Another Chinese province has cracked down hard on cryptocurrency mining, echoing the past few months’ events in a grim reminder of the country’s stance on digital currency. Anhui Province has become the most recent Chinese province to completely ban crypto mining after Sichuan initiated a sweeping ban last month. Other Chinese regions, like Xinjiang and Inner Mongolia, have also created much stricter rules against mining.
In the case of Anhui, the province’s authorities claim that the ban is intended to help resolve a total power shortfall in the region that they claim is due primarily to crypto mining. Environmental activists have singled out mining for cryptocurrency due to its high energy draw that is used as a “proof of work” gate to give cryptocurrency its value.
Mining as Proof of Work
In a vacuum, the idea of “proof of work” is simple and even ingenious. As an added challenge, when creating new cryptocurrency coins, most standards have a “mining” process by which users can turn their computers toward solving a complicated math problem. The problem is so complex that miners need powerful computers to solve them, which consumes considerable power.
Estimates say that eighty percent of the value of a given Bitcoin gets destroyed by the power bill for mining the coin.
From an outsider’s perspective, this process looks incredibly wasteful. A crypto miner turns on their computer and tasks it to solve an extremely complicated problem, yielding a string of data that is ascribed value by crypto enthusiasts. For environmentalists, this is untenable: it’s a pollution machine, polluting for the sake of imaginary coins.
Anhui Cracks Down
Due to energy shortfalls in the province, Anhui decided to crack down on crypto, just like some other provinces have in the past year. The move will also prioritize deeper scrutiny into new building projects that will call for significant power consumption. Anhui seeks to reexamine its entire electrical grid, covering everything from pricing models to distribution.
The name of the game, as far as Anhui’s authorities put it, is optimization. However, crypto enthusiasts have accused China of essentially pushing an anti-crypto stance through these efforts. They’ve argued that they are targets and that crypto’s environmental impacts are overstated.
“The State Grid Corporation of China has issued a notice to all parts of the country requesting the closure of virtual currency mining. At present, some provinces with insufficient power in China, such as Henan and Anhui, have also begun to implement it,” tweeted Chinese journalist Colin Wu. Wu’s reporting suggests that the Chinese government is concentrating efforts to stifle cryptocurrency in the country.
Bearish Outlook Continues
The continued bans from Chinese provinces have harmed the value of cryptocurrencies across the board. Bitcoin is significantly down from its high this April when it crested over $60,000 per coin. As of the time of this writing, Bitcoin is valued at just over $32,000 per coin.
The massive downtick in value is due to two significant factors. The first is that cryptocurrency is almost entirely valued based on the sentiment of investors. When investors feel as though the standard’s value is threatened, it drops accordingly. Constant pressure from regulators has pushed crypto into a bearish outlook for the past several months, shrinking crypto in the market.
The other reason for the downturn is a bit more literal: there are fewer miners, so the hash rate for the coins is lower. This means that, since fewer server banks are trying to mine the coin, the coins are easier to mine. While you might think that means the coins would be worth more since they’re easier to generate, this has the opposite effect. When coins are easier to create, they’re more plentiful. When they’re larger, they’re worth much less.
Why Does This Matter?
China was responsible for roughly 70% of the Bitcoin mined on the planet before the government initiated its crackdown. With so much less energy being spent to create new crypto coins, it leaves the standard’s future up in the air. Some enthusiasts insist that this is a good thing for Bitcoin, as it decentralizes it and pushes it into other countries, like the US and Russia.
However, energy prices in other countries aren’t as low as they are in China, making widescale mining operations that much more difficult to run efficiently in other places. Moreover, there is growing pressure among world governments to institute stronger regulations on cryptocurrency.
In the US, for instance, Senator Elizabeth Warren has proposed sweeping changes to the laws around cryptocurrency exchanges, essentially arguing that they should be treated as securities by the SEC. Time will tell if this continued regulatory pressure spells the end for cryptocurrency or if the standard can break out despite the opposition from authorities.