The government of China has announced that it will restrict cryptocurrency OTC trading and mining. What is important to note, however, is that the restrictions are supposed to be temporary. The restriction by China had far-reaching effects on the price of cryptocurrencies and has resulted in prices going down all over the world.
China’s unique position in Cryptocurrency
The two things you need to mine cryptocurrency are energy and hardware. These are the two biggest costs. You need some very heavy computers and graphics cards, and you need a lot of electricity. Many people do not mine because their electricity bills are too high then. This is why China had such an important role in cryptocurrencies and why so much mining is being done in China.
China has always had policies which help its manufacturing sector grow and one of these policies was to make energy as cheap as possible. Back when China was still a poor country trying to develop, its government realized that high energy costs make it hard to run factories. They wanted to be a manufacturing hub that could beat the rest of the world when it comes to price.
The solution they came up with was very cheap electricity. The gambit worked, and China became the biggest manufacturing country in the world. Miners love this policy as well: it gives them an advantage over miners in other countries because China’s energy costs are so much lower.
The hardware part is important too. Since China is the world’s biggest hardware manufacturing hub, the hardware is cheaper and available easily in China. Thus, China became the best place to mine. A lot of Chinese people became big miners and slowly, even foreigners started setting up mining operations in China.
China’s policy will be updated soon
China hasn’t restricted cryptocurrencies and mining permanently. China’s government has realized that leaving such a big industry unregulated was not a good idea, and it is trying to create regulations for it now. That is what this restriction is about – they want people to pause until the proper legal and financial framework exists for the government to regulate cryptocurrencies.
This isn’t exactly good news – because regulation is something cryptocurrency owners do not like. Another worrying part is that the government has only banned OTC trading and mining – corporations can still use and trade cryptocurrencies as long as it is business to business. Many Chinese ventures, some even supported by the government, are offering cryptocurrency services. It seems like the corporations are moving in and taking over the world of cryptocurrencies.
The problem isn’t just that people don’t like it – another problem is that it is completely against the ethos of cryptocurrencies. They were built to replace the current financial system, not become a part of them. Only time will tell how things go, and the world of crypto is waiting for China to release its policies.