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In this week’s da bing, China’s Bitcoin prohibition is extending to Yunnan Province, while the government is doubling down on ‘independent’ blockchains.
For the longest time, your correspondent believed that China would solely target speculative crypto trading and leave the mining industry alone. After all, mining has long been a reliable source of revenue for both miners and local governments that levy taxes on it.
But China’s carbon neutrality goal, along with zealous Dogecoin trading, have once again raised concerns with the government at an inconvenient time: the CCP’s 100th birthday on July 1.
During the run-up to the significant event, cryptocurrency became a touchy subject. This mystical, magical Internet money is utterly uncontrollable by the government, which screams danger.
This week’s da bing examines last week’s events in China, from the mining crackdown to the propaganda surrounding the new, centralised, commercial “Chang An Chain.” Yes, the crypto-not-blockchain narrative is intensifying throughout the birthday season.
Sichuan as the safe haven
By now, it is evident that most mining operations in China that do not use renewable energy have been closed down. It began in Inner Mongolia and has now expanded to Xinjiang and Yunnan Province. Someone in Guandong apparently dropped a dime on Yunnan to the government, stating that the province was not providing enough energy. The authorities conducted an investigation and discovered the culprit: crypto mining.
There was some confusion about this yesterday, with Forkast.news breaking the story, then other outlets denying it. Even the press in media was confused. However, today a spokesman for the Yunnan Energy department confirmed to a number of legitimate sites, including Sina, that it wants all crypto miners to leave by the end of June. (A number of miners confirmed this in my WeChat crypto group as well.)
“By the end of June, all bitcoin mining operations must be scrutinised and cleaned up,” according to the press statement. Any operation that consumes power without authorisation must be halted.”
Many miners have evidently already departed, which may have contributed to the reduction in hashrate on the Bitcoin blockchain seen yesterday.
Sichuan however has been largely left alone. It’s the only province whose government actually called an in-person meeting with leading miners to discuss the situation before pulling the plug. Indeed, so far, no immediate plan to ban mining has been announced.This is likely due to the excessive hydroelectric power produced during the summer. The local government collects a hefty tax when the miners offload the power.
In retrospect, the latest prohibition, which went into effect last month, was not surprising. What surprised me was how swiftly everything was turned off. Typically, the central government makes “orders,” and local governments weigh the advantages and disadvantages before enacting the order if there is a local advantage. Local governments, on the other hand, happily and quickly complied this time.
It turns out that the CCP centennial celebration is an excellent moment to demonstrate party allegiance.
At its core, Chinese politicians are doing what American politicians such as Elizabeth Warren do. To the uneducated, cracking down on crypto seems to be an easy way to do something good for society. You’re saving the environment, and cracking down on all that unlawful Internet money.
There are huge mining operations in Xinjiang and Sichuan, as well as minor ones in Yunnan, in China. The new crackdown seems to be aimed mostly at large mining companies. They will have a difficult time resuming operations since these are operationally heavy farms that cannot be easily turned off and back on like a toaster oven.
The smaller ones may have a better chance. They may be able to restart their equipment after the government’s interest in mining has waned. Having such flexibility is likely to be the most important success element for any miners looking to operate in China in the future.
Chain ‘independence’ with Chinese characteristics
But even as the government cracked down on miners, it promoted blockchains. On June 10th, the government, in cahoots with a dozen prominent businesses, gathered to celebrate the launch of “Chang An Chain.” (Chang An was the capital of China during the Tang dynasty.)
The chain is an enterprise blockchain that is both “independent and controllable,” two characteristics that are close to CCP’s heart. “Independent” is important because China wants to rely less on foreign technology. (That’s why Huawei’s new operating system, HongMeng, is touted as a national victory—now China is not solely dependent on iOS or Android. “Controllable” matters because the word means that the government can monitor both on-chain and off-chain activities.
Chang An Chain has stated that as part of the 2022 Winter Olympics, it would merge with China’s digital yuan.
One might wonder how this chain differs from another China-approved company chain, BSN. The answer is no, it isn’t. Both chains were founded by a coalition of government and private corporations. The distinction is that, whereas BSN tackles blockchain from a cloud-infrastructure standpoint (to utilise BSN, you must purchase cloud storage), Chang An focuses on the hardware business. (Its consortium leader is a hardware corporation recognised for creating chips.)
A birthday surprise
Nonetheless, despite the crackdown, the national crypto market appears to be reacting less strongly. Previously, speculations of a Chinese mining crackdown would demolish the price of BTC.
The market has mainly shrugged off the fact that a crackdown is taking place and bitcoin’s hashrate is plummeting.
That’s because everyone is coming to terms with China FUD, even as the government appears to be gradually outlawing cryptocurrency. Could crypto in China recover after the CCP’s birthday celebration? Perhaps, but we’ll have to wait until July to find out.
In the meanwhile, most miners will be absent from the CCP’s huge birthday event. They are hunting for new homes in other countries.
Do you know?
“躺平” or “laying flat,” is hottest term on China’s internet. It describes young people’s preference to lay flat on a couch or floor rather than working hard to make a living. In crypto, the term is also used to describe yield farming. After all, why work so hard to trade when you can lay flat and collect yields?