China could restrict bitcoin mining in one of the provinces with the highest hash rate

Key facts:
  • Yunnan Province accounted for 5.4% of world hash rate dominance.

  • The loss of Chinese dominance in mining contributes to the decentralization of Bitcoin.

On May 12, 2021, a document was released by the authorities of Yunnan, a province of China where it is proposed to investigate the illegal use of electricity by citizens, companies or institutions for unauthorized Bitcoin mining.

The draft document, entitled “Notice from the Yunnan Province Energy Administration on strengthening the energy management of Bitcoin mining companies,” proposes urgent actions such as cutting off power to unauthorized miners before the end of June, according to a report by STCN, a media outlet dedicated to China’s security.

Workers from the Yunnan energy administrative bureau confirmed to local media that the document was real, but it has not been officially published, it was only issued internally. Officials added that some bitcoin mining machines have stopped in this province, and it is possible to stop more in the future.

According to this source, the penalty could lead to the closure of the establishmentpending the “rectification” of those responsible for such activities considered illegal.

Yunnan, the fourth Chinese province with the highest BTC hash rate

The news is significant for Bitcoin as Yunnan ranks as the fourth largest province in China in terms of BTC hash rate, according to the Cambridge Bitcoin Electricity Consumption Index (CBECI).

Yunnan, located in southern Tibet and Sichuan, has an average monthly hash rate of 5.42% of Chinese mining. The map is based on geolocation through the IP used in mining pools. Source: Cambridge University CBECI.

According to CBECI data, only from September 2019 to April 2020 this Chinese province had 7.07% global hash rate, followed only by Inner Mongol, Sichuan and Xinjiang.

Financial Committee asks provinces to reduce cryptocurrency-related permits

China’s Financial Committee held its 51st meeting on May 21 this year, where it addressed crackdowns on Bitcoin mining and trading. Five days later, the first province began to carry out actions according to this plan.

After Inner Mongolia, Xinjiang and Qinghai, Yunnan could be the fourth province in China to join mass bans cryptocurrency mining. These provinces have published previous warnings similar to that of Yunnan, and have announced that the measures could reach shut down any company that violates the new laws before the end of June.

These actions are part of the targets set for Chinese provinces by the “State Council Finance Committee to crack down on Bitcoin and other mining and commercial activities,” reads a June 9, 2021 notice from the Qinghai Department of Industry and Technology on the closure of virtual currency mining projects.

The plans of the Financial Committee, with tentative at the end of June 2021, are to investigate, sanction and suspend the power supply to all illegal cryptocurrency mining activities to seek ” illegitimate benefits without permission.”

Document from the Department of Industry and Information Technology of Qinghai Province, which mention the plans of the Financial Committee to ban the mining and use of cryptocurrencies in China. Source: STCN.

To carry out a “clean-up”, the establishment and approval of various virtual currency” mining ” projects in various regions was ordered banned.

Some regions, such as Inner Mongolia, begin to investigate and” correct ” projects established in the name of big data, supercomputing centers, etc., that could use this type of virtual assets. A similar document in this province suggested investigating cloud mining, so the warning has been extended to Internet-related technology companies.

Yunnan Bitcoin mining in China’s sights, despite using green energy

Unlike Inner Mongolia which is rich in fossil resources, Yunnan is the second province with the highest hydroelectric production, according to the local SCMP. Even with “cleaner” energies than other regions, this did not stop Central China’s policy to block cryptocurrency mining.

Such measures have been criticized by Zhang Nangeng, CEO of Canaan, one of the largest manufacturers of ASIC miners for Bitcoin. He has said that China is not doing the right thing by restricting mining that uses renewable energy such as hydropower.

However, the draft states that this it would not be a global action against all bitcoin mining in the regionbut against ” unauthorized “persons or companies. Even so, this would force some mining companies to migrate outside of Yunnan, and China, as other companies in the country have been doing.

It would not be strange such restrictions that have already occurred in other provinces of China, following their policy against mining and cryptocurrencies. Nail possible Beijing strategy to privilege the circulation of the currency of its central bank, the renminbi or digital yuan.

China’s loss of dominance in hash rate helps decentralize Bitcoin

The loss of China’s global hash rate dominance will contribute to decentralizing the mining and processing capacity of the Bitcoin network. According to some sources, this restrictive policy with cryptocurrencies and mining has contributed to this goal over the past few months.

Information from the CBECI of the University of Cambridge, shows that from 2019 to April 2020 the Asian giant mined more than half of the global supply. From February to April 2020 alone, it went from 72.03% to 65.08% in average monthly hash rate.

Global ranking of monthly average hash rate by Chinese province from Q3 period of 2019 to Q2 period of 2020. Source: CBECI.

Taking into account the CBECI index, Xinjiang province itself has accounted for 30% of the hash rate in China during this period. Yunnan went from 10.23% in September 2019 to 5.4% of global hash rate domain in April 2020.

According to an estimate by Miner Daily, the dominance of the People’s Republic of China over the hash rate has fallen by up to 55% this year, after bans that have led to an exodus of Chinese mining farms to other countries.

China has been increasing bans

So far in 2021, China has tightened restrictions around the use of cryptocurrencies. In February, it banned Initial Coin Offerings (ICOs) from raising funds.

In May, it took more severe measures and banned financial institutions and payment companies from using this type of digital assets, so online payment channels cannot offer cryptocurrency payments.

On the other hand, in late May the local administration of Inner Mongolia, aggravated the measures with a campaign for neighbors to denounce illegal Bitcoin mining. Additionally, in a draft, the local authority showed interest in closing BTC mining operations in the region.

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