The People’s Bank of China (PBOC) announced on Friday that it has placed a permanent ban on all crypto currency trading and mining in the country. Ten governmental agencies, including the central bank and foreign exchange regulators, have pledged to remove “illegal” cryptocurrency activity from China.
China is one of cryptocurrency’s largest markets, accounting for 65% of the global total: but all that is set to change. In May, the government banned domestic financial institutions from using crypto currency services. In June, the government told banks to stop allowing transactions, as well as issuing bans on crypto mining. Crypto mining is the process of creating new crypto currencies.
China placed a ban on trading crypto in 2019, but has still allowed online trading through foreign platforms up until now.
The more recent restrictions suggest that China is serious about cracking down on cryptocurrency, and that this ban will be strictly enforced. The Chinese government fears that crypto speculation could cause financial instability in the country and now encourages the use of other trading platforms like fx trade after disavowing bitcoin.
PBOC described the move as necessary “to safeguard people’s properties and maintain economic, financial and social order.” Some have suggested that this is also related to fears that Chinese property developer Evergrande is about to go bust. This seems to suggest a greater concern about overall financial stability in the country.
Crypto asset-prices did see an immediate effect. American crypto miners Riot Blockchain and Marathon Digital fell between 2.5% and 5%. Bitcoin also saw a drop of more than 9% after the move was announced.
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Bitcoin: the currency of the future, or just another stock?
Advocates of bitcoin often describe it as the future of currency, being untraceable, and easily exchangeable. But Bitcoin is different from most currencies in a number of important ways.
Most currencies’ values do not change significantly in short periods of time – at least when the economy is stable. Bitcoin on the other hand, has seen its value increase exponentially since its inception in 2009. Depending on the type of crypto coin, the value of a currency can be extremely volatile.
Unlike regular currency, the value of which is in part tied to a government or central bank who can control inflation rates, bitcoin’s value relies on speculation and availability. This has led some to consider bitcoin more like a stock than a currency.
China’s authoritarian crackdown on crypto, including #Bitcoin, is a big opportunity for the U.S. It’s also a reminder of our huge structural advantage over China.
— Senator Pat Toomey (@SenToomey) September 24, 2021
Some see the move as stifling economic freedom – but also an opportunity
An unexpected environmental upside?
Another potentially beneficial outcome of this decision is that this could lead to bitcoin lessening its environmental impact. Cryptocurrency has a surprisingly high carbon footprint. This is because the process of mining cryptocurrency requires huge amounts of energy.
This increases the more bitcoins are created: each one uses a more complex mathematical problem, which requires more computer processing power. The amount of energy used in all crypto operations across the globe is currently more than used to power Argentina.
What’s more, as the computer processing power for cryptocurrency increases, bitcoin miners use more and more powerful computer processors. This means that the hardware used for bitcoin mining becomes obsolete roughly every 1.5 years. This is of course highly unsustainable.
While this has certainly dealt a blow to crypto, this does not mean for certain it is on the way out. It is still hugely popular worldwide, and El Salvador has even adopted bitcoin as legal tender. However, placing a ban on cryptocurrency also might mean that China has more control over its own currency and financial system. If other countries follow suit, we might see greater financial stability while significantly reducing our energy consumption.
Editor’s Note: The opinions expressed here by Impakter.com columnists are their own, not those of Impakter.com. — In the Featured Photo: Bitcoin. Featured Photo Credit: André François McKenzie.