China bitcoin: Inner Mongolia reinforces Beijing’s ban on mining with strict rules as more operators prepare to relocate offshore

Northern China’s Inner Mongolia region has has escalated its endeavours to stamp out cryptocurrency mining with tough new draft rules that propose harsh punishments for anyone engaged in the practice, a move that will accelerate the relocation of mining outside China.

Targeting industrial parks, data centres, telecoms companies, internet firms, and even cybercafes, the draft rules promise to punish bitcoin miners or those providing resources to miners by banning them from the region’s power trading scheme, revoking business licenses, and even shutting their businesses down completely, according to a statement issued Tuesday by the region’s top economic planner.

Under the new rules, which are available for public review until June 1, individuals who flout the regulations could be put on a social credit blacklist barring them from getting loans or making use of the country’s transportation system, as well as facing other legal consequences.

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The draft rules mark a sharp escalation in an already surprising change in attitude by the central government towards bitcoin miners and come less than a week after the Inner Mongolia region called on citizens to report illegal bitcoin mines.

Although the creation and trading of cryptocurrencies like bitcoin have been illegal in China since 2017 – a move that forced exchanges like Binance, Huobi and OkEx offshore – authorities have until recently turned a blind eye to the companies and individuals that “mine” bitcoin by operating the computers that make up the cryptocurrency’s decentralised network.

‘A thing of the past’: China’s fading place in global bitcoin mining

Miners who have taken advantage of cheap, coal-powered electricity in places like Xinjiang, Sichuan, and Inner Mongolia, are finding that this tolerance is fading fast.

China has set a bold target of achieving carbon neutrality by 2060 and bitcoin mining, which uses 21.36 terawatt-hours a year globally – more than the total energy used by Argentina, according to Cambridge University – is now seen by the government as a large stumbling block to achieving that goal.

In addition, illicit coal mining that endangers lives and makes climate targets even harder to reach has also played a part in the latest crackdown, according to a report by Bloomberg.

A government investigation into a coal mine accident in the Xinjiang Autonomous Region that trapped 21 people last month found that the mine reopened without official permission to meet rising demand from crypto miners, a source told Bloomberg.

Xinjiang alone accounts for almost 36 per cent of the global bitcoin hash rate, a measure of the total computational power on the world’s bitcoin network, according to Cambridge University’s Bitcoin Electricity Consumption Index. Sichuan and Inner Mongolia come in second and third respectively, giving China a 65 per cent share of the global hash rate.

Amid the increased Chinese scrutiny, and Tesla’s recent decision to suspect accepting bitcoin as payment for its cars, prices were down to US$39,300 at the time of the publication from more than US$50,000 a month earlier.

“We are seeing the cryptocurrency market follow a path to ‘de-China-isation’ – first on trading and now on computing power, based on a series of stronger steps taken against cryptocurrencies and bitcoin mining last week by Beijing,” said Wang Juan, associate professor on blockchain at Xi’an Jiaotong University, and a member of the OECD Blockchain Expert Policy Advisory Board.

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