China's Bitcoin Dominance Under Threat As Regulators Take Aim At Electricity That Powers Miners
After dominating the headlines this past year, the first week of 2018 has been quite unforgiving to Bitcoin. Now it's about to get worse as the currency's largest market, China, is planning a crackdown on its crypto-mining companies.
According to Bloomberg, Chinese authorities are planning to discourager cryptocurrency mining. The nation's central bank is currently looking to limit the power use of these miners, asking local government officials to "guide" miners toward an "orderly" exit from the business. Authorities will also stop offering mining companies preferential benefits such as discounted electricity and tax deductions.
Mining is the process by which sets of bitcoin transactions called blocks are verified and added to the blockchain ledger. This verification process relies on having powerful computers solve difficult math problems with each correctly solved block netting a payout in Bitcoin.
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During the early days of the digital currency, most of the mining was done by individuals but in recent years, this has shifted to large firms using specialized hardware (called ASICs) thanks to the diminishing rewards. Obviously, industrial crypto-mining requires massive amounts of electricity which is why many crypto-mining companies have set up shop in countries where it is cheap – most notably China.
This made the Chinese crypto-market the largest in the world with a considerable amount of transactions being done in the country. However, the continued decline of the rewards from mining has made the process a far-less profitable proposition.
With China continuing to divest itself from the crypto-market through new regulations, miners will have to look somewhere else to set up their operations or cease them altogether. This could have far-reaching consequences for the cryptocurrency because without miners to verify transactions, costs would likely skyrocket making the currency an unappealing alternative to fiat currency.
Bitcoin supporters and investors can add this to the growing list of problems with the cryptocurrency market matures. While many still hold on to the idea of using the digital currency as a store of value rather than a mode of payment, some are already dropping their nest eggs in favor of other cryptocurrencies or more "tangible" investments.
