China’s Crypto Mining Crackdown Followed Deadly Coal Accidents

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China’s escalating push to rein in cryptocurrency mining was triggered in part by concern that the practice has stoked a surge in illicit coal extraction, endangering lives and undermining Xi Jinping’s ambitious environmental goals.

Authorities decided to act after concluding the spike in electricity consumption from server farms underpinning Bitcoin and other tokens was a key factor behind rising demand for coal in certain parts of China, according to a person who participated in high-level government meetings on the issue and asked not to be identified discussing private information.

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Rising coal demand prompted some producers to restart idled mines without official approval, leading to higher safety risks and a jump in deadly accidents this year, the person said.

While China’s central government has enforced a strict ban on digital-asset exchanges and discouraged crypto mining for years, authorities in some remote areas of the country have been more welcoming of the industry because it brings in much-needed revenue. About 65% of the world’s Bitcoin mining took place in China as of April 2020, according to an estimate by the University of Cambridge.

Growing concerns about the environmental knock-on effects help explain why China’s Financial Stability and Development Committee said on May 21 it would crack down on crypto mining and trading, in what amounted to one of the government’s most forceful condemnations of the crypto ecosystem to date.

The warning has fueled a selloff in cryptocurrencies from record highs and stoked a debate over how investors should respond to the environmental costs of digital assets. Musings on the issue from Tesla Inc. founder and crypto advocate Elon Musk have by turns destroyed and conjured billions of dollars of market value in recent weeks. According to one estimate, each $1 of Bitcoin value created in 2018 was responsible for $0.37 of health and climate damage in China and $0.49 in the U.S.

Bitcoin has dropped about 40% since mid-April, paring an epic surge that has drawn in everyone from Wall Street pros to mom-and-pop investors in Seoul. The biggest cryptocurrency was trading at $39,293 as of 10:35 a.m. Hong Kong time.

China’s National Energy Administration and National Development and Reform Commission didn’t immediately respond to requests for comment.

Disentangling crypto mining’s impact on coal consumption in China isn’t easy, especially during periods of economic recovery when power demand is rising more broadly. But in areas like Xinjiang and Inner Mongolia that have long been favorite destinations for the industry, Chinese authorities have drawn a direct link between crypto and coal.



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