How the Chinese crypto-mining ban is also an environmental move

It’s been about six months since China started to ban cryptocurrency mining. That’s the extremely energy-intensive process in which computers run complex math problems to get rewarded with cryptocurrency, such as bitcoin.

Until recently, China was the epicenter of this activity, partly because the electricity needed to run all those computers is relatively cheap there.

Jennifer Pak is Marketplace’s China correspondent, based in Shanghai. She joined me for a check-in on where things stand after the ban. She said there are two big reasons the government restricted crypto mining. The following is an edited transcript of our conversation.

Jennifer Pak: First of all, an anonymous currency really doesn’t appeal to Chinese officials. They keep a very close eye on their currency and the money that’s coming in and out of the country. And, in September, China banned cryptocurrency transactions and prohibited opening any new mining projects in the country because, reason No. 2, cryptocurrency mining consumes a lot of energy. And much of China’s energy comes from coal, about 60% is generated from coal, and it’s highly polluting. And of course, China has pledged to go carbon neutral by 2060 and to also cut its energy intensity.

Kimberly Adams: So does this mean that China is completely out of the crypto game?

Pak: Absolutely not. China is still the biggest manufacturer of mining equipment. Local governments are also not always that motivated to enforce the ban on cryptocurrency mining. You have to remember, a lot of this mining activity was taking place in poorer areas of China, like in Xinjiang, Sichuan, Guizhou, Inner Mongolia. And we’ve spoken to some people in the industry who’ve all said that, of course, there are still mining operations happening, just at a much smaller scale, while they think of the next step or sometimes where to move.

Adams: By “cryptocurrency mining equipment,” you don’t mean like a virtual backhoe? You’re talking about the computers and the fans and things.

Pak: Right, I’m talking about very powerful computers.

Adams: So where are these crypto miners moving to?

Pak: Well, to places like Kazakhstan, Russia, for example. You know, temperatures are cooler there, so you might not need as much cooling equipment. And also the U.S., specifically Texas, for example. I’ve also heard of Oklahoma, Ohio. Basically, cryptocurrency mining requires a few things. It requires stable energy, a stable regulatory environment and cheap electricity. Now, in the case of Kazakhstan, the government’s already talking about maybe restricting electricity. Russia, it’s not always very stable. So the U.S. is very interesting, actually, for many cryptocurrency miners from China, and we know of a company that’s helping some of them moving all of their equipment to the U.S. to set up. And so we’ve heard that more than a third of the global computing power, which is called a hash rate, dedicated to mining bitcoin is now being drawn from machines in the U.S. And that’s up by a lot from last spring.

Adams: China has been stepping up its regulation of the tech industry more broadly to the point that LinkedIn and Yahoo have chosen to withdraw some services there. How has this increased focus on tech showing up for Chinese companies?

Pak: Look, it’s always been challenging for foreign firms to operate in China. But now, if they’re tech firms, it’s even more so. For domestic firms, it means they really don’t have free rein as they had before. Because before, there weren’t that many regulations governing what they were doing, because a lot of these industries and sectors they were entering into were completely new. That’s usually how China works, is they let these companies do their own thing. Once they start spotting problems, then the regulations come in. And this time, they’re cleaning house, and for a number of reasons. So that means, for example, e-commerce giant Alibaba, it can’t force vendors to choose between opening a shop on its own platforms or on its rivals’ platforms, and not both.

It also means that measures taken against tech firms, for example, like food delivery platforms and courier companies, they can’t treat its workers as just gig workers, as independent contractors. And so now they must pay into [the] social welfare scheme, or they will soon have to. It also means tighter data security and privacy regulations for consumers. And it could also mean something as simple as, for example, when I see something really cute, for example, this fluffy vest for a dog that I wanted to send to a friend on WeChat, I can’t. You can’t open that link very easily, I would say. Supposedly soon, it’s going to get easier.

Adams: We’re having this discussion as COP26 is going on, the global climate conference in Scotland, which China is notably absent from. Does this move of banning mining indicate that China kind of plans to go it alone when it comes to reducing carbon emissions?

Pak: I don’t think so. China sees itself as a leader. And in fact, the reason that President Xi Jinping had said it wanted to go carbon neutral by 2060, to peak its energy consumption by 2030, they felt this was good for the international community. And it’s China’s way of saying we’re taking responsibility. There are people who do criticize China for pledging to go carbon neutral by 2060, a full 10 years after a lot of developed countries, including the U.S., have. But China says, “Look, we are a developing country. We have one-sixth of the per capita GDP as the U.S., you cannot expect us to go as fast or do the same as you do. We’re going to do what’s right for our economy, and already there are impacts and effects being felt in the economy here.”

So China doesn’t want to go it alone. It certainly feels that it is taking the lead because China is not only the biggest polluter on the planet, but it’s also the largest installer when it comes to wind and solar energy, when it comes to green technology, when it comes to electric vehicles. However, of course, because the country is so massive, and because China is the factory of the world, it uses up a lot of electricity, and so that’s why renewable energies generate 15% of the electricity right now. And that’s why it’s a problem, especially when it comes to cryptocurrency mining, because it was taking advantage of the cheap electricity out in these poor provinces and using up a lot, and polluting in some cases.

Related Links: More insight from Kimberly Adams

In addition to the mining ban, China also added new restrictions on crypto trading in September.

Coindesk has a piece going back through the history of China’s crackdowns on cryptocurrency. Although this latest one is the most severe in terms of restricting mining, the country started placing limits on the industry back in 2013.

And with the latest ban, our partners at the BBC have some reporting on how now the U.S. is the world leader in crypto mining. That’s followed by Kazakhstan and Russia.

The Daily Californian has a blog digging into the economic and environmental consequences of the U.S. becoming the new crypto mining hot spot.

And the news site Governing has a piece exploring whether the power grid in Texas, a popular spot for modern-day miners, can hold up under the strain of all the mining operations and the effects of climate change.

If recent power outages in the state are any indication, it’s not looking so good.