Crypto mining is not the digital version of digging for gold. It’s the process of verifying cryptocurrency transactions, like Bitcoin, and adding them to a blockchain ledger. Miners solve complex computational puzzles to verify these transactions and, in return, they earn cryptocurrency as a reward.
More: Asia’s Crypto Regulatory Giants: Who’s Shaping the Future?
The crypto mining process is energy-intensive because it involves intensive computer calculations. This has earned it a bad reputation for being an energy consumer, but more on that later. What you need to know is that as long as there’s crypto, there will be crypto mining.
China’s Role in Global Crypto Mining
Before 2021, China accounted for approximately 70% of the world’s crypto mining activity. That’s almost three-quarters of all crypto activity based in one country. But why?
Well, China had three things going for it:
- Cheap energy: Thanks to its access to coal and hydroelectric power, electricity in China was much more affordable compared to other countries. This was a major selling point as energy consumption has a great impact on mining activity.
- Tech infrastructure: China was quick to adopt blockchain technology, which gave it a competitive edge over others. President Xi Jinping even made it official in 2019 by pushing for further investment in blockchain.
- Favorable regulations: In the early years, crypto mining in China faced little resistance from the government. This led to the rise of massive mining farms.
Government Regulations and Crackdowns
In 2017 Beijing banned initial coin offerings (ICOs) and ordered the closure of local crypto exchanges. But even then, crypto mining wasn’t hit that hard.
It wasn’t until May 2021 that things went south. China imposed a nationwide ban on all things crypto mining. The government cited concerns about financial stability, capital outflows, and environmental impact. Crypto mining is power-hungry, and China had major concerns that it was eating away at the country's energy resources. They also pointed to illegal activities like money laundering and funding terrorism, all of which were supposedly made easier by the anonymity of cryptocurrencies.
What followed was a full-on exodus. Mining companies packed up and fled to Kazakhstan and the United States. Overnight, China’s contribution to global mining activity dropped from 70% to zero. Nonetheless, underground mining operations still existed.
The mining ban didn’t just kill the industry in China. It shifted it. Kazakhstan briefly became the darling of displaced miners. The US, however, accounted for over 40% of global mining activity. It was the biggest mining relocation since the California gold rush.
The Future of Crypto Mining in China
So, what’s next for crypto mining in China? Tweets like the one below illustrate the paradox of the situation: How can China ban crypto mining while still accounting for a significant percentage of the Bitcoin hashrate?
China is the land of mystery of the East. #Bitcoin mining is banned. Yet 55% of mining pool Hashrate distribution is in China.
— Seth (@seth_fin) October 2, 2024
Most old OG $BTC whales are Chinese. I got no proof my BTC whale friend told me. pic.twitter.com/anrjt2Kv3M
According to data by Ki Young Ju, founder of Cryptoquant, the US has captured a significant share of the global Bitcoin hashrate. Currently, Chinese mining pools account for 55% of the network's total hashrate, while US-based pools handle around 40%.
#Bitcoin hashrate dominance is shifting to U.S. mining companies.
— Ki Young Ju (@ki_young_ju) September 23, 2024
Chinese mining pools operate 55% of the network, while U.S. pools manage 40%.
U.S. pools primarily cater to institutional miners in America, while Chinese pools support relatively smaller miners in Asia. pic.twitter.com/kepopLWBSD
There’s growing chatter within China about revisiting the ban. Experts like Zhu Guangyao, former vice-minister of finance, have openly called for the government to rethink its anti-crypto stance. They argue that while mining has risks, it’s crucial for the digital economy. In other words, if China wants to stay competitive in the global digital race, it can’t afford to sit on the crypto sidelines.
The US has embraced crypto, and countries like Hong Kong have been quietly developing their own crypto markets. Hong Kong, in fact, just launched its first Bitcoin futures inverse product. So while China stays in the “no-crypto zone,” its neighbors are having a field day with it.
But what would it take for China to lift the ban? The answer likely lies in regulation. Chinese officials have repeatedly stressed the risks of crypto, but these are risks that can theoretically be managed with the right policies. It’s not so much that crypto is inherently bad; it’s just really difficult to control.
Some experts predict that China could soften its stance on crypto mining in the future, provided they can put strict safeguards in place. This could mean regulated, licensed mining operations, some of which may be even government-owned. There’s also the possibility that China might embrace tokenization, which could open the door for a limited return of crypto mining.
Environmental Impact of Crypto Mining
Of course, we can’t forget the elephant in the room: the environmental impact of crypto mining. China’s ban was partly driven by concerns over the environmental damage caused by Bitcoin farms. And let’s be honest, they had a point. In some regions, crypto mining accounted for a significant portion of energy use, often leading to power shortages.
In the US, mining has sparked similar concerns. Rural areas, where Chinese-owned crypto companies have set up shop, are now facing public outcry over increased energy use, noise pollution, and a lack of local job creation. These mining farms are a major source of tension between locals and crypto entrepreneurs.
Clean energy might be the key to making crypto mining more palatable. If mining operations can tap into renewable energy sources such as hydropower and solar, the environmental argument against them loses some steam. In fact, some Chinese miners, before the crackdown, were already using hydropower to fuel their operations. So, who knows? If China does reconsider its crypto ban, clean energy could play a major role in the industry’s comeback.
Final Thoughts
For years, China nurtured and dominated the crypto mining industry, only to slam the door shut when things got out of control. But the global crypto train hasn’t slowed down. If anything, China risks being left behind while other countries innovate and profit.
Will China reverse its ban on crypto mining? Possibly. But if it does, expect a lot more regulations, government oversight, and likely a big push toward renewable energy to curb the environmental damage. Until then, crypto miners have set up camp elsewhere, but the world is watching to see if China will make its grand return to the digital gold rush.
Kataryna Habeliia
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