At the end of September 2021, the news broke that China declared the trading and mining of cryptocurrencies illegal . The decision of the Asian country has had two direct consequences: on the one hand, a foreseeable global exodus of the ‘miners’ to less restrictive lands and, on the other hand, a domino effect , since it seems that this prohibition has encouraged other territories to follow the same steps.
With the exception of El Salvador, the nation that became the first to recognize bitcoin as a legal currency , cryptocurrencies are unregulated financial assets , so they do not have legal currency status nor are they backed by central banks. That, however, does not explicitly prohibit individuals or private entities from transacting with them. An example of this case is Spain.
On the other side of the scale are countries that limit commercial transactions and prohibit banks from participating in this market . Canada and Colombia are on this list. Others, like Vietnam or Saudi Arabia, prohibit cryptocurrencies as payment instruments.
Finally, there are also those who, like China , have also decided to ban mining . Mining is the computerized process by which new units of a cryptocurrency are created and which allows keeping a record of all transactions with existing ‘tokens’.
It is a procedure that consumes a lot of energy and is very polluting – cryptocurrencies, with their current market value, lead to the release of up to 120 million tons of CO2 into the atmosphere per year -, which is one of the main reasons to restrict it.
China vs. the ‘crypto’ world
At the time when cryptocurrency transactions were made illegal, China was something of a miners’ paradise . Estimates collected to date suggest that between 65% and 75% of the world’s bitcoin mining occurred there, despite being one of the countries with the tightest controls on virtual currencies.
Why China? There are thousands of mining farms that populate the country, mainly near power plants and in those areas where energy is subsidized by the Government . Mass mining took place mainly in four provinces: Xinjiang, Inner Mongolia, Sichuan and Yunnan. Sichuan and Yunnan’s hydropower makes them meccas for renewable energy , while Xinjiang and Inner Mongolia are home to many of China’s coal plants.
Although since 2013 China has increasingly restricted cryptocurrency operations, the high consumption of electricity required in the case of bitcoin has multiplied concerns about its impact on the environment while at the same time placing the Asian country as the leading power for its abundant and cheap energy.
To get an idea, the energy consumption of a computer farm dedicated to mining bitcoin is equivalent to that of a medium-sized country , such as Greece or the Czech Republic . And China was the country in the world with the most facilities of this type. For this reason, steps have been taken towards restricting ‘crypto’.
Last May, the People’s Bank of China, the country’s central bank, announced a ban on financial institutions from operating with them . Shortly after, the Chinese authorities added measures such as blocking the main Internet search engines used in the country so that they did not offer results to citizens who tried to access exchange houses. And then came the repression against mining .
The ‘great migration’ of miners
As we say, it is estimated that approximately 70% of the world’s bitcoin mining was taking place in China . With the new restrictions, miners and companies in the sector quickly fled the Asian country in search of other territories in which to continue their work.
The figures back it up: while in September 2019 75% of the world’s bitcoin energy use was concentrated in China, by April 2021 it had fallen to 46% .
What destinations do miners prefer? Your first option will be to look for those countries where energy is cheaper , as it is the ‘fuel’ for your operations. China was the favorite nation so far for its low cost.
Venezuela could be on the list of possible favorites , a country with the cheapest electricity rate in America and among the cheapest in the world. So does Kazakhstan , whose coal mines provide an abundant supply of energy for a small price. And finally we have the United States , which is emerging as the winner.
Texas has many ballots to be the new mining paradise : it tends to have some of the lowest energy prices in the world and its share of renewables is growing by the minute, in addition, it has a deregulated electricity grid that allows customers to choose between energy providers and, crucially, their political leaders are very much in favor of virtual currencies .
Also, Wyoming is a strong candidate , as it is a state with very lax regulation when it comes to ‘crypto’.
The effect of China: other countries follow the Asian giant and also ban mining
Sweden has been the latest to join this crusade against cryptocurrency mining. Recently, the Swedish Financial Supervisory Authority and the Environmental Protection Agency requested in a letter that Europe prohibit this activity as a “strictly necessary” measure to comply with the Paris Agreements .
Given that the Nordic country is very favorable to renewables, some have seen in this territory a possible mecca for their operations . But Sweden does not want them there and claims that it “needs this energy” for the climate transition of its essential services. This increased use by miners “threatens” their ability to comply with the Paris Agreement, they add.
In the statement they point out that “between April and August 2021, electricity consumption for bitcoin mining in the country increased by several hundred percent and now amounts to 1 TWh per year. That is equivalent to the electricity of 200,000 Swedish homes ” . According to data from Digiconomist , a platform that provides information on the energy consumption of the crypto network, the two largest cryptocurrencies by market capitalization, bitcoin and ethereum, use approximately twice as much electricity in a year as all of Sweden.
Iran is also a peculiar case: despite not being a country that welcomes miners with joy, due to its cheap energy it became a favorite destination for mining cryptocurrencies . However, summer is very hot in some regions, which puts a strain on the electricity grid to power air conditioners, and high mountain areas have cold temperatures in winter.
Clifton Collins has lost the access codes to his virtual accounts with bitcoins.
Given the high demand for electricity from these operations and the limitations of the country’s infrastructure , entire towns have suffered prolonged power outages, which is why the government temporarily banned cryptocurrency mining .
Another one that is making it tough for cryptocurrencies in general is Indonesia . In November, the country’s council of religious leaders, which is home to the world’s largest Muslim population, decreed that those who profess the faith of Islam are prohibited from using cryptocurrencies for not following the principles of Islamic law, Sharia.
In a hearing of experts, the National Council of Ulemas, the authority on Sharia compliance, concluded that cryptocurrencies are ‘haram’ – they are prohibited – because of their elements of “uncertainty, gambling and harm” . According to Bloomberg, only in the case that cryptocurrencies demonstrate a clear benefit and comply with the principles of Islamic law can they be traded.
Although the decision of Indonesian religious leaders is not an official decree, it can be crucial in determining the position of residents and institutions on the commercialization and adoption of cryptocurrencies in the country. To understand the power of this body, suffice it to say that both the Ministry of Finance and the Central Bank of the country frequently turn to the National Council of Ulemas for questions regarding Islamic financing .
Countries like India have also come out against favoring mining infrastructure , since the objective of this country is to create its own cryptocurrency. Ecuador or Bolivia are not very friendly with cryptocurrencies either, since, in the case of Ecuador, there is a digital money system. Bolivia is stricter and strongly prohibits crypto.
Morocco directly believes that cryptocurrencies can be used for money laundering purposes and to finance terrorist campaigns . Algeria and Egypt, in addition to Tunisia, do not contemplate that cryptocurrencies are part of the financial system of their states.
It seems that cryptocurrencies have an increasingly complex landscape in terms of mining, due to government obstacles.