End of an Era - China and Bitcoin Mining


Photo credit: Blockbeats


Summary:

- Timeline of major events leading to the shut-down of Chinese mining farms

- Reasons behind the Central Government’s forceful clampdown

- After the events of June 20, what does the future hold for Chinese miners


June 20, 2021 will be remembered in bitcoin history. It marks the end of an era. A video went viral showing Chinese miners turning off their mining machines. Suddenly, on June 20, Sichuan unplugged the power supply to bitcoin miners. Southwest of China, Sichuan has been the largest bitcoin mining hub and home to about 90% of Chinese mining hash power during the wet season. During this season, hydropower provides abundant electricity to miners. Most of the electricity used in mining in the region is from wasted or excess hydropower. The cut-off of power is a fatal blow to Chinese miners.


This is not the first time that the government has come down hard on bitcoin mining. In the past, the storm would pass with the passage of time. The central government had not been as hostile towards bitcoin mining as towards crypto trading. This time, however, it really is different.


From the following timeline, one can tell that the crackdown had been planned for a while, was well-coordinated between the public and private sectors.

  • In April, a former central bank governor warned people to be cautious and careful about digital currencies such as bitcoin; and he stated any financial innovation should serve the real economy;

  • Also in April, a scientific journal “Nature Communications” published an article composed by a group of academics from Tsinghua University and the Chinese Academy of Sciences. It concluded that “in the absence of legal curbs, bitcoin could by 2024 become a “non-negligible” barrier to China’s efforts to decarbonize its economy”;

  • Government controlled Chinese media followed suit criticizing bitcoin mining’s energy use;

  • Social media shut down major crypto influencers’ accounts;

  • Chinese search engines blocked search results containing crypto-related keywords;

  • May 21, at the 51st meeting of the State Council Financial Stability and Development Committee, the Chair of the Committee Liu He, Vice-Premier, called for forceful efforts to identify and prevent financial risks, and to clampdown on bitcoin mining and trading to prevent individual risks spilling over to social risks. The official report can be seen here;

  • Right after that, the provinces of Inner Mongolia and Xinjiang, two major mining hubs during the dry season, shut down data centers and mining farms;

  • June 2, the Sichuan Energy Regulatory Office of the National Energy Administration hosted a round table with miners to understand how the elimination of bitcoin mining would affect the consumption of wasted electricity generated by hydropower stations in the region;

  • June 20, Sichuan unplugged the power with 24 hours’ notice. Most mining farms had to shut down;

  • June 22, Payment & Clearing Association of China, an organization under the central bank, summoned major Chinese banks and payment service providers including ICBC, CCB, ABC, Postal Savings Bank of China, the Industrial Bank, and PayPal, urging them to stop providing any on-ramp/off-ramp services for crypto activities.

What triggered the central government to decide to eradicate bitcoin mining with such resolution? There are several reasons which have not been discussed by the media.


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