Chinese Bitcoin miners have been struggling to cover their electricity costs following a massive operation by the government to stop citizens from exchanging Bitcoin (BTC) for Chinese Yuan (CNY). As a result, many miners have had their bank cards frozen and others have stopped exchanging crypto for fiat currency, leading to a lack of local funds.
The crackdown comes ahead of the launch of China’s own national cryptocurrency, the ‘digital yuan’, which it hopes will replace Bitcoin. However, thousands of Chinese citizens rely on profits from Bitcoin mining to survive and have no other source of income. According to a survey by Chinese cryptocurrency news site Wu Blockchain, 74% of miners have had their electricity bill payments affected.
Over the past few days there has been a huge flow of Bitcoin out of crypto exchanges with strong ties to China and into foreign or decentralized exchanges like Binance. Earlier this month, rumors that Huobi’s chief operating officer Robin Zhu went missing initiated a steady flow of crypto out of the exchange that still continues today. Another Chinese exchange, OKEx has lost nearly 30% of value on its native token OKB after suspending all withdrawals in early November.
China-focused crypto exchange Token Better recently announced that it was under investigation from authorities in its local province of Sichuan, resulting in a suspension of withdrawals. China officially banned crypto trading activities in 2017 when it ordered all crypto-related businesses to stop operations and shutdown. However, many exchanges simply moved their headquarters to more crypto-friendly jurisdictions and continued offering services to Chinese clients.
Problem or solution?
The crackdown is expected to drive mining operations away from China to nearby neighboring countries with cheap electricity, like Kazakhstan. With China’s Bitcoin mining dominance at around 65% of the full hash rate, the new regulations could seriously hamper the network’s operation. However, critics suggest this might be a good thing in the long term, as China’s majority ownership of the BTC network has been a growing cause for concern due to its strict and unpredictable authoritarian government.
While unlikely, it’s not impossible to imagine that if the Chinese government seized all locally based mining operations, it could potentially take control of the entire Bitcoin network. Any single entity that controls more than 51% of the network could alter the blockchain and take ownership of every single coin. However, since doing so would likely decimate Bitcoin’s value and render it useless, it wouldn’t be a very logical move.