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China May Limit Bitcoin Mining, Reducing the Industry’s Geographic Centralization

Last Updated March 4, 2021 5:03 PM
Josiah Wilmoth
Last Updated March 4, 2021 5:03 PM

China’s central bank has reportedly told a prominent government internet finance group that while it does not have the authority to regulate bitcoin mining directly, it can instruct local governments to implement regulations that cause bitcoin mining to become less profitable.

China’s Central Bank Looks to Scale Down Domestic Bitcoin Mining

According to Reuters , an unnamed source told the publication’s Beijing office that People’s Bank of China (PBoC) officials made this statement in a recent meeting with members of the Leading Group of Beijing Internet Financial Risks Remediation, the same government office that ordered the closure of mainland bitcoin exchanges in September of last year.

The development adds a new chapter to China’s crackdown on bitcoin and other decentralized cryptocurrencies, which saw the country ban not only cryptocurrency exchanges but also initial coin offerings (ICOs) in 2017. At the time, reports emerged that regulators would move against bitcoin mining next, but the ban never materialized, and miners continued to operate normally over the ensuing months.

While the substance of this report should not be classified as a ban, it does indicate that miners will be forced to limit their power usage, and, by extension, the size of their operations. Mainland China is home to approximately two-thirds of the bitcoin hashrate, largely due to the widespread availability of surplus electricity and cheap labor.

bitcoin mining
Source: BitInfoCharts

Consequently, the action could lead to a serious shift in the geographic concentration of bitcoin hashpower, depending both on how quickly and to what degree local governments begin limiting miners’ power consumption.

Reduced Chinese Mining Could Decentralize the Hashrate

However, far from threatening bitcoin, many industry observers believe that a crackdown on Chinese bitcoin mining could benefit the ecosystem in the mid-term, as it will lead to greater decentralization of the mining industry — just as the bitcoin exchange ban did for cryptocurrency trading volume.

In fact, by foregoing an outright ban in favor of a “gradual” reduction in power usage, the government is likely doing the industry a significant favor, as it will give miners located outside of China ample time to scale up their operations to compensate for the reduced hashrate coming out of China, making it less likely that the network will encounter a serious disruption.

Featured image from Shutterstock.