Outside of China, cryptocurrency has become a popular investment and means of payment over the last year. Bitcoin is gaining more and more momentum with every passing day. It is estimated that around 46 million Americans own Bitcoin and it’s not hard to see why.
Bitcoin is often in the news for various reasons, but one event that has been reported and speculated on since its inception is the Chinese regulation of Bitcoin. More broadly, the cryptocurrency industry has often been targeted by the Chinese government and with every piece of regulation, the market sees a significant drop.
This was seen again recently with China creating a mass exodus of Bitcoin miners from Chinese soil. But, there is a long history of China’s crackdowns on cryptocurrency and there are many ideas of what this means for the market going forward. Here is a quick rundown on past events, along with some predictions of the results if this continued action against cryptocurrency continues.
China’s History With Crypto
First, it is important to understand the history behind the tumultuous relationship that China has with cryptocurrency. It began early, near the time of the creation of Bitcoin and a reusable proof-of-work model in late 2009. Before this, the idea of any kind of digital currency was still pretty foreign to the average person, but it existed in a few corners of the internet. A few early adopters experienced digital currency in video games like World of Warcraft and Runescape, which prompted a quick response from Chinese government: an outright ban on the trade of virtual goods for real money in 2009.
This did not apply to Bitcoin; it was early enough that not many people were aware of Bitcoin’s potential. From this time, up until around 2014, the Chinese government chose a “wait and see” approach, to discover where crypto would ultimately go. Although the CCP banned banks/exchanges from investing in crypto, this wasn’t strictly enforced until 2016.
The Chinese perception of Bitcoin turned negative, fast, when the central bank declared Bitcoin to be an “illegal tender” that could not be used in the purchasing or selling of goods. This resulted in a 20% drop in Bitcoin’s value at the time. But, this move did not stop Bitcoin from being traded and mined in China. China has low energy costs, so it was very profitable for Bitcoin farmers to set up shop in China. The province of Xinjiang saw a majority of this mining throughout the 2010s.
Over time, China would become the biggest country for cryptocurrency. Over half of the hash rate for the mining came from China by 2015 and it was growing with every passing day. Some wildly popular exchanges like KuCoin were established in China as well. This would all change when China decided to crack down on crypto exchanges in 2018. This move would make Bitcoin more difficult to purchase for Chinese citizens.
Today, there is more regulation placed upon Bitcoin in China than ever before. The main blow that was dealt to the crypto market recently was the Chinese crackdown on Bitcoin mining. Mining isn’t simply a profit-generating activity, mining allows for transactions using the Bitcoin network to occur quickly and relatively cheaply. The regulation of the Chinese miners, who produced the majority of the entire Bitcoin network's hash-rate, naturally resulted in a steep drop in price, due to the increased transaction cost of using the coin.
In general, crypto mining regulation leads to sharp price declines because of the short-term reduction in miners present in the network. A fall in hash rate because of a lack of miners results in slower transactions on the network. This, in turn, creates a sharp price decline whenever the CCP releases news on cryptocurrency. The price decline is also due to the panic selling that ensues in the crypto community every time there is news on Chinese regulation.
The Future of Bitcoin With Chinese Regulation
With the end of Chinese Bitcoin mining drawing nearer, many think that this has the potential to kill the market for cryptocurrencies. This, however, is not the case at all. Chinese miners leaving China is great news and should be celebrated within the cryptocurrency community for many reasons.
For one, centralization (ironically) is a massive problem with Chinese Bitcoin mining. It allows for some potentially dangerous outcomes for the security of the network. With over 51% of the miners being located in China, it could leave the Bitcoin network open to a double-spending attack. This weak area of Bitcoin’s security is a major reason why so many people are excited to see Bitcoin miners moving to other countries outside of China. Also, the exodus of Bitcoin miners from China has resulted in Bitcoin becoming more of a green asset.
China’s energy is dominated by fossil fuel usage. A report from the International Energy Agency found that 79.1% of the country’s emissions were from fossil fuels. With this, the Chinese mining operations and farms were powered by dirty coal energy that contributed a great deal of pollution to these areas in China. But, with miners moving out to different countries, the overall state of Bitcoin’s negative effects on the environment has dropped tremendously as a result. Bitcoin becoming more environmentally friendly will make the asset more sustainable for future generations to use.
At the end of the day, the regulation of Bitcoin by the CCP is negatively affecting the market in the short term, but, in the future, it can prove to be a pivotal move in the right direction for all crypto supporters. Making Bitcoin an asset that is not controlled by a single country and one that will not leave a negative environmental impact, is a strong goal to work towards. Bitcoin is the currency of the future; it will prevail without the support of governments or institutions, regardless.