According to estimates from the Cambridge Bitcoin Electricity Consumption Index, China is the world’s largest cryptocurrency mining site, accounting for 65% of the bitcoin hash rate, a unit of measure for the processing power needed by the bitcoin network to authenticate transactions and mine new tokens of the cryptocurrency.
The news of the ban hit the crypto market as the prices took a hammering. Bitcoin fell more than 50%. On Sunday, the pioneer cryptocurrency took a 17% hit and there was a rapid sell-off within the market as the crypto blood bath expanded to other cryptocurrencies.
The ban came after three Chinese state-backed associations released a joint statement warning against the volatility of cryptocurrencies. Though many miners appeared confident that the government wasn’t going to take action, the ban came as a shock.
Beijing’s recent ban is hardly its first against digital currencies. China shut down its domestic cryptocurrency exchanges in 2017, thus suffocating a speculative industry that accounted for 90% of global Bitcoin trade.
Moving Business Elsewhere
Since the recent ban was announced, it’s been clear that miners in China are closing shop and moving their business elsewhere.
Bitcoin mining companies such as BTC.TOP, HashCow, and Huobi Mall have all responded to the latest prohibition. Huobi Mall has apparently stopped mining BTC. According to Reuters, TOP has halted its operations in China, while HashCow has stopped purchasing new bitcoin mining machines.
As businesses move or stop transacting in China, the crypto landscape is being affected. In Hong Kong, miners will now be mandated to obtain a license from the city’s market regulators and will only be allowed to provide services to professional investors. According to Hong Kong’s laws an individual must have a portfolio of HK$8 million ($1.03 million) to count as a professional investor.
Why The Ban Is Affecting Digital Currencies
The ban on crypto mining in China points to a question that has long disturbed economists: who has the right to issue money? While some economists have argued that the right to issue money remains with private individuals, many economists agree that the state’s right to issue money is sovereign. The reasoning behind government-issued money is to help ensure the stability of money and the effectiveness of fiscal and monetary policies in the state.
China’s economy has been solely government-controlled. The ban on crypto mining is essentially the government’s way of announcing its claim to being the sole issuer of money in the country.
However, China is in the process of creating its own digital currency, the digital yuan. This is supposed to be China’s foray into the crypto market. While privately mined digital currencies will remain banned, a state-backed digital currency would enable consumers to access digital legal tender straight from their bank.
This points to the changing landscape of cryptocurrencies. More countries will set out to issue government-backed cryptocurrencies or stricter regulations with China’s lead. Nigeria, Africa’s largest economy, has recently announced that it will soon release its own digital currency. This after the Central Bank of the country had banned crypto trading in February this year.
US Federal Reserve Chairman Jerome Powell turned up the heat on cryptocurrencies last week, saying on Thursday that they pose risks to financial stability and indicating that greater regulation may be warranted.
There have also been vibrant calls for use of sustainable means in the mining of cryptocurrencies. With the ban, a vacuum has been opened for miners in other regions to plug in their mining rigs using green energy that won’t harm the environment.
Elon Musk and Mining
On Monday, Elon Musk announced on his Twitter account that he met with North American miners who have committed to using renewable energy for their mining business.
“Spoke with North American Bitcoin miners. They committed to publish current planned renewable usage and to ask miners WW to do so. Potentially promising,” wrote Musk in a tweet.
With the current look of things, the cryptocurrency landscape is changing. In the short term, more government involvement should be expected as governments continue to reclaim their sovereignty over state-backed currencies.