China’s crackdown on cryptocurrency mining could have been an opportunity for electronic currency enthusiasts in India. But a lack of basic infrastructure and policies could be preventing them from being too optimistic.
Since May, China has been clamping down on cryptocurrency mining in an attempt to reduce carbon emissions, prevent money laundering, and maintain financial stability. The country has banned banks and payment companies from providing services to digital coin transactions, arrested several people engaged in cryptocurrency dealings, and suspended crypto-related accounts on Weibo.
This crackdown has led to an exodus of bitcoin miners from China, which accounts for around 70% of the world’s capacity, and many are looking to move to friendly alternatives like the US and Kazakhstan.
Meanwhile, in India, the cryptocurrency ecosystem has been booming. But when it comes to mining, India is a laggard. “As a crypto-market, India has not advanced the way other countries have been able to due to regulatory uncertainty. It is still at a very nascent stage,” said Nischal Shetty, co-founder of Indian cryptocurrency exchange WazirX.
There has been an uptick in cryptocurrency mining in India in recent years. Companies such as Easyfi Network provide mining facilities and blockchain development in the country. Shetty of WazirX believes that there could be some other pockets of small-scale mining operations in some parts of the country. However, there is no official information available on the same.
Those in the ecosystem believe that supporting crypto-mining could give the country many benefits. “When you allow these (mining) operations, there are two things that can come with it — one is investment and the other is employment. And there is an economic activity that generates around that. So India could take advantage if it wanted,” Shetty said.
But like most things related to cryptocurrencies in India, mining in the country can be risky.
India does not have any clear rules for cryptocurrencies, which makes any investment into the space risky. The Indian government and central bank have so far had a love-hate relationship with cryptocurrencies. While they have in the past openly criticised the asset class—and even temporarily halted banks from facilitating such transactions—they have also hinted at launching their own digital coin. In 2017, India banned the import of ASCI machines specifically designed for crypto mining, which forced Bengaluru-based blockchain technology company AB Nexus to quit mining bitcoin and ethereum.
Those investing in the segment are constantly in fear of a sudden clampdown from the government. “The Indian government has a history of banning what it doesn’t understand…Gas the building to kill a fly,” Pankaj Jain, a New York-based Indian crypto investor, had told news website CoinDesk in 2020.
Besides regulatory hurdles, experts say India lacks the basic infrastructure.
Since mining bitcoin is an energy-intensive process, setting up blockchain pools in India may be tedious and expensive. In India, the annual cost of electricity ranges between Rs5.20-8.20 (7-11 cents) per kilowatt-hour on average, as compared with Kazakhstan, where it costs 4-5 cents/kWh.
Cryptocurrency mining consumes about 67.29 terawatt hours a year, according to an estimate by the Cambridge Bitcoin Electricity Consumption Index. On May 10, the global consumption of electricity for bitcoin mining peaked at 141.28 terawatt-hours for the first time ever.
“Mining may not be profitable in India because of the electricity costs,” Shetty of WazirX said. “If you get into renewable sources of energy like solar panels, it may be cost-effective.”
Shetty believes that incentivising miners in form of subsidies can be one way to develop a cryptocurrency ecosystem in India.