Unconfirmed reports are beginning to circulate that China is preparing to impose restrictions on Bitcoin mining. This comes barely a few months after the Chinese Government placed a blanket ban on Initial Coin Offerings (ICOs) and Cryptocurrency Exchange Platforms. This particular move had a significant effect on the trading volume of the cryptocurrency market and led to widespread speculations all across the globe. While this new move doesn’t seem to be an outright ban, there are indications that the Chinese Government is shifting its gaze to the country’s Bitcoin mining activities.
China’s Large-Scale Bitcoin Mining
The majority of the largest Bitcoin mining infrastructure in the world today is located in China. Such is the massive extent of their operations that they account for more than 60 percent of the entire hashrate of the Bitcoin blockchain network. Many of these large-scale Bitcoin miners can be found in the Yunnan and Sichuan provinces. They set up their hardware units adjacent to hydroelectricity complexes in these areas.
Taking advantage of cheap electricity and labor, they are able to sustain their mammoth Bitcoin mining assemblies. The process of Bitcoin mining is an energy consuming process. Due to the growth of the Bitcoin network, the hashrate has increased exponentially. In the early days, miners could use laptops and desktop computers to mine for Bitcoin. By 2011, the network had grown to a point where such hardware wasn’t adequate and the move was made to more complex GPUs.
These days, commercial Bitcoin mining is carried out on ASIC units that require industrial cooling. This is what creates the astronomical electricity consumption that has caught the eye of the Chinese Government. There are reports that global Bitcoin mining energy consumption now rivals that of about 3.4 million US households. These figures are courtesy the Digiconomist Bitcoin Energy Consumption Index.
Plans to Scale Down Bitcoin Mining
The exact extent of what the Chinese Government plans to do with regard to Bitcoin mining is unclear at this time. However, the reports that have emerged all point to it being less like a ban and more of a restriction. The PBoC (China’s Central Bank) is said to be the biggest driving force behind the move. PBoC officials have reportedly met with members of the same Government that was responsible for last year’s ICO ban. On the condition of remaining anonymous, an official who was present at the meeting told Reuters that advanced plans are being made to place huge restrictions on Bitcoin miners in the country.
This isn’t the first time that Bitcoin mining has been under the scrutiny of the Chinese Government. In the immediate aftermath of the ICO and Cryptocurrency Trading ban in China, there were rumors that a ban on Bitcoin mining was imminent. Suffice to say, such a ban was never pronounced by the Government.
The Emergence of Bitcoin Mining Centralization
The Bitcoin blockchain was designed to be a decentralized network of participants. Every aspect of the network’s protocol was specifically designed to achieve this decentralization. In the beginning, mining was decentralized. Personal laptops and desktops were used by enthusiasts to mine Bitcoins. Back then, the currency had little to no value at all. However, as the price began to increase, more people began to see an investment opportunity and as such, the hardware required for mining became more sophisticated.
This increase in the complexity of the mining hardware meant that ordinary enthusiasts could no longer effectively participate. Laptops and desktops could no longer compete with multiple ASIC units and mining became centralized to the Bitcoin mining cartel. Inability to agree on a workable scalability framework has also contributed to the problem not being solved. Many cryptocurrencies that have emerged after Bitcoin have taken steps to prevent the emergence of centralized mining cartels.
What this Could Mean for Bitcoin
The general feeling towards centralized mining cartels has always been one of displeasure. They re against the spirit of the blockchain and they represent a danger to the network. However, seeing as mining activities help to secure and maintain the network, a disruption to the operations of these large-scale miners could spell doom for the network. If a sudden blanket ban is placed on mining activities in China then the Bitcoin network could be plunged into chaos. Already, transactions take as long as four hours to be validated on the network. If 60 percent of the network’s hashing power should be suddenly yanked off air, the effects would be devastating.
If the authorities elect to employ a more measured and gradual approach that imposes incremental restrictions on miners over a period of time, the effects will be far less dire. The network will have time to adjust to the change and competitor miners in other locations can upscale their capabilities to make up for the void.