Bitcoin price is down by more than 5% in the last 24 hours as authorities in China pull the plug on mining activities. However, experts in the industry believe this will strengthen the network over time and serve the larger interests of decentralization.
The Immediate Aftermath
Sichuan, the Chinese province with one of the largest cryptocurrency mining pools, has ordered energy companies to cut power supply to 26 mining farms. This has led to an overnight fall in the bitcoin mining hash rate by about 17%.
Mining is an energy-intensive process through which specialized computers verify transactions on blockchain networks and earn cryptocurrency in return. Hash rates tell us how much computational power is used in mining. Convert BTC to INR at the best rate here.
Is it the first time that China has banned mining activities?
The recent blow to mining activities is part of a series of government-sanctioned clampdowns on cryptocurrency in China. Sichuan is the 5th province after Yunnan, Inner Mongolia, Xinjiang, and Qinghai to do so in the past two months.
But the move hasn’t come as a surprise to crypto investors. The Chinese government has had a troubled history with cryptocurrency and decentralization, including a 2013 order barring financial institutions from handling bitcoin transactions and a 2017 notification declaring Initial Coin Offerings (ICO) as illegal.
How is it good for the future of bitcoin?
China has accounted for nearly 65% of the world’s bitcoin mining activities in 2020. However, the monopolization by Chinese bitcoin miners had clearly sparked an outrage amongst the crypto naysayers for being counterintuitive to the decentralization principles of blockchain. Eventually, Tesla CEO Elon Musk rescinded his decision to accept bitcoin as payment for Tesla cars, leading to the current downturn in bitcoin’s bullish run.
Meanwhile, experts like Bobby Lee, founder of Ballet Cryptocurrency Wallet, have the following to say – “China will ban bitcoin again and again. By some future date, bitcoin will be over $100,000 and China will have more regulatory agencies looking at it, and the question is, what more can China do to ban bitcoin and cryptocurrencies?”
The Chinese ban has momentarily impacted the prices of cryptocurrencies. However, with the principles of bitcoin remaining the same and given its portable market (the only requirement being an internet connection and reliable energy sources), the distribution of mining activities to less restrictive economies are good for the network in the long run.
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Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.
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