China’s Sichuan province is gearing up to extend its bitcoin ban to mining operations as part of its wider crackdown on the cryptocurrency industry.
According to local media outlet Tencent Finance, the state-run Sichuan Electric Power Corporation has distributed a circular ordering grid-connected hydropower stations to stop supplying low-cost electricity to bitcoin mining operations.
Because mining has become so competitive, few ordinary bitcoin users can make a profit mining the cryptocurrency. Hashpower has instead become pooled in large mining farms centralized in regions of the world that offer miners competitive advantages — namely, cheap labor and low-cost electricity. A significant portion of bitcoin mining is currently based out of China’s Sichuan province, where operations have access to low-cost electricity produced by state-subsidized hydropower plants during the region’s rainy season.
Earlier this year, Chinese regulators began to crack down on the burgeoning cryptocurrency industry by making it illegal to conduct or participate in initial coin offerings (ICOs). Soon after, they forced order-book cryptocurrency exchanges to cease their operations. However, although there were rumors the government would widen the net of the bitcoin ban to include mining, it had yet to do so in the intervening months.
Now, however, Sichuan’s state power company has apparently set the practice in its crosshairs, warning grid-connected power stations that they must stop bypassing the state power company by selling excess electricity directly to miners, whose operations are often situated directly next to the power plants.
As written, the order appears primarily targeted at smaller miners, who set up shop in Sichuan during the rainy season but are forced to move once winter arrives; larger operations, such as mining behemoth Bitmain, have agreements with local governments to purchase electricity directly from the state grid at below-market prices. It is unclear, however, whether the crackdown will maintain this narrow focus or if it is the first rumblings of a wider squeeze on mainland miners, whose combined hashpower accounts for more than half of the total Bitcoin hashrate, according to estimates.
Either way, some industry observers believe this phase of China’s bitcoin ban could actually prove to be beneficial to the network in the long run — if not to the Chinese miners themselves — since it would “level the playing field” for miners outside of China and presumably lead to more geographic decentralization of mining operations.
Moreover, although the network may see a net decline in hashrate, it is unlikely to create noticeable disruptions in either the short- or long-term.
“The wind down of hash power, if any, will be a very slow process. The risks here are mostly monetary, not jail time,” explained Bitcoin Core developer Johnson Lau in a Twitter post. “As long as the statistical expected return is positive, people will take the risks. The [difficulty] adjustment will take care of this.”
Featured image from Shutterstock.
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