Despite government pushback against the increasing adoption of Bitcoin, some believe that China’s latest crackdown against crypto trading and mining could further fuel growth instead. finews.asia reviews the potential tailwinds.
Bitcoin plunged more than 40 percent against the dollar after China’s announcement to step up its crypto crackdown sparked worries about the digital asset’s long-term outlook.
Different views about the crackdown’s eventual extent aside, both advocates and skeptics expressed confidence about a boost to Bitcoin’s robustness and sustainability should a sufficient ban by China follow through.
finews.asia reviews the potential tailwinds from a Beijing ban on Bitcoin.
Improved ESG
According to a study by British scientific journal Nature, China accounts for over 75 percent of global Bitcoin’s hashing power, as of April 2020, with 40 percent of its mines utilizing coal-based energy.
Climate change concerns have been oft-cited as a major hurdle to adoption amid a wave of investors that are increasingly considering ESG (environmental, social and governance) factors. The ongoing exodus of mining in China could lead to cleaner energy sources for powering the Bitcoin blockchain.
«A crackdown on miners in China would radically reduce the carbon footprint of Bitcoin mining, increase the profitability of all the remaining Bitcoin miners, reduce nagging China FUD (fear, uncertainty and doubt), support progress toward our ESG goals, & drive up the value of $BTC,» said Microstrategy founder Michael Saylor in a social media post. «We should be so lucky…»
Improved Security
According to a recent Goldman Sachs report supporting Ethereum as the future crypto of choice, concentrated mining – four large Chinese mining pools control almost 60 percent of Bitcoin supply – poses a security risk via the possible verification of a fake transaction. China's crackdown and subsequent mining diversification could boost Bitcoin in this regard.
«Suppose Alice tries to give Bob and Eve one bitcoin each, but Alice has only one bitcoin,» said co-founder and CEO of software security firm Trail of Bits Dan Guido in the report, explaining how immutable blockchain properties could be invalidated if a single entity owns over half of the total mining power.
«If those two transactions are submitted to the blockchain at the same time, it’s almost arbitrary which one will be executed first, but the one executed second will fail. Someone with 51 percent control of the network can make them both succeed.»
Not Fully Banned
In addition to benefits from a mining crackdown, it is also important to note that China has not reportedly made a full-fledged ban on Bitcoin, for example, in areas like ownership of the digital currency, technically retaining the broader mainland investor base as potential market participants.
The recent announcements by top bodies in mainland China were viewed by many onlookers as a reenergized effort to meet previously made commitments.
Chinese industry bodies recently reiterated bans originally implemented in 2013 and 2017 against financial and payment institutions from offering crypto-related services while a statement last Friday from a State Council committee chaired by vice premier Liu He called for a «crackdown on Bitcoin mining and trading behavior».
High Accessibility
Even in the event of an ownership ban, access by both Chinese individuals and miners to crypto or its conversion to yuan is reportedly not difficult.
«If you have bitcoin or ethereum and I want to buy some, I can just send money to you through banks. Just don’t write down anything like bitcoin or ethereum,” according to an «SCMP» report citing an anonymous individual who sold cryptocurrencies on behalf of miners.
«Of course, banks have internal risk management. If the transaction volume is too big, you might be caught.»
National Alignment
And although China risks exclusion from the global crypto market, it could also be uniquely positioned to benefit from a more extensive ban.
For example, implementation of the digital yuan could result in an easier path without the presence of cryptocurrencies.
The e-yuan is already facing digital competition elsewhere with domestic trial users reportedly citing a greater preference for existing mobile payment platforms by Ant or Tencent over various issues ranging from compatibility with other platforms to financial privacy.
Climate Change Goals
And the absence of energy consumption dedicated to crypto mining could help China meet its pledge to peak carbon emissions before 2030 and achieve carbon neutrality by 2060.
Related efforts are already underway including Inner Mongolia’s planned crypto mining halt last month over failures to meet annual energy consumption targets.
Incidentally, the move in the autonomous region led to a roughly 8 percent displacement of the global Bitcoin hash rate, according to data from the Cambridge Centre for Alternative Finance.
