Bans on Bitcoin Mining Tests Resilience of the Crypto Industry

How is the crypto industry overcoming bans on mining?

Key Actors:

• Bitcoin; a medium of cryptocurrency for which blockchain technology was invented, currently the biggest and most profitable form of cryptocurrency

What is cryptocurrency?

Cryptocurrency is a digital currency that uses cryptography to secure its decentralised networks based on blockchain technology. Blockchain technology is a complex structure of nodes and codes maintaining its security, but its main purpose is to support a distributed database. The database  shares a secure record of node transactions peer-to-peer, between computer networks. This is the defining point of cryptocurrency as it guarantees the fidelity of trust without a third party. Another advantage of cryptocurrency is its faster transfers and ability to self-sustain even after a point of failure. On the other hand, cryptocurrencies consume high amounts of energy and have high price volatility.

How is Bitcoin mined?

The process of mining Bitcoin is a complicated and long process of extensive blockchain hashes and nodes with powerful computers. To put it simply, miners must solve a math puzzle in which the difficulty is determined by the number of parties  competing for bitcoin at the moment. The first organisation to solve the puzzle mines the bitcoin and receives a reward that is halved every 210, 000 blocks. It is due to the sheer complexity of these puzzles that makes it so secure and difficult to cheat.

Why are countries banning crypto mining?

Many countries, including China, Egypt, Iraq, Bangladesh, more recently Russia, and many more, have banned crypto mining and placed severe restrictions on cryptocurrency exchanges over the years. The two main reasons for these limitations are its damage to the environment and financial misuse. It was measured that Bitcoin uses 122.87 Terawatt-hours of electricity every year, which is more than the entirety of the Netherlands and many other countries, and generates around 96 million tons of carbon emissions, again more than the entirety of many other countries. The intense energy used to mine each bitcoin is the precise reason for its security, as it requires powerful hardware that requires large amounts of electricity to run. In addition, physical electronic waste is also produced much quicker as mining hardware becomes obsolete at faster rates. Meanwhile, earned cryptocurrency is also misused for money laundering crypto crimes. These crimes are brought out through exploiting the anonymity and hard to trace records that the blockchain peer-to-peer system maintains. From cybercrimes to real world crimes, criminals use various forms of money laundering methods to swindle cryptocurrency.

How would this affect the market value of crypto?

In 2021, the ban on digital currency by the world’s most populous crypto mining country, China, caused the price of Bitcoin to fall by 6%, a devastating plummet in its price that affected many organisations. Most of the mining power had to relocate or be completely shut down. Now, as Kazakhstan cuts off power for miners and Russia proposes a ban on them, it is estimated that around 15% of Bitcoin’s mining power will have to relocate or shut down again. This would inevitably lead to another dip in the crypto currency market value, and eventually lead to the elimination of older equipment and further isolate the less efficient miners. In addition, cryptocurrency’s price is extremely volatile as it fluctuates to government regulations, media hype, investor sentiments, supply and demand.

How is the crypto industry overcoming restrictions?

Through the years, there has always been a constant investigating and reforming of the blockchains used to mine cryptocurrency. Organisations are looking to further develop these nodes so that each mining occurrence can use less electricity power and provide a more environmentally friendly experience. Furthermore, companies have a fully decentralised and exposed system where financial transfers across the globe may be completed cheaper and faster. These would surely attract the lenience of the many countries to ban or restrict cryptocurrency. As for direct changes to sustainability for the environment, many authorities are looking for ways to use 100% recycled energy to conserve energy and reduce carbon dioxide emissions.

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