As it is known, cryptocurrencies work with the help of decentralized blockchain technology. This means that there is no single central server in the Bitcoin network or any other cryptocurrency that ensures its operability (except some). Here this function is taken by the miners, who are the main component of the ecosystem of any decentralized digital coin, including BTC.
The lion’s share of all mining production facilities of the main cryptocurrency is in China. This was influenced by several factors at once: first, the geographical proximity to the plants of network equipment manufacturers, and secondly, the low price for electricity. But in early April 2019, there was some rather disturbing news that made many market participants worry. As you have probably guessed, this is a bill that was submitted by the National Development and Reform Commission of China (NDRC), where mining is called an “undesirable industry” and is proposed to be completely forbidden. In this article, let’s see how dangerous it is, and what will happen, even if the Chinese government does take such extreme measures.
Briefly about the difficult relationship of the government of China and the cryptocurrency industry
It is worth noting that until the end of 2017, China was the undisputed leader in the cryptocurrency market in absolutely all areas. In addition to mining facilities, the largest exchanges operated on the territory of the PRC. The first action that initiated the process of blocking China from the cryptocurrency industry was the decision of the People’s Bank of China to prohibit holding an ICO (initial placement of coins) in the country. As it turned out later, this ruling had quite serious consequences, because of this, the leading cryptocurrency exchanges began to look for new, more secure jurisdictions in the shortest possible time.
The next attack of the Chinese government on the cryptocurrency industry occurred already in early 2018. Then local authorities stated that mining farms cause damage to the environment and advised: “to leave the industry in a civilized way.”
In early April 2019, the National Development and Reform Commission of China (NDRC) introduced a bill in which they proposed not simply only to prohibit restricting but completely banning mining. It is worth noting that so far this is only a proposal that must be accepted. But if this happens, all mining farms that operate in China will be forced to suspend their activities, otherwise, they will be outlawed.
In addition, at the moment cryptocurrency trade in China is prohibited, but to store coins is possible. This “trick” is used by many local traders who have several schemes to bypass the law. It also shows the true attitude of the authorities to the cryptocurrency industry.
Despite all of the above, China still remains the leader in the number of mining capacities.
This chart shows that it is Chinese pools that are the biggest players in the industry. According to Quartz, more than 65% of the miners of the planet are in China. As it was mentioned above, this is due to the low price per kilowatt of electricity, as well as the geographical proximity of the production capacity of mining equipment manufacturers. Most of the farms are located in Xinjiang, Inner Mongolia, Yunnan, and Sichuan.
The leading manufacturer of network equipment in the world, the company Bitmain, personally owns 11 farms, the total area of which is more than 120 square kilometers. Despite the unstable situation in the country, Bitmain plans to expand its mining business and in the near future to place 200 thousand new asic miners (models S11 and S15) in regions with excessive hydropower resources. It is important to understand that the cost of electricity declines to $0.037 in these territories in the summer.
Will mining be banned?
So we got to the main question of our today’s article: “Will they completely forbid mining in China or not?” So, the NDRC considers mining as an undesirable economic activity, which is associated with excessive energy consumption and has a harmful effect on the environment. At the moment, it is still too early to sound the alarm, since this is only a draft law that has not yet been passed. But if this does happen, then not only miners who conduct their activities in the territory of the PRC, but also manufacturers of network equipment, will face enormous difficulties. For example, as of 2017, the aforementioned Bitmain company reached a trade turnover of 1.3 billion US dollars.
Some experts believe that the government of China will not go to radical measures, but will act gradually. This means that, most likely, in the near future, officials will only limit the activities of miners, but will not completely ban.
Many experts believe that if the Chinese government takes such a step, it will primarily harm its own economy. This will lead to a huge outflow of capital from the country. Of course, this can lead to the complete closure of many small and medium-sized farms, while the giants of the market will simply find a different, more friendly jurisdiction. This decision will benefit miners who conduct their business outside the PRC, since the ban will temporarily reduce the complexity of the network, which will significantly increase their income.
The most important thing for us is that it will not cause much damage to the cryptocurrency industry as a whole, which many market participants were most afraid of. As you can see, against the background of this news, the price of Bitcoin not only did not fall but also increased significantly.
It is even possible to find positive consequences in this ban, for example, a blow to the monopoly in this area. The fact is that the threat of a 51% attack comes from the Chinese miners recently, which will become impossible after the implementation of this ban.
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