The China Ban
China has taken another step to ban Crypto-currency. About 65% of the world’s Bitcoin mining took place in China as of April 2020, according to an estimate by the University of Cambridge. One of the strongest critiques of Bitcoin has been a 51% attack (a bit complex, we will speak generally here) against the network. This involves controlling over half of the network and using that control to manipulate, steal, and fabricate Bitcoin. This critique had extraordinarily little validity due to a lack of financial incentives to do so, but now it is completely removed as a possibility.
Financial Institutions Across China
Last month, China imposed new sanctions on financial institutions. “China has banned financial institutions and payment companies from providing services related to cryptocurrency transactions, and warned investors against speculative crypto trading.” - Reuters
The institutions cannot advise towards registration, trading, clearing, and settlement, or any other facet involving the processing of Crypto, this means no Exchanges are allowed to operate. Inner Mongolia didn’t think these actions were enough, as reported on May 25th.
“The Inner Mongolia Development and Reform Commission said in the proposed rules that telecommunications companies and internet firms which are engaged in crypto mining will see their business licenses revoked by regulators.” - Reuters
If you provide telecommunications or internet to miners, they will take your business from you. Read that again.
“PANews reported on June 17, according to an insider who told PANews that the Sichuan Ya'an Energy Bureau and the Science and Technology Bureau held a meeting today and made a resolution to clean up and rectify Bitcoin mining companies in Ya’an. In addition, mine owners have been notified that due to the discussion of Bitcoin and other virtual currency mining at the meeting of the Ya'an Municipal Government in Sichuan on June 17, all power stations in the region will be shut down before 22:00 for self-examination, and the specific power-on time will end tomorrow. We will notify you later. According to news from the block rhythm, Sichuan Ya'an has implemented a “one size fits all” policy for mines, and all mines must be shut down before the 25th, including electricity consumption and hydropower disposal.” – Release Here
“One size fits all”, this means electric, coal, hydropower, it’s all irrelevant. If it’s a mine, it’s getting shut down. Ya’an controls 10% of Bitcoin mining in Sichuan. They were demanding the closure of 26 suspected cryptocurrency mining projects by Sunday. As of today (Sunday, June 20th), the hash rate has fallen, and the mines are offline.
Screen, Cleanup, and Terminate
The Sichuan Provincial Development and Reform Commission and the Sichuan Energy Bureau issued a joint notice on Friday, "screen, clean up and terminate”.
“We had hoped that Sichuan would be an exception during the clampdown as there is an electricity glut there in the rainy season. But Chinese regulators are now taking a uniform approach, which would overhaul and rein in the booming Bitcoin mining industry in China," Shentu Qingchun, CEO of Shenzhen-based blockchain company BankLedger
This hydropower generated from the rainy season will be wasted, it was actually more harmful to ban the mines here. The Global Times estimates 90% of China’s Bitcoin Network is estimated to be shut down, equal to one-third of total processing power.
Miners were told to shut down by June 25, which includes the consumption of electricity and the abandonment of using hydropower.
“A Ya’an government official has told at least one Bitcoin miner that the city has promised to root out all Bitcoin and Ether mining operations with a year, said a person with knowledge of the situation.” - Bloomburg
Authoritarian regimes will always seek to undermine and manipulate any policy they can for their own benefit. Bitcoin mining was a profitable venture that appeared as no threat; therefore, China strove to be the center of mining, which it was achieving.
China also has a deep understanding of technology, specifically Blockchain technology. With Nation-state adoption from El Salvador, those that are latching on to the Bitcoin Standard do so because they want non-inflationary (or programmed inflation), programmable money that cannot be manipulated or controlled by anyone. The boom of China’s hybrid Communist-Capitalism has largely been driven by their capacity to manipulate their currency and allow cheaper manufacturing to flow through their nation. Adopting the Bitcoin Standard is willfully giving up the most successful economic tool they have as a nation-state.
The exodus of miners fleeing China from the repressive regime will largely impact the growth of another nation-state that welcomes these refugees. This will create competition in order to drive miners from one country to another, resulting in greater decentralization, and show the flexibility of this network to adapt overnight, further strengthening the core of Bitcoin. Welcome to The Digital Migration.
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