China's bitcoin miners have long embodied a contradiction. Cryptocurrency trading is illegal in the country; Initial coin offerings used to fund new blockchain projects are prohibited. and Chinese banks can barely touch things. And yet the country has still been the epicenter of global cryptocurrency mining, the home of more of the computing power used to mint new bitcoin than any other country.
Now, the Chinese government has proposed to ban mining.
On Monday, China's central state planner, the National Development and Reform Commission, included cryptocurrency mining in a list of 450 wasteful and dangerous activities slated for elimination. Mining is the process of validating transactions on blockchain networks, with cryptocurrency as a reward, and it has grown notorious for generating e-waste and consuming incredible amounts of electricity. The proposed ban, originally reported by South China Morning Post may enter into force after a public comment period ending May 7.
The proposal, if adopted, may take time to have a major impact, says Katherine Wu, an independent encryption industry analyst. She notes that this is different from previous cryptocurrency clampdowns, which took more direct action. For example, in 201
Still, the move can spell big changes in cryptocurrency mining, given China's handle. The country's largest and most visible miners appear to have felt regulators shut in and have planned to spread their business around the world. It includes Bitmain, the leading Chinese manufacturer of specialized mining pills, called ASICs, who also use their own hardware for my cryptocurrency. Last year, the company announced that it would be expanded in the US, with new mining facilities in Washington, Tennessee and Texas. But volatile cryptographic prices have posed a challenge to these plans; In January, Bitmain announced redundancies and suspended plans to open a massive new facility in a vacant Alcoa smelter in the small town of Rockdale, Texas. The company then emerged in March.
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Some bitcoin observers, such as Ben Kaiser, a Princeton researcher who has studied the threats of Chinese miners' influence over the network, say that a Chinese mining ban can be healthy for bitcoin in the long run. As of 2013, places like China's Sichuan Province became a mecca for major mining operations, helped by low power costs and easy access to the latest ASICs, which are almost exclusively produced in China. Shutting down the major facilities, which benefits from economies of scale, can help smaller miners compete – both in China, where small operations will be more likely to continue operating under the radar and elsewhere.
A big problem for chip makers like Bitmain could be the loss of reliable buyers in China for their chips. Bitmain has recently emphasized other uses for its products, such as AI, but is still highly dependent on cryptocurrency miners for revenue. Kaiser notes that could also help play even because Chinese companies are the dominant producers of mining wells. "Separate use from production reduces potential conflicts of interest or pressure on ASIC manufacturers," Kaiser wrote in an email. Bitmain did not respond to a request for comment.
Even outside of China, mining companies are not safe from regulation, especially since local authorities are growing savvier to the impact of the facilities. In the Pacific Northwest, where miners clustered to take advantage of inexpensive hydropower, the mining owners were recently amazed at the sharp rise in electricity rates; Last week, Missoula, Montana, passed a renewable energy demand for new mining, scuttling new mining plans to set up shop in the county.
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