Daniel Slotta
Research expert covering finance, real estate, and technology in Greater China
Get in touch with us nowFrom rise to crackdown
The development of the Chinese cryptocurrency industry can be traced back to the early days of Bitcoin and blockchain technology in the early 2010s. At that time, China became one of the largest markets for cryptocurrencies, with a significant number of Chinese investors and traders investing in digital assets and mining infrastructure. The country had a handful of beneficial circumstances for the industry. For one, energy was cheap, and miners could also use connections to the government to gain locational advantages. In addition to that, cryptocurrencies constituted a way to circumvent China’s strict capital controls and enable citizens to move money around under a thicker veil of secrecy. Finally, the official government policy was to facilitate blockchain technology which played into the crypto industry’s hand.Caught in a difficult situation, regulators in Beijing decided to reign in the industry and ban the trade and mining of cryptocurrencies. Because the Chinese government wanted to be at the forefront of web3 technology, it appreciated the industry and allowed some of the leading companies in the industry to thrive. However, the downside of the industry became a threat to national policy. Mining operations got so big and consumed a significant amount of energy which went against Beijing’s aim to decarbonize the economy to achieve their climate goals. Furthermore, the lack of oversight and restrictions on capital flows was considered too big of a risk. Consequently, the central government called an end to crypto mining and trading in May 2021 and doubled down on their policies in September of that year.
Going underground
Despite the heavy crackdown by the Chinese authorities, the country continued to have an active illegal, underground crypto-mining industry. After the central government began implementing the crypto ban, miners in China were losing their competitive advantage and facing legal repercussions. Those miners who had the means packed up shop and relocated. However, those who did not, were forced to seize operations and take the losses or continue underground. Looking at the global mining activity, it becomes apparent that initially crypto mining stopped but resumed after around two months and has accounted for around 20 percent of global mining activity since then.Chinese crypto miners who continue to operate in the face of government regulations have resorted to several tactics to avoid detention and stay under the radar. One of the most prevalent strategies was to relocate to remote regions and utilize power sources that were not connected to the power grid. These included Yunnan and Sichuan with their abundance of hydro dams and Xinjiang with its solar energy installations. Besides avoiding detection by using clandestine power sources, miners also took technical precautions, for instance, many joined overseas mining pools, and used VPNs, among other ways to hide internet traffic and identities. But after all, keeping a low profile requires a big effort and a lot of moving around and hiding, which makes large-scale operations unfeasible.
