China Bans Crypto, and Here’s Why
- 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.
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.
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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.
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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.