China’s National Development and Reform Commission (NDRC) on Nov. 16 announced that it will impose “punitive electricity prices” on some cryptocurrency miners.
In a press conference, Meng Wei, spokesperson for NDRC, stated that the measure will be imposed on companies that mine crypto and only pay residential electricity prices. In addition, industrial-scale mines and state-owned firms involved in mining will be key targets of the disciplinary action, Meng said.
Some mining activities take place in the computer room of state-owned entities, as electricity rates for these firms are more affordable. NDRC has previously issued a directive to investigate all such activities and strictly punish those involved.
“Virtual currency is a specific virtual commodity. It is not a real currency, and it is not issued by monetary authority. Therefore, it should not and cannot be circulated or used as currency in the market,” Meng added.
The strong global demand for Bitcoin gave rise to mining machines and large mining farms in many places. Before the Chinese Communist Party (CCP) began to crack down on crypto mining this year, about 70 percent of the world’s mining machines were located in China.
As the mining machines perform a large number of complex calculations day and night, their power consumption is very high. The Cambridge Bitcoin Electricity Consumption Index estimates that Bitcoin is set to consume 95.68 terawatt-hours (TWh) by the end of the year, about the same as the power consumption of the Philippines. This amount is much more than the estimated 67 TWh for 2020, and the trend is clear—energy consumption will continue to increase.
China experienced both coal shortage and power shortage earlier this year. In September, NDRC and 10 other departments explicitly requested that the virtual currency mining industry be included in the category of “to be eliminated.” Local governments were required to conduct comprehensive investigations, and to ensure that existing mining entities would exit crypto mining in an orderly manner.
Virtual currency mining activities contribute little to the national economy, as they have limited effects on industrial development and technological progress. Moreover, the mining’s high energy consumption and high carbon emissions are detrimental factors, NDRC claimed.
In June this year, when the Bank of China banned virtual currency transactions, it claimed that such transactions disrupt financial orders, and make it easier to conduct illegal cross-border asset transfers and money laundering.
Regulators allow Chinese citizens a foreign exchange quota of $50,000 a year. However, in a report released at the beginning of this year, Chinese blockchain security company Peckshield revealed that approximately $17.5 billion in virtual currency capital flowed out of China in 2020. In previous years, the funds that flowed out of China through virtual currencies were $11.4 billion in 2019; $17.9 billion in 2018; and $10.1 billion in 2017.
