Why China is banning one of the world’s largest Bitcoin mining hubs

A typicalbitcoin mining farm in China. Credit: Investopedia.

Bitcoin and the practically 8,000 different cryptocurrencies it has spawned promise to revolutionize finance however it’s doing so leaving a grimy footprint. Mining Bitcoin consumes as a lot electrical energy as entire countries like Argentina or Ukraine.

Although the latest surge in bitcoin value has pushed much more mining operations throughout the world, mining tends to be concentrated in sure areas — areas the place vitality tends to be low-cost.

By far, the largest bitcoin mining hub is China’s Inner Mongolia, which is chargeable for 8% of all the planet’s bitcoin mining. For comparability, the total United States is chargeable for simply 7.2% of world bitcoin mining. However, this is set to alter after the Chinese authorities ordered Inner Mongolia to close down all cryptocurrency mining operations and ban new crypto operations in a bid to crack down on fossil fuel-intensive vitality consumption.

Mining bitcoin is extraordinarily energy-intensive as a consequence of the method the community was arrange, which entails advanced algorithms that demand loads of computing energy to resolve every time a transaction is verified or a brand new block is added to the blockchain (this is what bitcoin mining really does).

It’s no coincidence that Inner Mongolia has grown into the world’s most vital crypto mining hub. The Chinese area, which stretches from the Tibetan plateau’s northeast ramparts alongside the nice bend of the Yellow River towards China’s far northeast, is additionally an enormous industrial stronghold and a significant hub for bodily mining of coal and rare-Earth minerals. The focus of coal mines and coal-fired powered vegetation has made Inner Mongolia’s electrical energy grime low-cost.

Up till not too way back, crypto miners paid Inner Mongolia’s Electric Power Trading Center solely 2.60 cents per kWh. That’s greater than 5 occasions cheaper than the 13.31 cents per kWh that the common residential buyer in the United States pays for electrical energy.

With electrical energy so low-cost, Inner Mongolia quickly drew bitcoin miners who discovered their operations more and more worthwhile as the value of the crypto asset surged.

But China’s authorities has apparently had sufficient. After reviewing the area’s vitality consumption and vitality depth, Beijing discovered that Inner Mongolia failed to satisfy the 2019 targets it set out. It was the solely one out of China’s 30 mainland areas that had failed to satisfy Beijing targets, which drew loads of criticism from the central authorities.

To save face and redeem itself, the native authorities of Inner Mongolia have planed a quantity of drastic guidelines in an effort to curb vitality consumption. According to a draft rule issued by the area’s state planner, vitality consumption development will probably be capped at round 5 million tonnes of customary coal equal for 2021.

Part of the new orders means vegetation and factories that use outdated and inefficient applied sciences to provide metal, ferroalloy, coke, graphite electrode, and coal-powered electrical energy should shut by the finish of 2022.

The vitality management measures additionally goal bitcoin mining. All present cryptocurrency mining tasks have till April 2021 earlier than they have to shut down. The approval of any new mining tasks has been banned.

Inner Mongolia has additionally vowed to extend its share of renewable vitality by putting in greater than 100 gigawatts of renewable technology capability by 2025.

But China isn’t cracking down on cryptos solely out of environmental considerations. The decentralized nature of cryptocurrencies is fully incompatible with China’s governance that requires a good grip over just about each side of its residents’ lives.

It’s actually no shock {that a} communist nation like China hates bitcoin. Previously, China banned preliminary coin choices and shut down many companies concerned in crypto operations, together with exchanges and websites like YuanPay Group. More not too long ago, China has taken a extra advanced method, with American billionaire entrepreneur and enterprise capitalist Peter Thiel claiming that China even makes use of bitcoin as a ‘monetary weapon’.

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