The Chinese government is currently attempting to implement virtual yuan that does not operate off the blockchain.
Bitcoin mining operations across China have reportedly shut down due to growing concerns over the massive amounts of energy consumption that bitcoin-mining requires.
China’s Inner Mongolia region has started to actively pursue and ban active bitcoin-mining centers throughout the region.
The governing body has declared that it intends to shut down all crypto-mining centers by April of this year as part of China’s commitment to limiting carbon emissions in the country.
Bitcoin’s growing energy consumption
Cryptocurrency has been surging in recent years due to increased mining and trading. Mining is the process by which transactions on the blockchain are verified.
The decentralized network provides an alternative form for consumers to trade without relying on traditional banking. However, in order to verify new transactions, mining computers must race to solve an extremely complex computational math problem.
In order for computers to solve these math problems, a tremendous amount of energy is required. Once a bitcoin miner solves the problem, they’re rewarded with a transaction fee and newly minted bitcoins.
The energy required to solve these computational math problems is substantial.
The University of Cambridge measures the estimated amount of current energy consumption required at around 135 terawatt-hours (TWh) a year. According to the data provided by Cambridge, mining for cryptocurrency currently consumes more energy than the entire country of Sweden, the latter of which typically consumes around 130 TWh a year. In addition, the amount of energy currently being used is only increasing as more miners start working on the blockchain.
With China accounting for around 65% of total bitcoin mining, the network is currently costing the country about 90 TWh a year in energy consumption. While the government’s recent regulations are primarily driven by the country’s goal of a greener economy, this is only the most recent in a long history of crackdowns against decentralized virtual currencies.
China and virtual currencies
Chinese citizens are more familiar with the idea of digital assets and virtual currencies than those in western countries. In 2007, Tencent’s QQ services, a massive social media platform used in China, created Q coin.
Serving as a rewards program for virtual add-ons, the value of the coin began to transition into the real world as the company’s user base continued to grow. The value of the virtual currency was soon skyrocketing – rising as much as 70% within a few weeks.
As users continued to trade the virtual currency, problems began to arise. Users were trading the currency for real-world yuan and items. There were reports of money laundering and a growing concern of inflation in the Chinese market.
By 2009, China’s Ministry of Culture and Ministry of Commerce began implementing crackdowns on virtual currencies in order to combat their growing disruption to the real currency market.
By 2017, the Chinese government started to take significant action against cryptocurrencies. With the exception of Hong Kong, the Chinese government began shutting down cryptocurrency exchanges and banning initial coin offerings (ICO) – the industry equivalent to an initial public offering (IPO).
The most substantial of these was Alipay’s historic ICO of US$34.5 billion.
In November of 2020, the Chinese government successfully blocked the ICO from going public in order to maintain control over the currency within the country.
China’s recent regulations
While exchanges and ICOs were shut down in 2017, mining operations were only recently targeted. The recent mining operations that have been shut down were located in Inner Mongolia, situated in northern China.
The region failed to meet central government assessment targets regarding energy use in 2019.
In response, the region’s development and reform commission laid out plans to reduce energy consumption. Part of those plans include shutting down cryptocurrency mining projects by April of this year and not approving any new ones.
While the region’s primary form of energy includes the use of coal, the Inner Mongolia Development and Reform Commission has also committed to reassessing other energy-intensive industries like steel and coal.
As a whole, China is pushing to lessen its environmental impact. Chinese President Xi Jinping pledged last year that the country would seek to be carbon neutral by the year 2060. The recent crackdowns demonstrate that the country is continuing its commitment to this cause.
Despite their regulations on cryptocurrencies, the Chinese government is not against virtual currency of all forms and is currently attempting to implement virtual yuan that does not operate off the blockchain.
The country has demonstrated interest in blockchain technology as the government looks to establish a national blockchain network.
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