Key Takeaways
  • The Chinese central bank released a statement on Friday, September 24, 2021 stating that they are prohibiting the use and mining of all cryptocurrencies.
  • As China is the world’s largest cryptocurrency farmer, this news caused the price of Bitcoin to drop by 8%.
  • The Chinese government cites saving electricity and lowering illicit activities as their primary motives behind the action.
Are you ready to make some real money moves?

Earlier this week, the People’s Bank of China announced that they will be banning cryptocurrency transactions. China is home to one of the world’s biggest crypto exchanges, so the imposed ban heavily affected the virtual currency market. When the restriction surrounding digital currencies came out on September 24th, the price of Bitcoin had dropped by 8% in a matter of days. 

 

Image Credit: Iryna Budanova - stock.adobe.com

Cellular device with Bitcoin to USD market on screen.

 

In addition to the ban on trading and partaking in financial activities related to cryptocurrencies, the Chinese government will also be prohibiting people from mining Bitcoin. Their rationale behind this action is the fact that mining Bitcoin is very energy intensive. For example, it takes around 1,544 kWh to mine one Bitcoin, equivalent to an average household’s electricity usage for almost two months.

 

The Reasoning Behind the Ban

 

High Electricity Usage

 

As of April 2021, China makes up for nearly half of the world’s electricity used to mine Bitcoin. The Chinese government has stated it wishes to pursue carbon neutrality goals. A high usage of electricity involving mining for Bitcoin is counterintuitive for their long-term goals. Consequently, eliminating a large portion of their electricity usage allows China to meet their environmental goals.

 

Lower Volume of Illegal Transactions

 

Furthermore, the Chinese government imposed a ban on all digital currencies because they wished to reduce the volume of illicit transactions taking place within their country. The usage of cryptocurrency transactions is the preferred method of criminals who wish to exchange illegal goods. Banning crypto-related transactions will allow the authorities to root out illegal activities and hold the respective parties accountable for their actions.  

 

The federal decision made by China possesses a logical thought process. According to the United Nations and the World Bank, China is still recognized as a developing country. As they wish to improve their economy and become realized as a developed country, eliminating unregulated markets improves their chances of becoming a developed country.

 

On the other hand, El Salvador announced earlier this month they would be adopting the digital asset Bitcoin as their legal tender. One of El Salvador’s reasons for adopting Bitcoin as a currency was that much of their GDP comes from remittances sent by expatriates. Adopting Bitcoin as their currency gives citizens and companies a higher purchasing power when conducting international transactions.

 

Image Credit: Juan Carlos Caos / Shutterstock.com

Thousands of residents in El Salvador protest against the law that President Nayib Bukele proposed to make Bitcoin the country's legal tender.

 

Recommended Read: The Effects of Bitcoin Becoming El Salvador's Legal Tender

 

Both countries have a bigger picture in mind, which is to ensure their economy grows in years to come. However, though their goals may be similar, their approaches are not. With these contradictory approaches to dealing with cryptocurrency, it is unclear which direction crypto will head towards in the future. Other countries may possess similar thought processes to those in China. Some may decide to ban the use of crypto altogether, but many may also be open to change and accepting different cryptocurrencies as official currencies.

 

What are your thoughts on China banning all cryptocurrencies? Do you think other countries will follow similar procedures in the future? Let us know in the comments below.

Was this content helpful?
Comments (0)

Sign In to leave a comment.

Download the CapWay App

Access more features to your Money Account

  • Money Goals
  • Request Money
  • Categorize Spending
  • Money Talk

The CapWay, Inc Debit Visa Card is issued by Metropolitan Commercial Bank (Member FDIC) pursuant to a license from Visa U.S.A. Inc. “Metropolitan Commercial Bank” and “Metropolitan” are registered trademarks of Metropolitan Commercial Bank ©2014.

1. For Money Account holders with a negative balance, the CapWay debit card will go into freeze until funds are deposited to bring account back to current. See terms and conditions

2. Sending or receiving money from other CapWay account holders will be instant. Transfers from other accounts could take up to 48 hours, depending on the financial institution.

3. Early access to funds requires direct deposit. Early payment is not guaranteed and is dependent on the timing of payer's submission of deposits. We generally post such deposits on the day they are received which may be up to 2 days earlier than the payer's scheduled payment date.

4. Money Goals allows account holders to save money towards financial goals created within the CapWay platform. Funds can be transferred from your Money Account or saved through the rounding up of your transactions from purchases.

5. CapWay offers financial content through Learn Money free of charge, but may include advertisements through affiliates. Phunds, CapWay's literacy program and session, is paid content or co-branded content.

© 2019-2022 CapWay Inc. All Rights Reserved.