Bitcoin has been in the Chinese government’s crosshairs for years now, but a series of new bans on mining and impending restrictions on transacting the cryptocurrency have had a renewed impact across its ecosystem.
In May, Chinese Vice Premier Liu He declared via the Chinese State Council that the country must “crack down on Bitcoin mining and trading behavior” in an effort to “prevent the transmission of individual risks to the social field.” Chinese cryptocurrency restrictions aren’t new, but the comments signaled potentially tightened enforcement ahead.
Despite the government’s previous warnings and actions, Bitcoin mining in China has far outpaced the rest of the world: it produced upwards of 65 percent of newly mined bitcoins as of April 2020, according to an estimate from the University of Cambridge. That could change very quickly, however.
Over the weekend, the Chinese province of Sichuan shut down power to 26 suspected Bitcoin mining farms, which largely use the abundant hydroelectricity available in the region. This move followed similar actions in Xinjiang, Inner Mongolia, where coal power dominates, and Yunnan in recent weeks.
Already, the result has been seen in Bitcoin’s hash rate, or the total computational power contributed by miners across the entire distributed network. According to Bitinfocharts, over the weekend the network’s hash rate fell by nearly half to an estimated low of 89 exahashes per second (EH/s), the lowest it’s been since November 2020 and down from the recent all-time high of 171 EH/s set in May. Chinese mining pools in particular have seen significant drop-offs in hashing power.
Bitcoin mining has been criticized for its energy consumption, and some estimates have pegged its carbon footprint as being comparable to Belarus. However, a high hash rate also signifies a healthy network protected from so-called 51 percent attacks, in which a group commands a majority of the total hashing power to double-spend coins, or manipulate the blockchain network to spend the same Bitcoin more than once.
While the short-term dip in hash rate may seem concerning, many Bitcoiners believe that China’s crackdown will ultimately lead to a more decentralized network since mining is highly concentrated in China. Bit Digital, a publicly-traded mining firm with operations in the United States, Canada, and China, was already shifting many of its mining rigs out of China before the recent bans and government actions—something that other companies appear to be doing now as well.
“The center of gravity of Bitcoin mining will move from China to America, and that is a good thing because it will drive innovation in the U.S. with respect to renewables and carbon-free sources of energy for mining,” Bit Digital’s Chief Strategy Officer Sam Tabar told Motherboard. “We started moving the remainder of our operations out of China last year because frankly we saw this coming a long time ago.”
While Bitcoin mines almost exclusively use specialized computers to mine, other cryptocurrencies require the same kinds of graphics cards or GPUs used to play video games, pushing up prices. The bans are having a knock-on effect on the prices of GPUs, and The South China Morning Post reported on Monday that GPU prices have plunged on Chinese secondary markets by as much as two-thirds in recent days.
China’s crackdown on Bitcoin extends beyond mining, however. On Monday, the People’s Bank of China said that it advised top banks and payments services, including Alipay and China Construction Bank, to root out crypto activity and implement better know-your-customer processes, which collect information that can be used by authorities to root out fraud. Alipay said that it would blacklist merchants trading in cryptocurrency, Reuters reported.
These moves could make it even more difficult for users to move the Chinese yuan into Bitcoin and other crypto coins. Other recent reported moves by the Chinese government have limited the exposure of crypto services, such as blocking search access to popular exchanges like Binance and Huobi, as well as banning cryptocurrency-related accounts from the Weibo social media service.
The People’s Republic of China (PRC) is currently trialing its own central bank digital currency. Given its long-held stance against Bitcoin and this recent flurry of actions, it may be making moves against cryptocurrencies and the wider decentralized finance (DeFi) movement to maintain its control over money in the world’s most populous country, Hossein Azari, founder and CEO of cryptocurrency services firm Cmorq, told Motherboard.
“Bitcoin and DeFi challenge state capitalism at its core, and as crypto platforms grow, it is natural to see the PRC try to take back control and suffocate this movement when it is newly born,” Azari said.
Unsurprisingly, China’s most recent moves have had an impact on the price of Bitcoin and other cryptocurrencies. Bitcoin’s price is down more than 26 percent over the last week as of this writing, dropping below $30,000 for the first time since January.
Between China’s recent moves and Tesla’s decision to stop accepting Bitcoin for payment due to the environmental impact of mining (and Elon Musk’s controversial Bitcoin Mining Council), it has been a rough couple of months for Bitcoin and the wider crypto market after an early-year surge. Currently, Bitcoin is trading for about half the price it did at its mid-April all-time high.