Chinese Financial Regulators Continue to Come Down on Bitcoin Miners

Even though the Bitcoin blockchain is a decentralized network, the same cannot be said about the mining operations necessary to keep the distributed ledger going by means of clearing cryptographic transactions. Most mining operations are geographically located in China, but financial regulators in that Asian country are cracking down on these server farms.

The eviction of major miners from China is already having a deleterious effect on the Bitcoin hash rate, and this illustrates the advantage of blockchain networks such as Ethereum, which do not require as much hardware and energy to operate. Whereas Bitcoin mining facilitates the formation of cartels, the Ethereum blockchain is more democratic and decentralized. Once more investors become aware of this, Bitcoin could start losing market value.

One of the consequences of China's crackdown is that quite a few Bitcoin miners are turning their attention to other jurisdictions where they can set up their mining rigs without complications. One such spot is Kazakhstan, which borders China and offers relatively cheap electricity services.

In their latest regulatory announcement, the Chinese authorities announced that it will ban any exchanges and other services which accept, use, or mine Bitcoin tokens, and will seize the funds of anyone trading on unregulated exchanges to maintain strict controls. While the crackdown on exchanges and wallets seems relatively recent, it shows how China is going beyond the shutdown of mining.

This crackdown on Bitcoin mining operations is indicative other ambitions that powerful Chinese families have with regard to digital currencies. Since the beginning of 2016, unauthorized Chinese cryptocurrency exchanges have experienced a rise in liquidity and supply problems, with trading volume plunging to around $7 billion per day.

There has also been a rise in Chinese exchange activity in response to the government tightening regulation in December 2016, with users searching for Chinese cryptocurrency wallets in search of more liquidity. Some speculate that the crackdown may be related to the ongoing push for the digital version of the yuan, which is also believed to have been designed to give the Communist Party of China more control over the largest regional economy in the Asian continent.