The National Development and Reform Commission, China’s top economic planning body, this week added cryptocurrency mining to a list of about 450 industries that it proposes to eliminate. If the move is approved, local governments in China will be prohibited from supporting makers of Bitcoin and other digital currencies through subsidies or other benefits.
The commission said it would seek public comment until May 7 before making a final decision.
China was once the world’s largest maker of Bitcoin, though rising government pressure has forced many of those who make the cryptocurrency, known as miners, to other countries. Still, a number of Bitcoin miners could remain, especially if local governments ignored the instructions and found a way to prop up local producers, people in the business say.
“It is categorized as an industry that is not encouraged or allowed to expand, but it is not a ban,” said Zhao Qianjie, a former executive at BTCChina, which was China’s first cryptocurrency exchange.
Instead, he said, some producers may learn to live without subsidies and benefits like discounted electricity. “The change will be the mining cost will rise,” said Mr. Zhao, who still owns a Bitcoin mine in China’s northern region of Inner Mongolia.
Bitcoin miners use computers to crunch the mathematical formulas that create the basis for the currency. The business can be quite profitable, especially when Bitcoin prices are soaring, but the process requires amounts of electricity. Prices of the currency move up and down considerably and are currently above $5,000, according to Blockchain, a cryptocurrency firm.
China initially embraced Bitcoin and saw local miners as the potential basis for a new industry focused on digital currencies. China also has plenty of power, thanks to its extensively built-out electricity system and the closing of a growing number of heavy industry factories as the economy matures. At one point, China accounted for roughly two-thirds of all Bitcoin produced.
But China keeps a tight grip over how much money flows in and out of its borders, and cryptocurrencies — which are traded on decentralized computer networks and allow people to make transactions anonymously — threatened to undermine those capital controls.
Cryptocurrencies can also be used to circumvent laws to buy illegal goods, and Chinese officials were also spooked by the possibility that the wildly fluctuating prices could leave investors with big losses and lead to civil unrest.
The Chinese authorities began to ratchet up pressure on Bitcoin miners. In 2017, China ordered cryptocurrency exchanges to close. It has also banned initial coin offerings, a method by which start-ups or online projects can raise funds by issuing cryptocurrency. Many miners began to hide or flee to places with friendlier laws or abundant electricity, including the United States.
“All the policies have created fear,” said Chandler Guo, who owned Bitcoin mines in China but moved to Silicon Valley in 2016. “Many have moved abroad.”
Still, China remains a significant force in the Bitcoin world. Based on different estimates, between 40 percent and 70 percent of the world’s mining power is still in China.
The National Development and Reform Commission’s proposal is the first time a central government body has announced a restrictive policy on Bitcoin mining, and it could make it difficult for miners to get loans to expand, said Wu Huiyao, president of the Center for China and Globalization, a research organization in Beijing.
“Local governments won’t act against it, so it will be more difficult for them to be approved or receive loans,” Mr. Wu said.
Miners said that while the crackdown on cryptocurrency had driven some miners abroad, the total cost of mining was still lower in China, where most of the mining machines are produced.
Yu Wei, a former executive with Bitmain, which makes products for mining cryptocurrencies, said the move could benefit the industry in the long run.
“That means more miners will move abroad,” said Mr. Yu, who owns mines in Xinjiang and Yunnan Province in China, as well as in Central Asia. “That will be good for decentralization of cryptocurrency.”
Author: Cao Li