In April, all cryptocurrency mining projects in China’s Inner Mongolia will be shut down. The decision has brought fears that the world’s second-largest economy will take more steps this year to do away with the power-hungry operation.
Previously, the region, known for its cheap power, banned new digital coin projects according to a draft plan posted on the Inner Mongolia Development and Reform Commission’s website on Feb. 25.
Despite the news, Bitcoin experienced gains on Monday, increasing as much as 5.1% in the session to $47,559.
China’s Bitcoin Mining Dominance
China accounts for 65% of the network’s total mining, which it effortlessly achieves with local chipmaking factories, inexpensive electricity, and cheap labor.
By shutting down the mining projects, China hopes to reduce energy consumption to about 1.9% in 2021. The announcement gives insights into the country’s long-term concerns over fraud, speculative bubbles, and energy waste.
The posted draft policy was published a few weeks after the National Development and Reform Commission, China’s top economic planner, called out Inner Mongolia for its inability to control energy consumption in 2019.
Chinese officials first outlined proposals in 2018 to discourage crypto-mining. The current draft plan states that the region aims to reduce emissions per unit of gross domestic product by 3% this year and control incremental energy consumption growth at about 5 million tons of standard coal.
Overcrowded with large coal mines, Inner Mongolia is known for its cheap energy and has attracted investment from many energy-intensive sectors such as aluminum smelting and ferroalloys over the past few decades.
According to the Bitcoin Electricity Consumption Index compiled by the University of Cambridge, the region accounts for 8% of the world’s bitcoin production capacity.
What it Means for Crypto in China
The shutdown reports are bringing around old fears. In 2017, Beijing authorities abolished initial coin offerings and clamped down on virtual currency trading within its borders, forcing many exchanges overseas.
Once the home of about 90% of trades, the country had obtained the title of the lion’s share of mining. However, since then, major players like Bitmain Technologies Ltd. have fled abroad to gain “freedom.”
It’s unclear how much energy Bitcoin uses. Cryptocurrencies are inherently difficult to trace. However, the consensus is that mining bitcoin is a very energy-intensive business. The University of Cambridge’s Center for Alternative Finance (CCAF) is researching the fast-growing cryptocurrency business.
Bitcoin’s total energy consumption is estimated at 40 to 445 terawatt-hours (TWh), with a central estimate of around 130 terawatt-hours. The UK’s electricity consumption is just over 300 TWh per year, while Argentina uses roughly the same amount of energy as CCAF’s best estimate for Bitcoin.