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China bans cryptocurrency mining in certain regions

by Barış Selman
4 March 2021
in Business, Fintech
Reading Time: 3 mins read
China bans cryptocurrency mining in certain regions
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Cryptocurrency has been revolutionizing our conception of the economy, currencies, the world of investments, capital traffic, regulators. We Swill not say that they have been as revolutionary as fintech, which is completely redrawing people’s relationship with their finances, but they have completely changed people’s conception of what money is, and incidentally, they have also helped many people to learn what fiat currency is and that the gold standard has not been used to issue currency for many decades.

China bans cryptocurrency mining in certain regions

Be that as it may, cryptocurrencies have brought about a revolution not only in the financial markets. For example, the extremely high demand for graphics cards by miners has become a problem. Even with graphics cards sold out, some miners in China are opting to buy state-of-the-art laptops with NVIDIA RTX 30 graphics to start-up cryptocurrency mining farms, mainly there.

The reason this is happening in China is no coincidence. Some regions of the country, the poorest, have electricity tariffs heavily subsidized by the government, to prevent the poverty situation of many families from preventing them from accessing electricity supply, further complicating their livelihood. A measure that, although positive in the first instance, needs some refinement to avoid becoming a problem.

One of the key elements in cryptocurrency mining is electricity consumption and, of course, the electricity bill. Mining very recent cryptocurrencies are not very demanding, but of course, you have no way of knowing if they will be well received by the market and their value will rise or, on the contrary, if in a few months no one will remember them. On the other hand, mining bitcoins has long since ceased to be profitable for most people, and nowadays mining ethereum is only profitable under certain conditions.

China bans cryptocurrency mining in certain regions
China bans cryptocurrency mining in certain regions

As you may have already guessed, a place where the price of electricity is very low is, therefore, a paradise for miners, as an essential part of the cost of their activity is substantially reduced. And this, in turn, means a significant increase in electricity consumption in these regions. A consumption which, let us remember, is subsidized, and which also forces the use of as many electricity production systems as necessary, maintaining a higher rate of consumption of polluting energies.

This is what is happening in Inner Mongolia, a region in northern China, bordering Mongolia, which due to the low cost of electricity has become a star destination for the deployment of cryptocurrency mining networks, creating a thriving industry dedicated to producing chips at low prices, in addition to providing cheap labor to those responsible for such infrastructures.

However, this situation is about to change, since, as we can read in Bloomberg, the Chinese authorities have decided to close down these activities, setting April as the date for all activities in this regard to cease. This is a measure that comes after criticism by the country’s economic authorities to the region, which was the only one in the country that failed to control electricity consumption in 2019. After the 2020 hiatus, it seems that the authorities are once again singling out the region and cryptocurrency miners, to eradicate their presence and terminate their activities.

Talk of a region of China may give a misleading perspective of Inner Mongolia’s weight in the world of cryptocurrencies, but the region accounts for 8% of the world’s bitcoin mining computing power, according to the Bitcoin Electricity Consumption Index compiled by the University of Cambridge. And that’s just bitcoin, not to forget the other cryptocurrencies, and especially ethereum.

It is still too early to speculate on what effect this may have on both the cryptocurrency and electronics markets. However, if China decides to continue pursuing these activities throughout its territory, we will be talking about a change that should have a huge global repercussion and that, among other things, could translate into both an increase in the value of cryptocurrencies already mined, as well as making it less difficult to change graphics cards.

Tags: bitcoinChinacryptocurrencyCurrencyethereumfeaturedfintech

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