China’s blanket ban on cryptocurrencies in 2017 took the world by surprise, especially considering that the country is usually at the forefront of adoption for newer technologies. However, the move did little to dissuade citizens from pursuing bitcoin-related activities or propelling blockchain technology.
China’s Cryptocurrency Push
According to a report on Nikkei Asian Review, China’s infatuation with bitcoin is showing no signs of slowing down. A slew of blockchain companies and cryptocurrency mining businesses are continuing to make their presence felt on the country’s economy. The development is also in spite of China’s tight noose on the sector since September 2017.
While the government has famously disparaged the asset class, the launch of billion-dollar blockchain incubators, mining farms, and a subdued crackdown on cryptocurrency exchanges, speaks otherwise.
In the Qinghai province city of Delingha, for instance, a 23-year-old entrepreneur runs a bitcoin mine. The infamous energy-consuming business requires substantial electricity to keep ventilation systems running for maintaining the miners and preventing fire.
Although media sentiment may suggest the Delingha mine as an illegal operation, the young founder has zero concerns about a crackdown on his business. In fact, the mine procures electricity from state-owned utilities and duly pays taxes.
Requesting anonymity, the business owner revealed:
“There is no room for unregistered businesses to operate in the industrial park, which was developed by a company affiliated with the local government. The mine has received funding from listed companies as well as the children of the Communist Party and military officials.”
They added the mine currently has 7,000 computers, but he aims to add 4,000 more systems shortly.
Bitcoin mining farm in Delingha
(Source: Nikkei Asian Review)
Cryptocurrency Benefits in the Local Economy
The economic potential of cryptocurrencies and the technology behind it is undoubtedly significant. As evident by the mining industry, Bitcoin has the potential to contribute to the economies of the country’s rural areas.
Another example is China’s Sichuan province, with its capital Chengdu located over 2,000 kilometers away from Beijing.
The county’s miners divert electricity from small electricity generation facilities and hydraulic power plants without government permission. Despite signing contracts with power firms, the mining businesses did not register as corporate entities or pay tax on their income, leaving little economic incentive for the government.
In contrast, Qinghai has excess electricity supply capacity from wind and solar power, and has little industry apart from tourism, and now, bitcoin mining. The county is trying to develop cryptocurrency into a local industry to generate employment and contribute to tax revenue.
From a macroeconomic perspective, China controls over 70 percent of Bitcoin’s hash rate. The world’s largest mining equipment manufacturer, and mining pool operator, Bitmain Technologies, is also headquartered in Beijing.
Should China choose to eradicate the industry, bitcoin transactions would face an inevitable delay and subsequently cut out rural areas from their newfound industry. To conclude, the report stated:
“China does not want cryptocurrency to catch on as a payment method — since that could undermine confidence in the home currency — it has an interest in influencing the global flow of money. Xi desires this power for China, similarly to how the U.S. seeks to retain the dollar’s key-currency status through its network of transactions worldwide.”