China's Romantic Relationship with Bitcoin Could Not Get Any Better

by Lewis Park

All research was acquired by Wolfie Zhao’s segment in TheBlock

We all know that Bitcoin will be around for a long time. At least, for those of us who truly believe in the technology that powers Bitcoin, we know that Bitcoin is fundamentally bullish and has been the first innovative piece of finance since the creation of the first documented ledger system in the form of double-entry bookkeeping created by the Jewish community in Roman civilization. Bitcoin’s characteristics of being censorship resistance, deflationary, limited in supply, decentralized, etc., are all factors that would enable it to be the native internet token that the world desperately needs to help even the playing field for the little guys. In fact, Bitcoin has always championed equality, and it is a no brainer for people to support its success throughout the known world. 

Then there’s China.

Recently, China has cracked down on Bitcoin mining, an action that is a fundamental part of the Bitcoin ecosystem for its native network to run, which has led to the network’s hashrate to drop by more than 50%. This is equivalent to 90 million terahashes per second of computing power completely gone. Just zap out of thin air. It appears that there has been an ongoing narrative that China has been worried about the world in its own way as the country has been showing their desire to become more environmentally friendly. In fact, on September 22, 2020, General Secretary of the Chinese Communist Party Xi Jinping has pledged that China will become carbon neutral by 2060. In fact, the initial targeting of Bitcoin miners happens to be regions where coal mining is prevalent. This includes Inner Mongolia and Xinjiang. 

However, in the month of April, Chinese public university schools released a somewhat problematic and erroneous report about the nature of Bitcoin and crypto mining, as they conclude in the paper that mining pools will cause a significant backlash in China’s goal to become carbon neutral. In fact, there were several assumptions that have been proven inaccurate according to blockchain analysis, as the research assumed that the location of mining pools corresponds directly to the location to the individual miners. If anyone has basic knowledge of how a mining pool works, individual miners who participate in a mining pool could be located anywhere in the world. 

However, we’ll give this research a pass. Miners start to move to other regions because of these actions, especially in the region of Sichuan, where hydroelectricity is prevalent. Miners thought that they would be safe and that China’s main motivation of being carbon neutral would in actuality support miners taking action in Sichuan. 

And boy, were those miners wrong. 

The Chinese government targeted 26 Bitcoin mining firms and told everyone to collectively shut down by June 20th in the Sichuan region. In addition, China is now cracking down on companies that have anything related to cryptocurrency trading. The Business Administration Department of People’s Bank of China and the Beijing Financial Supervision and Administration Bureau have shut down a company called Beijing Qudao Cultural Development Limited for “providing software services to crypto trading activities.” Following these collective government crackdowns, a lot of cryptocurrency companies have been moving out of China. One prevalent example is BIT Mining, a New York-listed Bitcoin miner that owns Loto Interactive that recently stated that they will be moving their mining operations to Kazakhstan. 

The message is quite clear on China’s part: they were never considering the environmental repercussions of Bitcoin. In fact, according to Wolfie Zhao, the Chinese business media Caixin reported that “the government does not want to see its energy resources - regardless of what kind - being used to power an economy that it deems fictitious.” 

Although the mining difficulty has dropped by 28% and the short term for Bitcoin looks very wary, the long-term fundamental sentiments of this asset has not changed. There have been hundreds, even thousands of incidents, that have tested Bitcoin’s grit and each incident had the same conclusion: Bitcoin came out of it harder, stronger, and better. We all collectively know that China is making a huge, multi-trillion dollar mistake as it continues its shut down throughout the country. In fact, this might be a really good thing - this gives the chance for members in other nations (especially developing countries) to participate in securing and expanding the Bitcoin network.