In the past few weeks, China has boosted its endeavors to crack down on the activities of cryptocurrency. The prevention of crypto mining operations and ordering major banks to not do business with crypto companies is one of many measures against crypto companies by the government.
A Beijing-based software developer was asked to halt operations due to its suspected association with cryptocurrency trading. The Beijing Qudao Cultural Development stopped its operations on the orders of an office in the Central Bank of China. This order was issued on the basis that the software developer helped facilitate crypto transactions through the software services it offered, according to a report.
The People’s Bank of China said in a press release that it took the necessary precaution to stop and control the assumed dangers associated with virtual currency operations. The Central Bank also warned that businesses in Beijing are not allowed to get involved in cryptocurrency trading in any way.
These actions affect the price because 65% of the world’s Bitcoin mining happens in China. A few powerful Chinese hubs monopolized the world’s largest cryptocurrency by coming up against one another to solve complex computer problems that reward Bitcoin in return. These Chinese miners aided in raising the value of Bitcoin by more than 1000% in a year to an all-time high of almost $65,000 in April.
After these miners shut down their super-powerful computers, the value declined, losing 50% of its value from its record high. In my quest to understand why China is going all out to eradicate Bitcoin activities, I came across a few reasons.
Threat to state’s monetary sovereignty
A factor influencing the crackdown on Bitcoin by the Chinese government is the fact that Bitcoin serves as a threat to the State’s monetary sovereignty, thus the ultimate rule of the State’s statutory money. Bitcoin was designed to have no central authority that makes policies and choices that affects its value as established anonymously by Satoshi Nakamoto (pseudonym). Many crypto advocates argued that the currency is purely market-driven and, therefore, superior to state-issued currencies that fall with the Central Bank’s policies.
Threat to Statutory Currencies
Cryptocurrency is viewed as a threat to statutory currencies as said by Brendan Ahern, the Chief Investment Officer of Krane Shares.
In this regard, the more popular Bitcoin becomes among the citizens, the less power the government has to shape its economic policies. The price of Bitcoin depends only on speculation on its future value. As a young currency, it is noted to have volatility. Over the past ten years, Bitcoin suffered four different downward spirals of at least 50%, something other sectors hardly experience.
Threat to Nation’s Economic Stability
While there could be several factors that prompted China’s clampdown on Bitcoin, one thing was made very clear by authorities, “Bitcoin’s wild price moves are a threat to the nation’s economic and financial stability”. The government considered cryptocurrencies to interrupt economic order and that it will “resolutely prevent the transmission of individual risks to the wider society,” according to the State Council’s Financial Stability and Development Committee.
Environmental Effect of Crypto Mining
The sudden crackdown has largely been motivated by the inherently non predictive nature of cryptocurrencies and the Chinese Communist Party’s (CCP) intense repugnance to danger—or anything beyond its control. An aggravating matter is the huge environmental effect of crypto mining, which undermines Chinese President Xi Jinping’s ambitious promise to make China carbon neutral by 2060.
A study written by academics from the University of the Chinese Academy of Sciences, Tsinghua University, Cornell University, and the University of Surrey reveals that Bitcoin operation can pose a great threat to the fight against the carbon emission reduction strategies if the government does not introduce a working policy. The study disclosed that the crypto carbon footprint is very large and is much the same as that of one of the ten largest cities in the country.
Wider Bitcoin Concerns
The carbon footprint concern of Bitcoin has become a global issue. Bitcoin mining has been said to be “environmentally unfriendly” as it consumes the same amount of energy as some smaller countries. It has been proposed that Bitcoin mining should be switched from Proof-of-Work (PoW) algorithm to the Proof-of-Stake (PoS) algorithm. Ethereum has made this move in its ETH 2.0 upgrade that will position it ahead of Bitcoin in terms of acceptance among environmental activists.
Regardless of the above-mentioned factors that are being used to discredit the digital asset, El Salvador has made a groundbreaking move to become the first country to declare Bitcoin legal tender. The country has also called on Bitcoin miners to set up their mining facilities in the country to take advantage of the excess volcanic thermal energy. Paraguay has also hinted to follow El Salvador after announcing an incoming ” big project” that involves Bitcoin and Paypal.