On Thursday, Cai Xin published an article adding a new chapter to China’s battle with bitcoin. After banning ICOs early September and the closure of cryptocurrency exchanges shortly after, there were already rumours about a potential mining ban. However, according the article, at this stage the central government is not considering a mining ban, nor was there a so-called ‘behind closed-door’ meeting with several industry leaders. The central government, however, does encourage local governments to gradually stop preferential policies for bitcoin miners in the field of tax, land and electricity costs.
The most recent rumour started with a Wechat screenshot from Guo Hong, a well-know person in China’s crypto industry, stating that all mines have to close after January 5th, 2018 and that holding and trading cryptocurrencies will be forbidden. However, Guo Hong quickly responded to this message that the screenshot was photo shopped. Afterwards, several media reported that the People’s Bank of China held a meeting behind closed doors and demanded bitcoin miners to shut down their operations within a limited time period.
The news spread a lot of fear, uncertainty and doubt among people in the crypto industry. However, officials from the central bank told Cai Xin reporters that there has not been such a meeting. They did mention that there is indeed a plan for phasing out preferential policies.
A person close to the internet finance regulator also told the Cai Xin reporter that at present, regulators require all local governments to actively guide enterprises within their jurisdiction to withdraw from mining business in an orderly manner. Additionally, local governments should implement land use, taxation and environmental protection measures, and regularly report the basic situation and dynamics of mining enterprises under its jurisdiction.
The aforementioned authorities also stressed at the same time that the “guide and exit” referred to here is not a compulsory measure that requires the local authorities to shut down mines. Instead, it aims at guiding the market to be healthy and orderly by regulating and shrinking the preferential policies of all places development of.
Unlike virtual currency exchanges, bitcoin mines produce bitcoin mined through power-hungry professional mining machines, and are considered industrial rather than financial in nature. Hence, the question is whether bitcoin mining can actually be banned. Several regulators said there is no way to shut down the mines alone from the perspective of the central bank. At present, the emphasis is mainly to stop preferential policies in order to not incentivize mining.
According to the aforementioned authoritative source, the utility of mining can be questioned from several perspectives. Firstly, the power consumption of mining is huge, and the annual electricity consumption of the country’s mining equals power supply to 50 million households. Secondly, Bitcoin consumes 1.8 tons of carbon dioxide, which is detrimental to the environment. In addition, some mines do not take into account any regulations regarding fire safety, excessive noise and other issues, causing risks and problems for both employees of mines as well as its surroundings.
However, a number of miners also pointed out to Cai Xin’s reporter that the impact of mining needs to be differentiated in various regions and cannot be generalized. The basic situation of power generation in our country is that power generation is far greater than power consumption, especially during the wet season. In Inner Mongolia, for example, more thermal power generation is used, which may cause environmental pollution problems. However, in areas such as Sichuan that use hydroelectric power generation, it will not cause environmental pollution and will instead generate additional revenue.
One miner said: “In fact, the local government welcomed the mine well before September, especially in some industrial parks because we really pay so much for electricity bills and the proceeds from these parks should be capitalized in. We neither pollute nor disturb the people.”
Looking at all parts of the world, China is not the best bet for bitcoin mining, whereas the price of electricity and the overall climate are the most important factors. Globally, most of the countries that meet these conditions are mostly in areas of high latitude or altitude, using hydropower and thermal power resources, such as Russia, Canada, Iceland among others.
The main reason why bitcoin mining is so prosperous in China is that the Chinese have mastered to produce mining machines, and the top three miner manufacturers are all in China. While the mining policy is tightening, the move to overseas has long been a preparation that many mining professionals are silently preparing.
“We have been having talks in Ukraine, Russia, Canada, the United States, Malaysia and Sweden about the establishment of mines. In fact, Canada is our first choice, and we also consider the US because the electricity is cheaper than in China”, the aforementioned mining veteran said. However, foreign countries may share the same risks of instability in policies. Hence, most mining professionals are still reluctant to leave China. “We are all willing to cooperate if it is required to regulate taxes and electricity charges, and the main demand now is to not stop mining,” said another industry leader.
According an article published by Yicai, local governments are asked to report before the 10th of January on the current status of bitcoin mining companies and let bitcoin miners exit the market in an ordered manner by taking various measures from the aspects of electricity, land, tax, environmental protection. In addition, local governments have to report before the 10th of every month on the progress they are making. Hence, rather than a sudden crackdown, China this time chooses for an step-by-stap approach.
Following the aforesaid notice received by the Yicai reporter, there is a “Summary Table of Specific Conditions Concerning Enterprises Engaged in Mining”, setting out details of the specific needs to be reported, including the name of the enterprise, the date of establishment, the registered capital, the number of mining machines, operating income, tax situation and so on. Power consumption is considered to be the main content that needs to be reported in the summary table, which is specific to enjoying preferential prices for land and electricity or other subsidies.