China is reportedly planning a crackdown on bitcoin mining in the country, a move that could have a drastic impact on the value of the cryptocurrency.
Thanks to cheap electricity, Chinese miners are estimated to be responsible for producing around three-quarters of the world’s supply of bitcoin, but stringent measures that look set to be put in place over the coming months could see that number shrink dramatically.
A leaked January 2 memo from the ‘Leading Group of Internet Financial Risks Remediation’ – the country’s internet finance regulator which initiated the clampdown on bitcoin – said that bitcoin miners are to make an ‘orderly exit’ from China because they have consumed ‘huge amounts of resources and stoked speculation of virtual currencies’.
In the documents, authorities were instructed to force mining operations out of business using measures linked to tax, environmental protection, electricity pricing and land use.
While the group itself doesn’t control national energy usage it is still an influential political force that is led by the deputy governor of the People’s Bank of China (PBC), Pan Gongsheng.
According to Quartz, local representatives would be required to report back on the progress of removing miners in their regions on a monthly basis.
For the uninitiated, bitcoin mining is the process of competing to solve complex mathematical equations which earns ‘miners’ a certain number of Bitcoins in exchange.
Miners are also required to approve bitcoin transactions, creating a more secure network. Because of this, the loss of miners in China could have a significant impact on the digital currency overall.
Removing China from the network will dramatically reduce the number of new bitcoins mined, resulting in a shortage that will likely see a huge surge in the price of the cryptocurrency, which presently sits at around $15,500 (£11,422).
It’s also possible that a blanket ban on bitcoin mining in China could impact the price negatively.
A likely spike in transaction times and in turn increased transfer fees would see the digital currency become even less practical to use.
Now, some of China’s mining operations are looking to flee overseas in anticipation of the ban and Moscow is reportedly one place that has launched a plan to capture some of China’s mining network.
Pan Gongsheng recently predicted the death of bitcoin, so it’s unsurprising that the decision to ban mining has been taken in the country.
Author: Paddy Maddison