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A ban on crypto-mining?

10 April 2019

With the boom in crypto-currencies, the world has become acutely aware that your Bitcoin or other unit of exchange can actually be rather expensive to mine, certainly from an energy perspective.

Whilst the amount of energy being used to mine crypto-currencies is, to some degree, regulated by the value of that currency, there are still some coins that are apparently worth spending the KW/H to create -- and that's got the Chinese government worried.

Surprisingly, China is doing a pretty good job on "tidying up its act" when it comes to environmental issues so it is perhaps not surprising that they are considering a ban on crypto-mining within their borders as a way of reducing electricity demand and therefore CO2 emissions.

However, the real reason may be a little more simple than that.

If this Reuters report is to be believed, it seems that this possible ban is more about control than emissions.

If implemented, this move by the Chinese government could be a bit problematic for the massive industry that is the manufacture of mining hardware which is estimated to be earning the country billions of dollars in exports.

Last year alone there were three Chinese mining-hardware manufacturers who filed IPOs in Hong Kong.

With China being one of the main countries churning out Bitcoin and other crypto-coins, mainly due to the low cost of electricity and ample supply of hardware, a ban on this activity could either push prices higher or hasten their demise (as the cost of mining rises exceeds the tradeable value).

One can't help but wonder whether the Chinese government wants to ban private mining operations so that state-run ones can operate without competition -- that's how totalitarianism works sometimes.

The future of crypto as a whole still seems to be uncertain.

Although Bitcoin recently saw a slight resurgence and broke the US$5,000 barrier since 2017, it remains far short of the almost $20,000 value ascribed to it at its peak. Whilst there have been a few Bitcoin millionaires there have been an awful lot more Bitcoin bankruptcies!

If China does impose a ban and doesn't pick up the slack with its own state-run mining operations I would expect to see a further decline. In fact, I think crypto-currencies have "done their dough" so to speak. Even if they recovered to previous levels, the public's confidence in their stability has taken a big hit and I'm pretty sure that governments around the world would start acting to reign in the freedoms and anonymity some of these currencies deliver to "the man in the street".

All over the world, governments are helping steer populations away from cash and towards digital currencies (in the form of bank-to-bank transfers, card and NFC-based transactions) because this is a powerful way to undermine the black economy and the lost tax revenues such "under the counter" deals create. A proliferation of untraceable crypto-currencies would effectively allow significant trading below the taxman's radar and that, as we know, could not be tolerated.

I also wonder if China is simply in the process of starting a trend that will be followed by other governments in the near future.

As we've recently seen in the wake of events here in NZ, governments are having a field-day removing freedoms and imposing restrictions on what populations can/can't do or can/can't have access to. I suspect that there are many governments in the Western World who are pretty giddy with excitement right now, having seen how little kick-back there is from the general population. While they're on a roll, why not start banning all sorts of other stuff that is inconvenient or poses a threat to the security of the trough from which all parties feed?

Yes, I'm an old cynic aren't I?

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