According to the media outlet, “The autonomous region, a favorite of the industry because of its cheap energy, also banned new digital currency projects, according to a draft plan posted on the website of the Inner Mongolia Development and Reform Commission on Feb. 25th. The goal is to limit energy consumption growth to around 1.9% in 2021.”
The autonomous region’s announcement of the project comes after “China’s top economic planner criticized Inner Mongolia for being the only province that did not control energy consumption in 2019.”
The restriction is causing jitters for the cryptocurrency industry, which has already “gone through a years-long Chinese campaign to clamp down amid concerns about speculative bubbles, fraud and energy waste.”
While the Communist regime‘s restrictions on cryptocurrencies cause concern, these measures should come as no surprise, as they are nothing new.
At war against cryptocurrencies and Bitcoin since 2017
The Asian country’s war against cryptocurrencies dates back to 2017, starting with the ban on Initial Coin Offerings (ICOs) and the closure of local exchanges.
Regarding “cryptocurrency”, since 2018 China had already been thinking about methods to put a stop to this activity.
In January 2018, Reuters reported that China’s Central Bank may tell local governments to regulate the energy use of bitcoin and other cryptocurrency miners.
“The local crackdown (in Inner Mongolia) is reviving old fears,” the Bloomberg article explained. “Since 2017, Beijing has abolished initial coin offerings and cracked down on virtual currency trading within its borders, forcing many exchanges to go abroad. The country was once home to about 90 percent of exchanges, but the lion’s share of mining and major players such as Bitmain Technologies Ltd. have since fled overseas.”
Inner Mongolia, in fact, is an attractive area for cryptocurrency miners -and other activities such as aluminum smelting and ferroalloys- because of its inexpensive energy costs and cheap labor. This region accounted for 8% of the world’s computing power for Bitcoin mining, according to the Bitcoin Electricity Consumption Index compiled by the University of Cambridge.
“China, overall, had more than 65% of the total grid, with its attractive combination of cheap electricity, local chip-making factories and cheap labor,” Bloomberg said.
What is cryptocurrency mining, why is it controversial and why does China want to ban it?
Cryptocurrency mining is the computing process that makes virtual currency transactions possible. Its main problem, and the reason why it is criticized, is its high energy consumption. Surely many have already read that cryptocurrency mining consumes more energy than the whole of Argentina.
But the situation goes beyond this fact if not put in context. In an article by Nic Carter, founding partner of Castle Island Ventures, a venture capital firm focused on public blockchains, it was explained that when talking about cryptocurrency energy consumption “interesting patterns emerge.”
In short, Carters’ point is that “part of the reason why Bitcoin consumes so much electricity is because China lowered the clearing price of energy by overbuilding hydroelectric capacity due to sloppy central planning.”
The Castle Island founder explains that in a world without bitcoin this excess energy would have been used to smelt aluminum or, worse, wasted. Cartes’ explanation would give a much broader view in the debate about energy consumption in cryptocurrency.
Now, this restriction on energy consumption will affect the “cryptocurrency” community and the cryptocurrency business itself, as it would radically change the way these currencies are produced. The situation could provoke a migration of the main mining groups abroad.
In 2019 this could already be seen coming. According to an article in El Mundo, “China would not only ban the production of cryptocurrencies, but would raise the price of power to make it economically unviable.”
The Communist Party of China (CCP) argues that it wants to reduce energy consumption, but there is probably another interest that justifies this crusade against cryptocurrencies.
About five months ago, China made official the issuance of virtual yuan as a way to compete against “private” virtual currencies.
In an article in The Economist entitled “The ‘anti-Bitcoin’: China moves forward in testing the ‘eYuan’, a cryptocurrency to increase control over citizens,” we read that the Chinese regime is seeking to generate a currency philosophically antipodal to Bitcoin in order to launch it to the whole world in 2022 at the Olympics to be held in Beijing.
“The main goal of Bitcoin’s creator, Satoshi Nakamoto, was to create an anonymous currency, with no one to control or supervise operations, to support a libertarian vision of the economy. Using similar mechanisms, the Chinese government is preparing the opposite: the ‘eYuan’, a cryptocurrency controlled by the Central Bank that would allow the country’s authorities to know all the transactions of all its citizens”, the article states.
The story itself points out that this sort of digital monetary revolution “would pose an existential threat to payment providers, especially to the great duopoly that dominates the Chinese market, WeChat and Alipay.”
Regardless of the real reason, the reality is that there are particular interests of the CCP to go against Bitcoin miners. This crusade will undoubtedly have consequences for cryptocurrencies.