Explained: Why is China cracking down on Bitcoin?
After reaching a high in mid-April, the price of Bitcoin, the world's most popular cryptocurrency, has more than half in the previous two months. Ether, the second-most valuable crypto-currency, has also plummeted since its peak last month. China's crackdown on crypto-currencies, which are those that are not sanctioned by a centralised authority and are safeguarded through cryptography, is said to be a major factor in the collapse of their value.
So, what has China accomplished?
China has reportedly cracked down on crypto mining companies in recent weeks. Over the years, the country has accounted for a significant portion of the total crypto mining activities. Bitcoin miners, like gold miners, have the goal of bringing new Bitcoins into circulation. They obtain these as a reward for validating transactions, which require solving a mathematical challenge successfully. In recent years, these computations have become increasingly complicated, and thus energy-intensive. Mining Bitcoins today necessitates massive mining operations.
In China, mining has become profitable due to the availability of low-cost electricity. China accounted for roughly two-thirds of total processing power last year, according to the Cambridge Bitcoin Electricity Consumption Index. Nearly half of this was accounted for by the provinces of Xinjiang and Sichuan. Provincial governments have now taken action against these mining enterprises one by one. Sichuan, a hydroelectric-based crypto mining hotspot, was the most recent to do so.
The People's Bank of China recently ordered banks and payment companies to cease crypto-currency transactions.
Why is China doing this?
In reality, there has been little change in China's policies. It was back in 2013 when it initially put limits on cryptocurrency. The government then prohibited financial institutions from dealing with Bitcoin. It outlawed initial coin offers (ICOs), in which companies raise funds by selling their own new coins, four years later. This market is mostly uncontrolled.
In fact, the government of China outlawed trading between RMB (China's currency renminbi) and crypto-currencies in 2017, according to an inter-ministerial committee report published in India two years ago. “Before the ban, RMB accounted for 90% of all Bitcoin trades globally,” it claimed. In less than a year, RMB-Bitcoin trades had dropped to less than 1% of the global total.” In reality, according to the source, China has chosen to outlaw mining within its borders. While the miners had taken a break for a while, the sharp rise in the price of Bitcoin had prompted many of them to resume their work.
Many governments have expressed concern about cryptocurrencies because they bypass official organisations. That's not everything. The anonymity it provides encourages the growth of underground markets on the internet. While several governments have chosen to control the crypto-currency sector, China has implemented the most stringent measures in recent years. According to analysts, the current set of measures are aimed at strengthening the country's monetary position as well as promoting its new official digital currency.
“China initiated tests for a digital yuan in March,” according to an AFP article. Its goal is to allow Beijing to undertake international transactions in its own currency, eliminating Beijing's reliance on the dollar, which remains the world's dominant currency.”
What has the People's Bank of China done lately, specifically?
This time, the focus is on what has always been a loophole: offshore sites that allow Chinese citizens to trade in cryptocurrencies. According to a Reuters storey, the People's Bank of China has urged banks and payment companies to "identify those involved in cryptocurrency transactions and block their payment routes as soon as possible." “China Construction Bank, Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China (AgBank), and Postal Savings Bank of China, as well as Alipay, the ubiquitous payment platform controlled by fintech giant Ant Group, attended the meeting,” the statement stated. EOM