On May 12, 2021, a document was released from the authorities of Yunnan, a province of China where it is proposed to investigate the illegal use of electricity by citizens, companies or institutions for unauthorized Bitcoin mining .
The draft document, entitled “Notice from the Yunnan Province Energy Administration on Strengthening Energy Management of Bitcoin Mining Companies,” proposes urgent actions such as cutting off the electricity supply to those who perform unauthorized mining before the end of June, according to a report by STCN, a media dedicated to China’s security.
Workers from the Yunnan energy administrative office confirmed to local media that the document was real, but it has not been published officially, it was only issued internally. Officials added that some bitcoin mining machines have been stopped in this province, and more may be stopped in the future.
According to this source, the penalty could lead to the closure of the establishment , pending the “rectification” of those responsible for said activities considered illegal.
Yunnan, the fourth Chinese province with the highest BTC hashrate
The news is significant for Bitcoin as Yunnan is positioned as the fourth largest province in China in terms of BTC hashrate , according to the Cambridge Bitcoin Electricity Consumption Index (CBECI).
According to CBECI data, only from September 2019 to April 2020 this Chinese province had 7.07% global hash rate , followed only by Inner Mongol, Sichuan and Xinjiang.
Finance Committee asks provinces to reduce permissions related to cryptocurrencies
The Finance Committee of China held its 51st meeting on May 21 this year, where it addressed cracking down on Bitcoin mining and trading. 5 days later, the first province began to take actions according to this plan.
After Inner Mongolia, Xinjiang and Qinghai, Yunnan could be the fourth Chinese province to join to massive bans of cryptocurrency mining. These provinces have issued prior notices similar to Yunnan’s, and have announced that the measures could lead to shutting down any company that violates the new laws before the end of June.
These actions are part of the objectives proposed to the Chinese provinces by the “Financial Committee of the State Council to take strong measures against Bitcoin and other mining and commercial activities”, reads a notice of June 9, 2021, from the Department of Industry and Qinghai Technology on the closure of virtual currency mining projects.
The plans of the Finance Committee, with an attempt at the end of June 2021, are to investigate, sanction and suspend the supply of energy to all illicit cryptocurrency mining activities that seek to “obtain illegitimate profits without permission.”
In order to carry out a «cleaning», it was ordered to prohibit the establishment and approval of several currency «mining» projects virtualization in various regions.
Some regions, such as Inner Mongolia, begin to investigate and “correct” projects established in the name of big data, supercomputing centers, etc., that could use this type of assets virtual. A similar document in this province suggested investigating cloud mining, so the warning has been extended to Internet-related technology companies.
Yunnan Bitcoin mining in China’s sights, despite using green energy
Unlike Inner Mongolia, which is rich in fossil resources, Yunnan is the second province with the highest hydroelectric production, according to local media SCMP. Even with “cleaner” energies than other regions, this did not stop central China’s policy to block cryptocurrency mining.
These types of measures have been criticized by Zhang Nangeng, CEO of Canaan , one of the largest manufacturers of ASIC miners for Bitcoin. It has said that China is not doing the right thing by restricting mining that uses renewable energies such as hydroelectric.
However, in the draft it is suggested that this would not be an action global against all bitcoin mining in the region , but against “unauthorized” people or companies. Even so, this would force some mining companies to migrate out of Yunnan and China, as other companies in the country have been doing.
This type of restriction would not be strange. have occurred in other provinces of China, following its policy against mining and cryptocurrencies. A possible Beijing strategy to privilege the circulation of its central bank’s currency, the renminbi or digital yuan.
China’s loss of dominance in hash rate helps decentralize Bitcoin
The loss of China’s global dominance in hash rate will contribute to decentralizing mining and processing capacity of the Bitcoin network. According to some sources, this restrictive policy with cryptocurrencies and mining has contributed to this objective in recent months.
Information from the CBECI of the University of Cambridge shows that from 2019 to April of By 2020, the Asian giant was mining more than half of global supply. Only from February to April 2020, it went from 72.03% to 65.08% in average monthly hash rate.
Taking into account the CBECI index, Xinjiang province itself has accounted for 30% of the hash rate in China during this period. Yunnan went from 10.23% in September 2019 to 5.4% of the global hashrate dominance in April 2020 .
According to a Miner Daily estimate, the PRC’s dominance over hashrate has fallen by as much as 55% this year, following bans that have led to an exodus from Chinese mining farms to other countries.
China has been increasing bans
So far in 2021, China has tightened restrictions around the use of cryptocurrencies. In February, it prohibited Initial Coin Offerings (ICOs) from raising funds.
In May, it took more severe measures and prohibited financial institutions and payment companies from using this type of digital assets, therefore that online payment channels cannot offer payments in cryptocurrencies.
On the other hand, at the end of May the local administration of Inner Mongolia aggravated the measures with a campaign for neighbors to denounce the illegal Bitcoin mining. Additionally, in a draft, the local authority showed interest in closing the BTC mining operations in the region.