China loves blockchain, hates bitcoin
The Chinese government is taking steps to limit the country’s bitcoin mining operations, Reuters reported this month.
The National Development and Reform Commission (NDRC), an overseeing body with a massive remit across much of the Chinese economy, industry, energy production, and rural development (to name a few) has added cryptocurrency mining to the list of activities that it wishes to restrict or eliminate.
Bitcoin mining joins the list of proscribed activities that the NDRC believes should be stymied, as it (among other economic activities) poses safety risks, presents potentially harmful legal implications, or wastefully pollutes the environment. China has long been known as the main country in the world where bitcoins are mined, although APAC as a general region is the territory where mining is most popular.
Cryptocurrency mining is the process by which computers (and rather a lot of them, in various forms) are used to crack cryptographic puzzles in order to claim a share of a small bonus paid to the miner each time a bitcoin transaction takes place. Cryptocurrencies are based on blockchain technology which can be thought of as a series of identical ledgers of all transactions held by anyone with a chunk of spare disk space and computing power.
China has been known to dominate bitcoin mining, due in part to its plentiful (and often surplus) electricity. The NDRC’s specific reasons are as opaque as much of the rest of the Chinese government’s activities, and commentators have been quick to surmise that the overriding issue with mining is the impact it has on the environment due to electricity production.
While some estimates put the amounts of electricity consumed annually by bitcoin mining rigs globally as enough to power 20 average European countries, there is some debate as to whether the industry has a significant effect on pollution and climate change.
In areas of the world where natural and/or renewable energy sources (like wind, solar or wave power) are abundant, power production is not tapered off in any meaningful way – that is, there’s no point in stopping wind turbines spinning even if the power generated outstrips demand. Unused power simply goes unused, as the cost of storage (literally the cost of batteries, for example) outstrips the sale price of the electricity.
Areas in North America (parts of New York State, and the Quebec territories in Canada, for instance) experience this phenomenon, where the overabundance of power generated drives down energy costs and drives up income from bitcoin mining. These areas attest to vast influxes of 21st-century prospectors keen to set up mining rigs powered by cheap juice, and local governments tend to be very welcoming due to the arrival of newcomers’ dollars in the local economy.
Since the cryptocurrency price drop, there has been a glut of crypto-mining hardware on the market, from unused new stock and a burgeoning second-hand market. The Reuters article notes that Bitmain Technologies and Canaan Inc., the world’s giants among bitcoin mining hardware manufacturer, have let their applications for IPOs in the Hong Kong Stock Exchange lapse. At the time of the initial filings, Canaan’s IPO prospectus claimed that sales of blockchain-oriented hardware would rise from 8.7 billion yuan ($1.21 billion) in 2017 to 35.6 billion yuan ($5.3 billion) by 2020.
Although the NDRC’s move is bound to have some impact on the magnitude of predictions of that scale, China’s interest in blockchain – as opposed to cryptocurrency – continues.
The company has banned ICOs (initial coin offerings) and STO (security token offerings), but last week published a list of the first 200 or so officially regulated companies deploying blockchain technologies. China currently holds the most blockchain patents of any country in the world.
Perhaps then, the Chinese move is less of a simple environmental step, and more of a combination of factors that include a concern that cryptocurrencies can (once thorny issues like proof of work alternatives have been ironed out) remove the need for central banks, and, therefore, control over entire economies.
31 March 2023
30 March 2023