Why China did not win the war on Bitcoin mining
Why China did not win the war on Bitcoin mining
Regulation

Why China did not win the war on Bitcoin mining

By Marco Cavicchioli - 21 Nov 2021

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Who won the war between China and cryptocurrency mining? 

Bitcoin mining outside China

On the surface, it looks like China has won the war, with 0% of Bitcoin’s hashrate being allocated there, but it’s much more complex than that. 

In fact, this was a complete renunciation, despite the huge profits that cryptocurrency mining was able to generate for Chinese miners. 

The Chinese state collected a part of those profits, without doing anything, in the form of taxes, levies and surcharges, so the renunciation was certainly not painless. 

But why has China actually given up mining cryptocurrencies, despite being the single most important mining nation in the world, and therefore earning the most in absolute terms? 

An environmental problem

The underlying problem is actually neither financial nor political, but economic and environmental. 

Cryptocurrency mining consumes a lot of electricity. Since it is a competitive activity, the winner is the one who can pay the least for the electricity used. 

China has always been favoured in this respect, because one of the most readily available and cheap sources of energy in the country is coal. However, coal is also one of the most polluting fossil fuels, so a large consumption of electricity produced from coal causes a lot of pollution. 

The country has had a serious problem with pollution, especially of the air, for years and has therefore decided to reduce its consumption of polluting sources, such as coal. 

Moreover, when electricity is fed into the grid, it is almost indistinguishable between electricity produced from polluting sources and electricity produced from clean sources, which makes it impossible to prevent those who draw large amounts of electricity from the distribution network from using energy produced from polluting sources. 

In view of this, the Asian country has decided to ban de facto cryptocurrency mining, to prevent large amounts of electricity produced from polluting sources from being consumed.

Given that this decision is the result of China’s inability to ban non-polluting energy production and replace it with non-polluting electricity, this sounds more like a defeat for China than a defeat for mining. 

Moreover, as the data clearly shows, the closure of mining farms in China in June only temporarily reduced Bitcoin’s hashrate, because as of today it is back to the same as in June, if not higher. In other words, it has simply moved out of China

In addition to the environmental problem, cryptocurrency mining also creates an economic problem for those who consume electricity for other purposes, as it increases consumption and thus costs. 

China mining

A defeat in politics

Again, China’s rejection of this seems to be more a defeat of their economic and fiscal policy than a defeat of the miners, who simply went to mine elsewhere. 

The country could have, for example, imposed a higher tax on electricity used for mining cryptocurrencies, thus imposing a de facto reduction in consumption. It is no coincidence that, several months later, this is precisely the solution being considered to possibly allow cryptocurrency mining in China again, i.e. simply increasing the cost of electricity for this specific use. 

In the light of all this, it seems that the mining war has not been won by China at all, and neither have the Chinese miners. It was won by cryptocurrencies, primarily Bitcoin, which recovered everything it lost in June. 

A war on miners

China has merely won the war against Chinese miners, either by driving them out or shutting them down in favour of foreign miners. 

So while on the surface it might seem that this war was won by China, on closer inspection it becomes clear that the war was won by cryptocurrencies. For sure, the ones who have lost out completely are the Chinese miners who have not moved abroad to continue mining. 

Marco Cavicchioli

Born in 1975, Marco has been the first to talk about Bitcoin on YouTube in Italy. He founded ilBitcoin.news and the Facebook group" Bitcoin Italia (open and without scam) ".

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