Considering the cryptocurrency trade’s rampant speculation, fraud, and energy consumption, China has good reason to end crypto mining. Unlike the internet where the Communist party was able to implement the great firewall, they have been unable to control crypto. The irony is that, if the country does end up outlawing mining, the move could, ultimately, make Bitcoin and its ilk more global and resilient.
War on crypto
China has been at war with crypto for a while now and now this has reached a whole new level. The Chinese government wants to stop the thriving crypto mining industry in the country completely. When it comes to mining, China is a behemoth. In fact, as of January 2019, China outputs 71 percentage of the worlds collective hashrate in the Bitcoin network. Given the history of the Chinese government with crypto, this move comes as no surprise, but what is surprising is the fact that many in the crypto community are actually not worried. In fact, most are welcoming this decision.
There are many reasons why mining has succeeded in China at such a scale. The primary reason why Chinese miners are so successful is due to the cheap electricity available in China. One has to remember that electricity is the most significant cost that goes into crypto mining. Secondly, local suppliers of mining equipment and a strong black market for cryptocurrencies that exist in the country. Usually, the Chinese government is welcoming of Chinese dominating an industry, contrary to this, crypto is going under the ax mainly due to fear and lack of control.
What’s to come
A war on crypto has been going on in China for 3 years now. This started at a time when a crackdown on crypto was happening all around the world in South Korea, Japan, India, US, etc. Most of these countries have moved on from the crackdown and started to legalize crypto. In fact, many of them currently have a thriving crypto industry. China seems to want to escalate the crackdown and shutdown the mining completely. China’s top economic planner, The National Development Reform Commission last week recommended stopping the “mining” business completely. This is in line with the commission’s previous guidelines in 2011. After the ban on ICOs and shutting down of exchanges, Chinese miners knew it was only a matter of time before they will be the next target, hence many have contingency plans like moving to a friendlier jurisdiction.
While this kind of development would be taken as bad news if it was from any other part of the world, this particular decision by the Chinese government is taken generally as a positive development for the industry on a global scale. To understand this, we have to remember that the Chinese miner hash rate output exceeds any other country by a huge margin, this kind of dominance is not healthy for any network. Theoretically, if all Chinese miners got together, they can carry out an eclipse attack on the Bitcoin network, and most dangerous is the prospect of Chinese government mounting a similar attack by taking control of all the mining warehouses. While it is true such a sudden drop in hash rate can cause a lot of disruption, the void will be filled by miners outside of China as a drop in the total hash rate of networks makes mining more profitable. The profitability of mining has been an issue for some time due to the drop in the price of crypto, as an unintended consequence of this action by Chinese government mining to could see a resurgence soon.
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