also encourages a spirit of speculation in ‘virtual currencies’,” according to the document. The document also notes that mining efforts counteract the government’s attempts to prevent financial risks and to discourage activities that “deviate from the needs of the real economy.”

The order does not call on regional authorities to shut down mining operations directly, but instead to put the squeeze on them by strictly enforcing policies on electricity consumption, land use, tax collection and environmental regulation.

Will it work?  That remains to be seen. The thought is that a lot of Chinese mining operations will simply pick up shop and move — because China (according to industry experts) was in any case never an especially suitable location for mining.  The nation became such a dominant force because of the well-developed supply chains for computer components used in the mining process.

“The difficulty is that setting up in other countries takes time and capital to build large-scale data centers,” said Mr. Liao. “It needs so much electricity. A typical industrial park doesn’t meet the requirements.”

But what miners mostly need to operate is a cool climate (where computers won’t overheat) and a big supply of cheap power. Iceland is favored, as are Ireland, Eastern Europe, Russia and Canada.

“The overall threat to the sustainability of the global bitcoin network may not be so drastic,” wrote BNEF analysts, including Sophie Lu, in a report.

Lu notes that the computer equipment used to mine bitcoin has a two year life cycle anyway, and the rest of the involved equipment is relatively inexpensive.

The digital currency currently trades at about $13,850, down 29 percent from its record.

——————————–

Featured PYMNTS Study:

More than 63 percent of merchant service providers (MSPs) want to overhaul their core payment processing systems so they can up their value-added services (VAS) game. It’s tough, though, since many of these systems date back to the pre-digital era. In the January 2020 Optimizing Merchant Services Playbook, PYMNTS unpacks what 200 MSPs say is key to delivering the VAS agenda that is critical to their success.

Share

Recent Posts

The Rise Of Organized — And Disorganized — Crime In Physical Retail

They say the perfect crime is hard to commit, but last week in Spokane, Washington an intrepid burglar managed to…

23 hours ago

Biden Wants To Abolish Law That Gives Online Companies Immunity

Joe Biden, a candidate for president, said he wants to repeal Section 230 of the Communications Decency Act, a law…

1 day ago

Car Marketplace CarGurus Has Acquired Autolist

CarGurus, an auto marketplace based in Boston, has acquired car shopping platform startup Autolist, according to reports. Autolist is based…

1 day ago

AvidXchange Gets $260M In Financing Round

Accounts payable (AP) and payment automation solution company AvidXchange has raised $260 million in equity capital in a financing round,…

1 day ago

Biden Says He’s Not A Fan Of Zuckerberg Or Facebook

In a New York Times interview with the paper’s editorial board, Presidential candidate Joe Biden said that he wasn’t a…

1 day ago

Epic Medical Records Firm Drops Google Cloud Integrations

Epic Systems is telling clients that it will not seek further Google Cloud integration and will instead focus on Microsoft…

1 day ago