Banning cryptocurrency mining in China is inevitable

The 19th crypto-mining ban, it seems, might be magic.

Decentralized technology runs counter to government plans for a state-controlled economy, one that includes its own digital currency.

Every time Beijing announces a crackdown on the industry it spreads gossip, and the joke prevailing today among crypterati is that China has already announced a ban on cryptocurrency mining 18 times.

Chinese government agencies have issued a series of increasingly restrictive, but not definitive, legal prohibitions on various aspects of cryptocurrencies since 2013 ; And all the while, China's crypto industry has been booming.

On September 24 , China's central bank and its National Development and Reform Commission issued two documents.

Cryptocurrency mining banned in China

It has been banned mining encrypted currency legally after a previous campaign in May / May last, and announced that all encrypted currency transactions are illegal, and that all companies that provide encrypted currency to Chinese citizens trading services involved in the financial activity is illegal.

Some of the usual unsettling thoughts have been posted on Crypto Twitter, but the general reaction to the ban is that this time China is getting serious.

The ban is sweeping, absolute and comprehensive!

Says Jonathan Padilla , a founder and deputy director of the initiative of the future of the digital currency at Stanford University, who conducted field research in the Central Bank of China:

“He doesn't focus on some of the micro aspects. And senior government officials seem to be taking this into consideration.”

Among the two documents, government agencies that have signed at least one of the documents are the Ministry of Public Security, the Supreme People's Court, and the Supreme People's Procuratorate, indicating the possibility of strict enforcement.

Several exchanges, wallets and other cryptocurrency companies have announced that they will stop providing services to users in mainland China, and have imposed a blanket block of all Chinese IP addresses on their services.

Looking at the wording of the official document, which explicitly defines foreign exchanges that cater to the Chinese population, the industry appears to have taken a very cautious approach.

Says Luisa Kinsaos , director of the company Sinolytics Consulting focused on China:

“The extent to which citizens are threatened by the new level of application remains.
But the ad also targets any Chinese nationals who work for crypto-related companies overseas, declaring their work illegal, and putting them at risk of legal investigation.”

The ban on cryptocurrency mining in China, especially Bitcoin, was always about to happen.

The borderless and unregulated nature of cryptocurrencies is at odds with the Chinese government's vision of a state-controlled economy.

In addition, Beijing regards cryptocurrencies as an example of mindless guesswork.

Kinsius says:

"The Chinese government has just reaffirmed in its new 14th Five-Year Plan - the blueprint for China's economic planning for the next five years - that the financial system should primarily serve the real economy, not speculation."

“China is very reluctant to purely financial speculation due to financial stability concerns, and of course, cryptocurrencies are largely driven by speculation.”

These public concerns have now been exacerbated by recent developments.

In September 2020 , China announced its plan to end its annual growth in carbon dioxide emissions by 2030 , and become carbon neutral by 2060 .

This necessarily entails a campaign aimed at banning cryptocurrency mining, an energy-consuming and often carbon-belching process that maintains a cryptocurrency network, which Chinese authorities consider hardly beneficial to the country's economy.

Experience the Chinese digital yuan

On the other hand, China is currently experimenting with the digital yuan, a state-backed digital currency designed to provide surface-level convenience to cryptocurrencies, with none of its privacy and decentralization benefits, or, arguably, its lack of government oversight.

From Beijing's point of view, allowing the Chinese digital yuan to coexist with any other virtual asset does not make sense.

Kinsius says:

“China has been interested in avoiding competition from cryptocurrencies, especially as it prepares to make the Chinese digital yuan available to foreign users, during the Beijing 2022 Winter Olympics .”

Withdraw:

“To ensure successful digital currency adoption, China is not interested in other attractive alternative payment options.”

Chinese industry watchers do not believe the new regulations will go so far as to ban crypto ownership, even if they make clear that anyone being deceived by a crypto-related scheme - not unusual in China - will have no legal protection.

Padilla says:

“People will still find ways to trade cryptocurrencies, through OTC trading [where cryptocurrencies are exchanged for cash offline between peers] or VPNs.
But there will be higher risks and lower protections for investors, which Beijing hopes will reduce retail exposure to cryptocurrencies.”

The results of China's crackdown on cryptocurrency trading

Some crypto enthusiasts hope that China’s crackdown on established exchanges will push Chinese cryptocurrency traders to so-called decentralized finance or DeFi platforms — blockchain -based institutions that can provide many services and are not nominally controlled by either party or one company.

In fact, Colin Wu , a China-based journalist who covers cryptocurrency , revealed that Chinese crypto users were “actively discussing how to learn DeFi .”

Piotr Szlachciak , founder of L2BEAT , a research platform dedicated to the Ethereum blockchain, says:

“The ban on cryptocurrency mining in China is not a story for us.” “ Decentralized True DeFi is not only in name it cannot comply and therefore will remain strong no matter what China or any other country says or does.”

But not all DeFi projects are so decentralized, and the people associated with them aren't willing to risk finishing off the bad books in China.

After all, when the Securities and Exchange Commission began investigating the stock market decentralization Aonisoab Uniswap earlier this month, completely ignored the mark "decentralization" and embarked on ways the doors of software developers who stand behind the project.

It would not be surprising that Beijing would go down the same path to go after anyone known to have worked on a particular DeFi project at some point.

As China researcher and writer Shuyao Kong said, many DeFi projects have adopted a better attitude of regret after banning cryptocurrency mining, with many protocols and DeFi products expelling Chinese users and closing their channels on WeChat , the Chinese texting service of choice.

What is clear is that the cryptocurrency sector in China is over for now.

Traders are throwing the towel or moving underground.

Miners have moved to other countries — from Kazakhstan to Canada and the United States — or are offloading their mining rigs to the market at good ground rates.

The Chinese are selling their devices!

Says Didar Beekpaov , founder of the Mining Services Company Currency encrypted Kazakh Xive , the prices of such machines S19j Pro often goes down day after day.

The paradox is that while China has successfully pushed out cryptocurrencies, it remains very optimistic about blockchain, the digital ledger technology that underpins most cryptocurrencies.

“[Chinese President Xi Jinping] has expressed his desire for China to be a pioneer in the Internet of Things, in artificial intelligence, in blockchain.”

Padilla says the plan is to take advantage of the benefits of the blockchain without encryption.