What Happens If China Bans Bitcoin Mining?


Jul 2, 2019
The struggles of Bitcoin seem to be unending, with many uncertainties hovering over the new technology. Earlier this year, the Chinese government intensified efforts towards the banning of Bitcoin mining. Some of the reasons stated includes the electricity consumption, and the environmental threats of the mining process. This has raised a lot of questions as to what could become of the technology, considering the role of China when it comes to Bitcoin mining. So we ask, what happens if China bans Bitcoin mining?

How Relevant is China in Bitcoin Mining?

Over 75% of the mining pools in the Bitcoin network are located in China. This has automatically made the region a very important one for Bitcoin as a whole. It now looks as if Bitcoin depends on China to survive. This is why every rumour, news or event coming out of the Asia-Pacific region as a whole is usually of great concern to the industry.

China is home to the biggest mining equipment manufacturing company in the Bitcoin and cryptocurrency industry. Bitmain, which is a hardware manufacturing company that specialises in computer chips, is located in Beijing. When it comes to Bitcoin mining equipment, Bitmain has no competition. It is responsible for shipping billions of ASIC mining rigs to different parts of the world. This accounts to over 75% of the equipment that is available in the industry.

As a matter of interest, most of this equipment doesn’t go too far from the source. Favourable weather and affordable electricity mean that many Bitcoin mining farms prefer to setup in and around the China region. Hydroelectricity and coal are cheaper sources of power, although the environmental implications of coal do not go down well with the immediate society. The pollution that it causes is among the reasons why China is considering the ban, as mentioned above.

Why are Bitcoin Mining Farms located in China?

The Bitcoin mining industry of today exists more in the form of mining pools. Instead of having individuals, or small companies running independent mining platforms, resources are contributed in a unified front. An example of this is Bitclub Network. Different units come together and contribute resources so that they can compete effectively in finding blocks. When they do, the rewards are then shared based on individual contribution. This is what informs the need for building gigantic farms, and why a region like China with favourable atmospheric and cost tolerance is preferred.

Regulatory tolerance has also enabled this attraction towards China, even though the ban on different aspects of the crypto industry have been pointers towards a similar take on Bitcoin mining. Exchanges have been banned, and so have other areas that have to do with Bitcoin and cryptocurrency. What most practitioners in the affected areas did was simply relocate their businesses.

When it comes to Bitcoin mining, things can be a bit more complicated. Finding another conducive region that would tolerate the kind of mining activities that go on in China will not be easy. Also, moving the gigantic infrastructure that is used for mining will not be an easy task either. These are some of the issues that come to mind when considering what happens if China bans Bitcoin mining.

Are There Other Options Apart From China?

If China goes ahead to ban Bitcoin mining, a number of scenarios are likely to play out. The network will temporarily lose over 75% of mining power or hash rate that comes from the region. What this means, is that for that while fewer transactions will be carried out, and the rate of creating new Bitcoins will drop significantly. Once new rigs have been formed and implemented, network activity can return to normal.

From an economic perspective of supply and demand, if supply drops, there will be scarcity, and the price of Bitcoin will be expected to grow. But there is more to these things than meets the eye.

In view of the implications and possibilities, just like other aspects of the industry found new grounds to operate from, Bitcoin miners are already beginning to look elsewhere. Bitmain has already set up operations in inner Mongolia, Iceland is becoming home to some major mining companies, and Canada is being studied as a possible destination for others.

Is Bitcoin Really Bigger Than China?

Indeed, the role of China in the industry cannot be neglected, it has served as one of the most vibrant regions for Bitcoin development so far. However, the level of uncertainty that emanates from this same region, and the tendency of the government of China to dish out instant regulatory measures, is a threat to the technology.

Definitely, any ban on Bitcoin mining in China will cause some shake up in the industry. The possibility of it alone is already causing some movement as described above. But like the changes that we have seen before now, as much as the role of China has been significant, Bitcoin is designed to be bigger than one particular country or region.

With peer-to-peer trading platforms like Vertex.Market catering to people in over 200 countries, maybe it already is.

In considering what happens if China bans Bitcoin mining, if it goes through there will likely be some shake-up in the industry. However, just like we have seen before, the technology has the capacity to shake off the effects, and move on with development. It could be another reminder of “the many lives of Bitcoin”.