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What happens if China bans bitcoin mining?

  • May 28 2021
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What happens if China bans bitcoin mining?

By Fergus Halliday
May 28 2021

Could a Chinese bitcoin ban push the crypto economy from a crash into complete meltdown?

What happens if China bans bitcoin mining?

What happens if China bans bitcoin mining?

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  • May 28 2021
  • Share

Could a Chinese bitcoin ban push the crypto economy from a crash into complete meltdown?

What happens if China bans bitcoin mining?

Amid fresh speculation that Chinese regulators may look to outright ban the mining of bitcoin, it’s worth considering what that could mean for the wider crypto ecosystem.

In a recent statement issued by the Financial Stability and Development Committee of the State Council, the Chinese government pledged to “crack down on bitcoin mining and trading behavior, and resolutely prevent the transmission of individual risks to the social field”.

The pledge comes off the back of a similar joint announcement by the China Internet Finance Association, China Banking Association, China Payment and Clearing Association, which instituted a ban on all financial activities involving cryptocurrency. 

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This isn’t the first time an entire country has attempted to stamp out cryptocurrencies, but if China does curtail its involvement in the wider bitcoin ecosystem, it could have drastic consequences. 

It has been previously estimated that China accounts for around 65 per cent of the world’s hashrate, a metric measuring the total level of computer processing power being used to mine crypto across the world.

Speaking to nestegg, Byron Goldberg, Australian country manager for Luno noted that “China provides over 50 per cent of bitcoin’s hashing power, meaning they are responsible for mining over 50 per cent of the bitcoin coming into the market”.

He explained that as hashing power goes up, the average time interval between newly mined blocks decreases. While 2016 blocks are mined on average every fortnight, he said that the difficulty of bitcoin mining increases over time in order to keep the average interval between blocks at around 10 minutes. 

“If China stopped mining today, the total hashrate in the network would drop dramatically, the network would see that it is taking longer than 10 minutes to solve a block (as there is overall less hashing power on the network), and the target difficulty would become easier in the next 2016 block period.

“If blocks are being solved every 30 minutes instead of 10, then one-third of the bitcoin is going to be able to be sold on the market, so a demand slowdown. However, there will be a backlog of unprocessed transactions, which means the network would be slow for users and on-chain fees would increase,” Mr Goldberg said. 

In the short term, a Chinese ban on bitcoin won’t just slow the supply of new assets on the blockchain but also increase the processing time of transactions and the fees involved.  

Beyond that, Mr Goldberg said, the network will reduce the target difficulty to compensate for the lower hashrate. 

On the other hand, the environmental impacts of a successful Chinese bitcoin mining ban stand to be enormous. 

Tesla CEO Elon Musk recently rescinded the ability for customers to pay for his electric vehicles in bitcoin, citing sustainability concerns around cryptocurrencies. 

Research by digiconomist.net founder Alex de Vries back in March suggested that the carbon footprint associated with bitcoin alone equals that of London, with the carbon footprint of a single bitcoin transaction equivalent to that of 751,205 Visa transactions.

What happens if China bans bitcoin mining?
What happens if China bans bitcoin mining?
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