Bitcoin miners in northwest Xinjiang province have been instructed to report in by the fifth of each month as the local government moves to “guide miners toward an ‘orderly' exit from the business.” First reported by news.bitcoin.com, the notice was signed by the Xinjiang Commission of Economy and Information Technology on January 4 and has been 'verified by people familiar with the matter.'
The move to restrict mining of the popular cryptocurrency appears to follow a January 2 directive from the Financial Market of the People’s Bank of China. The notice instructs that “local governments shall coordinate with multiple departments to take actions concerning electricity price, land use, tax and environmental protection in an effort to guide miners to an orderly exit.”
The concerns make some sense. The complicated calculations behind bitcoin transactions demand great computing power, which in turn requires massive amounts of electricity. Even as China develops cleaner energy, the majority of the country’s power comes from coal, at a heavy cost to human lives and the environment. So weaning China’s entrepreneurs off bitcoin could reduce the demand for electricity and help China burn less coal.
But if Xinjiang is the start of a new trend among local governments, it could have devastating effects on a market with a total value over USD230 billion.
China’s miners account for about 70 percent of all the world’s cryptocurrency mining. If that capacity is wiped out, it will do more than just slow the discovery of new bitcoins. It would dramatically slow down the transfer of existing bitcoins, since each transaction requires the calculations of the miners to confirm the trade.
This is just the latest threat of a Chinese crypto crackdown to circulate online. Last November it was a heavy-handed decree from the Sichuan Electric Power Company demanding that miners “stop bitcoin production.” The company later walked it back, saying it only intended to direct regional hydropower stations to give greater priority to local demand. Before that, it was a talk of a comprehensive ban on bitcoin exchanges. That one turned out to be mostly true.
Miners can set up shop beyond China’s borders to escape the regulations, and many are. When electricity costs make up 75 percent of a miner’s expenses it’s hard to beat China, where it can be as cheap as RMB0.3 (USD0.05) per kilowatt-hour in the rural west. But for China’s cryptocurrency miners, those cheap rates could soon be a thing of the past.