China’s Crackdown on Cryptocurrency Mining
The cryptocurrency mining industry is currently undergoing intense scrutiny in several countries. Cryptocurrency mining consumes significant amounts of energy, and it can be a serious threat to companies, environmentalists, and the climate. Moreover, it increases the risk of money laundering and illegal cross-border transfers. In response to this danger, global financial regulators have become increasingly focused on monitoring the risks associated with this activity.
China has recently stepped up its effort to crack down on crypto mining. In May, Chinese government entities banned banks and financial institutions from providing services related to virtual currencies, and declared all transactions involving these currencies illegal. They also banned derivatives for virtual currencies and ordered all trading of these currencies be banned. However, this may not stop the growing industry. As reported by Nature Communications in April, China has a substantial share of the global hash rate.
As part of its continued effort to curb speculative crypto trading, China has also banned foreign virtual currency exchanges from offering services to Chinese residents. This has led to some outages in some regions. While a blanket ban on all crypto transactions would hit major coins like Ethereum and Bitcoin, analysts say this may not be enough to dent global crypto-asset prices in the long run.
In addition, China has a growing power shortage, which could put its climate goals at risk. As a result, it is seeking to control the amount of energy used for mining.
Earlier this month, China’s Supreme People’s Court ruled that virtual currency activities are illegal. Meanwhile, the Sichuan Province has ordered nearly two dozen mining operations to shut down. The government is also boosting the price of electricity for crypto mining institutions.
Some traders in emerging economies such as Brazil, Nigeria, and Vietnam are using cryptocurrency to bypass weak local currencies and ineffective banking systems. Although these countries are not affected by the crackdown, the industry still faces regulatory hurdles.
China has also increased its regulatory pressure on the industry, which has led to an uptick in inspections in some provinces. Authorities are targeting illegal mining activity in data centers and colleges. There have been several reports of local officials zeroing in on the industry, making miners feel unwelcome.
The global crypto mining industry is also facing a new wave of scrutiny in developed economies. China, in particular, has a large number of localities that are making it difficult for miners to operate. Mining is a process that involves running complex mathematical calculations, and it requires a large amount of computing resources. Most of these machines are plugged into dirty electric grids.
China’s crackdown on crypto mining is being driven by the country’s concern over its carbon emissions, as well as its concern over the risks of money laundering and financial fraud. It also aims to control the energy consumption of the industry. Ultimately, it will likely reduce the overall amount of crypto mining in the country.
As it tries to clamp down on the industry, China has been relying on a combination of social engineering tactics and persistence. For example, the first hidden crypto mining facility in China was busted in Guangdong Province, where authorities discovered a “flash update” file that masquerades as a Flash Player.