China appears poised once again to clamp down on the cryptocurrency industry. But people should welcome, not fear, the proposal.
The National Development Reform Commission, China’s top economic planner, last week recommended eliminating the digital “mining” business altogether, echoing similar guidance the commission published in 2011. The country has dominated this lucrative specialty for the better part of Bitcoin’s history thanks to an abundance of cheap electricity, sourced from coal and hydropower, as well as the presence of a well-established manufacturing base capable of supplying the necessary machinery.
The prospective ban does not come as a surprise. China has been unfriendly to cryptocurrency—the permission-less, public blockchain variety—for a while. It banned so-called initial coin offerings, or ICOs, in 2017. It cracked down on cryptocurrency exchanges that same year. Targeting mining was the nation’s next logical step.
“Even back [in 2017], many miners in China figured they’d be next in the government’s crosshairs,” Juan Villaverde, head of crypto research at Weiss Ratings, tells Fortune. He notes that big cryptocurrency mining operations have had time to put in place contingency plans to move to friendlier jurisdictions. “Even if Chinese miners must shut down, they’ll be promptly replaced by others,” he says. “Moreover, the reduced competition will make mining Bitcoin more profitable for those who remain in the game.”
Industry insiders and academics have long warned that China’s outsized influence posed an existential threat to Bitcoin. In recent years, the country’s mining pools have accounted for roughly three quarters of the compute power devoted to Bitcoin’s network. A ban in China could lead to greater decentralization of the network: More miners based elsewhere.
China has good reasons to consider a ban, including the cryptocurrency trade’s rampant speculation, fraud and energy consumption. No doubt the Communist Party seeks greater control and oversight of the industry, something of a Great Firewall for blockchain. The irony is that, if the country does end up outlawing mining, the move could, ultimately, make Bitcoin and its ilk more global and resilient.
Send feedback and tips to firstname.lastname@example.org, find us on Twitter @FortuneLedger or email/DM me directly at the contact info below. Please tell your friends to subscribe.