It was widely reported yesterday that the Chinese government was planning to crack down on cryptocurrency mining, in what could have been the final death knell for cryptocurrency in China.
However, it has now come to light that these rumours were not accurate, and the truth is closer to what we reported yesterday. A source in the Chinese finance industry told Finance Magnates that he believes that it would be very difficult for the government to enforce such a measure.
“Restrictions on mining has been a rumour for a few months, since the government banned (retroactively) ICOs and restricted cryptocurrencies. Mining is a very different affair. The only reasons the authorities would have to ban mining would be to indirectly hit cryptocurrencies, since most of the mining is for them, and because the electricity needs of mining, which rises in tandem with the price of Bitcoin, is partly paid for by the government,” he said.
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Chinese news source Caixin reported last night that the authorities are indeed planning to “gradually remove preferential policies for electricity, tax and land use for bitcoin mining companies”. China dominates the world’s Bitcoin mining scene, accounting for 71% of the world’s hashrate. One reason that mining is more successful here than it is in other places is that electricity is subsidised by the government, and mining is thus more profitable.
CCN reports that some Bitcoin mining facilities may have been taking advantage of personal connections to enjoy rent and power at lower costs, and it is this that the government intends to crack down on.
This isn’t the first time that rumours of a mining ban in China have circulated and then been debunked. This is partly due to often inaccurately worded and mistranslated announcements, and partly because the country’s ban on cryptocurrency exchanges in November didn’t exactly inspire confidence in the safety of the industry in the country.
Our source said that banning mining as a move against cryptocurrency dealings would also affect the many companies that deal with blockchain technology, often unrelated to cryptocurrency. He believes that unless the government finds some way to differentiate between the two, implementing restrictions would be difficult.
“Like for other upcoming changes in China, I believe the future landscape will be more defined by the end of March,” added our source.