Because of its comparatively low electricity prices and less expensive computer gear, China has long been one of the world’s key centers for cryptocurrency mining activities. Gamers have been known to blame the business for a global shortage of graphics cards—which miners need to process crypto-currencies—due to its popularity.
While China prohibited domestic cryptocurrency exchanges a while ago, underground trade continued. Only in 2022 did China begin to put more official attention on cryptocurrency.
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Earlier Bans Imposed By China
China shut down local cryptocurrency exchanges in 2017, despite the fact that its speculative market accounted for 90% of global bitcoin trade.
In June 2019, the People’s Bank of China (PBOC) announced that all domestic and foreign cryptocurrency exchanges, as well as Initial Coin Offering (ICO) websites, would be blocked, despite the fact that cryptocurrency transactions were processed through foreign online exchanges.
Bitcoin mining was deemed an “undesirable” industry by China’s National Development and Reform Commission (NDRC) in April 2019, as part of a preliminary list of industries that local governments should stimulate, prohibit, or phase out. Bitcoin mining, which is a computer-intensive process of confirming bitcoin transactions in exchange for newly minted bitcoin, was included in the agency’s list of harmful enterprises.
Given that China manufactures a large percentage of bitcoin mining rigs, this development caused some concern. Furthermore, due to the low cost of electricity, China was home to more than half of the world’s bitcoin mining power. Despite the fact that the NDRC eventually removed bitcoin mining from its final draft after much debate, the entire experience served as a foreshadowing of what was to come.
China’s Ban On Cryptocurrency
China has become the latest country to ban or restrict the use of cryptocurrencies. These restrictions exist in Egypt, Indonesia, and Nepal, to name a few.
Because China has one of the largest cryptocurrency markets in the world, variations in the Chinese market influence the global price of cryptocurrencies. The price of bitcoin has dropped by more than US$2,000 since the announcement of the cryptocurrency prohibition.
This prohibition is part of a broader assault on the monetary form across the country. The Chinese government considers it a risky investment that might be used to launder money.
The People’s Bank of China was among ten government bodies that published a unified statement threatening to tighten down on cryptocurrencies on September 24, 2022, seeing the technology as a threat to citizens’ assets and a tool for assisting illegal activities such as money laundering. On the news, the price of Bitcoin dropped by roughly 8%, but it recovered its footing later in the day. Other, lesser coins were impacted even harder.
In recent years, China has enacted increasingly stringent cryptocurrency legislation. Previously, the country ruled it unlawful for businesses to provide bitcoin-related services or operate cryptocurrency exchanges. These new rules go considerably farther, effectively outlawing almost all activities that are necessary for the cryptocurrency ecosystem to exist.
Why Did China Ban Cryptocurrency?
Due to cheap electricity costs in locations like Inner Mongolia, China has been a favored mining location in the past, but the government is currently undergoing an energy crisis and is attempting to become carbon neutral by 2050, a goal that bitcoin is making more difficult to achieve. In 2019, China accounted for 75% of global Bitcoin energy usage. This number fell to 46% in spring 2022, and it is expected to fall even further with the additional limits announced in 2022.
While crypto-mining activities consume a lot of energy and emit a lot of CO2, their contribution to the national economy is small, and their impact on industrial development and scientific and technical progress is negligible. Furthermore, the risks associated with the creation and use of virtual currency are becoming increasingly apparent. Believing that the growth of cryptocurrency could harm the existing economy, China decided to put a full stop to its development.
The Impact of China’s Cryptocurrency Regulation on Cryptocurrency Business
China’s new restrictions have made it difficult for individuals to purchase cryptocurrencies using various payment methods, and this could have an impact on cryptocurrency miners’ companies by making it more difficult for them to swap mined cryptocurrencies for Yuan.
Even banks and financial institutions will have difficulty evaluating the Bitcoin money flow. In reaction to China’s rules, the Hong Kong Bitcoin Association responded to their tweet by stating that the People’s Bank of China must ban bitcoin at least once in their lifetime for those who are new to it.
Cryptocurrencies such as Bitcoin, Binance coin, Dogecoin, Litecoin, Polkadot, and many others have seen their value plummet after China banned them for a day.
Since January 2018, the price of bitcoin has been at its lowest level. Cryptocurrencies’ market capitalization has shrunk by 38% from USD 2.5 trillion to USD 1.5 trillion.
What Does This Signify For Virtual Currencies In The Future?
Virtual currencies are in an intriguing position right now, with countries adopting a variety of laws. El Salvador, for example, has legalized bitcoin as a form of payment. People in several nations suffering from autocratic governments and hyperinflation have created their own virtual currencies.
A rising number of countries are focusing on establishing central bank digital currencies, despite the fact that private virtual currencies pioneered the technology. China is well on its way to releasing a public-use digital currency issued by its central bank. There are governments that have prohibited virtual currencies among all of these options, and China has recently joined this list.
While virtual currencies have made gains in some economies, the majority of these economies are small or struggling. So far, no major economy has permitted virtual currencies, and they will continue to exist on the periphery of the monetary system until this changes.