China’s crackdown on cryptocurrencies came to a head on Friday with an announcement that all crypto-related activities would now be illegal. The reasons for China’s increasingly severe bans on crypto range from its role as a vehicle for money laundering and smuggling, to environmental pollution and the intensive electricity used in mining for bitcoin.
For years, China has been home to the largest share of bitcoin miners in the world. In August 2019, bitcoin miners in China made up three-quarters of the global hashrate, a measure of crypto-mining activity. By March 2021, the latest month that country data is available at Cambridge University’s Bitcoin Electricity Consumption Index, China’s share had dropped to 46 percent as the country deepened its restrictions on crypto-related activities. This summer, aggressive Chinese enforcement against mining sent crypto prices tumbling, and bitcoin miners ripping out their servers, packing them into shipping containers and decamping for countries with cheap electricity and more welcoming regulatory environments, like Kazakhstan and Texas, in the United States.
If China manages to fully rout out bitcoin mining within its borders, it would free up 86 terawatt hours (TWh) of electricity, the amount of energy that Oslo-based Rystad Energy, a research firm, estimates crypto miners in China used in 2020. It’s as much electricity as countries like Finland, Chile, the Philippines and Belgium each use in a year, or about the same as the 84 countries with the lowest electricity use in the world, combined.
While data on China’s current energy use in bitcoin mining is not yet available, people on the ground suggest a precipitous drop in mining activity. Kevin Zhang, vice president at Foundry Services, a digital asset mining company, gleaned a rough estimate of the impact on mining from the crackdown in June.
Bitcoin mining amounts to just over one percent of the China’s overall electricity use, which Rystad Energy estimated at 7,510 TWh in 2020. Of the 86 TWh estimated to be used in bitcoin mining, 63 percent came from coal power, mostly in Chinese provinces like Xinjiang and Inner Mongolia. Friday’s decisive ban on crypto-mining comes amid widespread power cuts in China, as more than 10 provinces, according to Bloomberg, have limited the use of electricity in order to meet targets for reducing energy and emissions intensity.
While clawing back power from crypto use may help China reach its national emissions reduction targets and cut down on environmental pollution within its borders, the environmental benefits are likely to be short-lived to about the time in takes for crypto-miners to pack up their machines and set up in another country.
Bitcoin’s global energy consumption halved from over 125 TWh in May before China’s summer crackdown, according to the Cambridge bitcoin electricity index, to about 60 TWh by June 30. Last Sunday, consumption had already risen to 98 TWh.