Chen Weigang, a senior supervisor with the China Banking and Insurance Regulatory Commission, described the recent ban on cryptocurrency as “thorough.”
As early as 2013, China’s central bank and four other ministries published a statement warning against Bitcoin-related risks, but still saw Bitcoin trades as normal online transactions of goods that investors could make at their own risk. But regulations gradually tightened as the number of crypto investors increased.
After China’s banking regulators prohibited cryptocurrency trading in September 2017, almost all the 88 known virtual currency trading platforms had withdrawn from the China market by July 2018, and the proportion of Bitcoin trading in yuan globally dropped from more than 90 percent to 1 percent.
After September 2017, domestic cryptocurrency exchanges began moving their servers beyond China’s borders while regulators have blocked them from doing business in China to varying degrees of success. “There is currently not one single exchange for virtual currency at home,” Chen claimed.
This round of reinforced regulation maintains the previous resolve to ban cryptocurrency trading but explicitly focuses supervision on Bitcoin and other coin mining. “It’s probably out of concern for reducing energy consumption,” said the anonymous analyst.
China has vowed to peak its carbon emissions by 2030 and achieve carbon neutrality by 2060. Bitcoin mining, an energy-intensive industry that requires powerful computers running non-stop, works against this goal.
The Cambridge Bitcoin Electricity Consumption Index run by Cambridge University tracks the electricity consumption of Bitcoin. It shows that based on consumption levels at the end of May, Bitcoin mining takes about 111.54 terawatt-hours a year on average, or 0.53 percent of annual electricity consumption worldwide. This is more electricity than the Netherlands consumes annually. As the largest Bitcoin mining market, China accounts for the bulk of consumption, taking 65.08 percent of the global hash rate (a measure of a blockchain’s total computational power), far higher than the US’s 7.24 percent.
Xinjiang Uygur Autonomous Region, Sichuan Province, Inner Mongolia and Yunnan Province have the greatest hash rates because electricity and land are cheaper there. Xinjiang accounted for over 35 percent of the total hash rate.
Ahead of the new mining policy, Inner Mongolia announced in March it would shut down virtual currency mining projects and prohibit new mines. In eight measures it released in late May, local authorities focused on big data centers, cloud-computing enterprises, internet companies and even internet cafés that enable virtual currency mining, as well as companies that provide venues and electricity for cryptocurrency mining.
Similarly, Xinjiang, along with Yunnan and Qinghai provinces, have reportedly been shutting down cryptocurrency mining projects or cutting their power supplies. Several virtual currency mines in these areas told NewsChina they have given up on mining cryptocurrencies such as Bitcoin and Ethereum for less energy-intensive ones like Filecoin, and are also trying to move their operations abroad. Mcloud.io, a mining service platform, announced on May 26 a block on IP addresses from the Chinese mainland. Many of its services have relocated to Kazakhstan. In early June, Sina Weibo accounts related to cryptocurrency trading were suspended for violating laws and regulations.
But Chen said it will be hard to ban domestic mining completely. “The crackdown mainly targets enterprises that could be supervised and controlled through financial audits. But blocking individual operations is still an issue, particularly those in areas rich in hydropower,” Chen said, adding that the remaining small mines will be inconsequential compared to the large ones.