What is the Effect of the Ban on Crypto Mining?

What is the effect of the ban on crypto mining? The ban on crypto mining, with reference to the ban imposed by the Chinese government, has had some serious effect on the crypto industry on the whole.

It has opened doors to the crypto miners to flock to the United States which has made it the leader in Bitcoin mining, as of now.

In addition to that, with the share of global Bitcoin mining in China falling effectively to zero after the ban on crypto mining, there is about a 38% fall in the global mining rate as well, according to a report.

Some of the mining equipment used in China before the ban was imposed found new homes overseas.

This relocation of the mining equipment resulted in a partial offset in the mining industry with about 20% ‘bounce back.’

And, this happened within just a couple of months after the ban was imposed by the Chinese government.

Though, initially, people felt sorry for the crypto miners after the ban on mining, but the changing attitudes of the world to crypto, both in the good and bad ways, has pushed them and the mining industry on the whole to other locations to prosper.

Apart from these effects in the statistics of global mining, there have also been some other effects of the ban on crypto mining by China, which was at its peak with about three quarters of total Bitcoin mining happening there.

If you want to know about these effects, both good and bad, you are in the right place.

In this article, you will find everything from the effects on the industry as well as on the market and environment along with the reasons for the market shifting.

What is the Effect of Crypto Mining Ban?

What is the Effect of the Ban on Crypto Mining

China, the country where crypto mining was the highest, imposed a ban on crypto transactions declaring it as illegal in June last year.

This has had some immediate and long term effects, and the crypto experts and industry analysts say that it will have some significant effects in the governance of other countries surrounding crypto in the near and distant future as well.

The price of Bitcoin tumbled down and there was a ‘gold rush’ in Texas for Chinese Bitcoin.

The ban has also altered the position of countries in terms of crypto mining. According to some latest reports, the United States holds the first position contributing more than 35% of total Bitcoin mining as of now.

Following them is Kazakhstan (!) contributing a bit more than 18% and Russia with about 11% of total contribution to hold the third position.

The all-of-a-sudden dead-against stand of the Chinese government to crypto citing reasons like its decentralized and anonymous nature as well as the environmental impacts caused by crypto mining is welcomed by countries like Kazakhstan on the other hand.

These countries have embraced the numerous companies with open arms that have become homeless in China after the ban on crypto mining by the government.

And, this has had and also will have some good and a lot of bad effects.

These companies who have found a new home have given a lot in return to these countries as a sign of gratitude for giving them a proper shelter.

This has helped the crypto miners and the countries both being able to cash in seriously.

For example, Kazakhstan has contributed more than double than it contributed before the ban was imposed on crypto mining in China by the Chinese government.

That is all about the good sides of it. On the flip side, this has also resulted in some strains and it has already started to show significant signs of a negative impact.

This will continue to grow and become a serious headache sooner or later for the governments of the countries who have embraced crypto mining.

As you may know, crypto mining needs a lot of computational power and electricity.

Therefore, with such rapid growth in crypto mining within the country, it will surely have some significant effects on the electricity levels and natural resources.

This means that, the primary reason for China banning crypto in terms of energy consumption will not be of any good considering the global health that will be jeopardized further.

Though the energy consumption in China will reduce, it will rise in some other parts of the world annulling the positive effects of the ban since the low consumption level will be reversed as crypto mining recovers.

As a result, the industry experts expect that regulations and legislations are likely to be imposed in order to ensure that this boom in crypto mining activities in the country is more sustainable.

So, that is all about the electricity consumption of crypto mining which is about 0.45% of entire global electricity production.

As for the effects of relocation and geographic distribution on the energy resources, the industry analysts still do not seem to have any specific idea how exactly this will change the mix of energy sources that is required to mining Bitcoin or other crypto coins.

They say that it needs further research to find whether it will be renewable energy or fossil fuels.

Earlier in China before the ban, crypto mining using renewable energy was followed extensively and therefore the miners flocked to places where electricity is cheap due to the abundance of hydro-electric power, especially in the rainy season.

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Now, with the ban imposed on mining by the Chinese government in the country, miners have to look elsewhere to find cheap electricity, even if that is available from fossil fuels.

However, in the United States, especially in the regions like Washington, the cost of electricity from hydropower is low and it is easily available.

Therefore, a significant amount of mining is done in these places. So, moving to the United States is a feasible and productive option.

On the other hand, some Chinese miners also migrated to Texas because cheap electricity is also available here especially after the government there deregulated the electricity grid.

However, if you consider the case of Kazakhstan, where people have also migrated in large numbers resulting in the rapid and significant growth in mining activities there, experts think that it will affect the environmental cost significantly.

This is because more than 87% of electricity in Kazakhstan is produced from fossil fuels, according to the recent report of the US Department of Commerce, of which coal accounts for more than 70% usage.

And, when you consider the e-waste factors, experts think that there is an immediate need for change in the rules regarding crypto mining in these specific countries.

This is because crypto mining will surely bring some bad news for carbon emission overall to the countries.

There are several survey reports and statistics that show the extent of polluting effects of crypto mining with every kilowatt hour of electricity produced in the country on an average.

And, that is not all because the environmental impact of crypto mining is not confined to greenhouse gas or carbon emissions only.

Research shows that Bitcoin mining produces thousands of tons of e-waste or electronic waste.

This is because the computers used for the mining process become obsolete pretty quickly and need to be discarded and replaced by a new one.

If the countries do not have any specific legislation regarding e-waste, as it is in the case of Kazakhstan, the shifting of mining in other geo locations will not change anything for the better for the world at large.

Therefore, some strict rules must be imposed immediately in order to make sure that things do not go out of control soon for the governments in these countries, experts think.

Effect on Other Countries:

The ban on crypto by China has also had some significant effects on the other countries, including Russia, which is, as said earlier, is the third largest crypto mining country in the world.

As for Russia, the government considers cryptocurrencies to be a pyramid scheme that destabilizes the autonomy of the traditional monetary policy.

It poses a significant threat to the financial system of the country, the central bank of Russia believes.

The potential risks are much higher for any emerging market, they say, due to the lower financial literacy and higher tendency to save in foreign currency.

The Russian central bank also says that crypto mining not only affects the green agenda of the country negatively but it also jeopardizes the energy supply and intensifies the negative effects of crypto.

They consider cryptocurrencies as incentives that motivate the people to circumvent regulations.

The hard line of the central bank of Russia against crypto fits together with the stance of the powerful security services of the country.

They say that a ban on cryptocurrencies is required to stop it from funding the domestic opposition of the country.

The Federal Security Service, or FSB, corroborates the Governor’s support for a ban on crypto that is hard to trace when used as a mode of payment.

It can therefore be used to fund the objectionable organizations that are labeled as foreign agents, they said.

Therefore, further regulation is needed on crypto to prevent people using the Russian infrastructure for trading the coins.

Without such regulations imposed, they say that Russia will be the most sought-after home to miners from all over the world and make it a center for making illicit financial transactions via these digital assets.

They say Russia has already become the third largest country for crypto mining last year with an influx of miners in Siberia and other northern parts of the country.

Here cheap power is accessible easily and the temperature is pretty low.

Therefore, without regulations, companies like BitRiver, BitCluster, and Minespot will grow and continue to flourish which will bring negative effects on the country’s economy and to the environment as well.

As a result of this growing pressure from all corners, Russia has already banned making crypto payments.

However, the continual growth in popularity of the digital currencies in the country calls for further ban.

However, unlike in China, Russian people may be allowed to hold crypto assets in offshore banks and may even trade crypto.

Though the debate over crypto will intensify, a regulatory framework has been created with priority which, most people think, is the first step of moving towards a complete ban, which, however, needs to be unanimously passed to make it a law and put into effect.

And, a lot of examples of donations being made and accepted within the government offices of late worth millions of dollars further substantiate the need for regulation or a complete ban on crypto.

Therefore, it can be said that crypto mining may soon be banned in Russia.

As for the other countries in the world, they are in a dilemma as to whether or not ban the use of crypto completely in their country or to allow the citizens to use them with some strong riders.

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In these countries, the prices of crypto coins as well as the number of crypto accounts are rising thick and fast.

And, it is all due to the lack of regulation.

The central banks of these countries are however concerned about the growing popularity of crypto among people, an asset which is out of their purview, being decentralized and unregulated.

This, they think, may result in a decline in the investments in government bonds,

Provident Funds and other bank-controlled assets which will severely affect the lending capacities of the banks for different useful economic activities.

However, as of now, imposing a complete ban on crypto may not be possible in these countries because both big and small players including celebrities are involved in it who have brought in their NFTs or Non-Fungible Tokens that can be traded in crypto.

They also take cue from the ban imposed by China last year. It has hardly been able to annihilate the crypto market.

Instead, it resulted in an exodus of the miners from China to the United States.

Therefore, they think that a ban on crypto will be a loss for one country and a huge gain for another.

Moreover, they think that a ban on crypto would mean significant loss for the investors who have already put in millions of dollars in this volatile crypto space with an intention to make the most out of the wild price swings.

Add to that, it may also result in loss of employment opportunities in the blockchain industry, which, by itself, is quite good, innovative and useful.

What these countries can do is take a lesson from other countries such as Singapore, South Korea, California, Ohio, and the United Kingdom where crypto is not banned completely but is not considered as a legal tender but as a property.

This means that crypto cannot be used to pay off debts but will mandate the crypto exchanges to meet the terms of the financial regulators.

This will benefit the government in two specific ways. One, with the KYC or Know Your Customer and the other is the capital gains tax to be paid while trading crypto.

Therefore, the future of crypto becoming a legal tender, as of now, seems to be pretty bleak.

However, the entire world is expected to see a significant change in the rulings surrounding it and it will be very interesting to see how the countries comply with these new rules that are primarily governed by the United States and China.

Till then, these countries need to have a dedicated regulatory body for the crypto exchanges that will oversee the investments, trading, and advertisements on crypto.

Market Shifting and Reasons

The ban on crypto mining by the Chinese government there has resulted in an exodus of the miners moving the entire crypto mining market overseas.

According to reports, nearly 90% of the mining market went offline due to the ban that has paralyzed the crypto mining industry almost overnight.

In fact, reports show that the Chinese mining market which contributed nearly half of Bitcoin production all over the world came to a close.

The miners dumped their rigs back there in despair and frantically looked for an alternative location that will support them and allow them to mine crypto without much interference or such unexpected drastic decisions made.

Luckily, they all found their new homes in countries like Texas or Kazakhstan and took refuge in them.

The miners were excited to see the prospects there and decided to comply with the policies of the Chinese government and leave the country.

A lot of major Chinese miners started to move out and try venturing overseas pretty soon after the mining ban.

They say that they were left with no other choice but to leave the country because they felt that there was no way in which they could defy the decisions of the Chinese central government.

And they also added that they saw no signs that the Chinese government is contemplating on reversing the policy very soon.

However, there are some miners who still hope that the ban on crypto mining will be relaxed by the Chinese government eventually, if not sooner, then later.

They hope so because the government has not ordered them to demolish their projects completely though power supply has been cut.

Therefore, they feel it is better to follow a wait-and-see approach rather than incur huge cost of relocation and hope to find the silver lining somewhere some time.

As a result of the ban imposed by China on crypto mining, almost every mining operation that was done outside China seemed to realize the benefits they could enjoy and wanted to cash on it straight away.

This is because they could see the immediate consequence such a ban would have on crypto mining.

It will result in an automatic increase in the global hash rate of the Bitcoin network.

Therefore, the ban on crypto mining by the Chinese government brought an end to an era in China and started another in some other parts of the globe.

The reasons for the entire crypto market shifting due to the ban on crypto by China are varied and many.

First, according to the basic principles, the repercussions of any prohibitive order in a country will surely be felt beyond borders.

Either they will welcome the move and oppose the shifting of the market or vice versa. In the case of crypto ban, the latter happened.

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Second, such prohibitions will cause a ripple effect on crypto exchanges in other parts of the world and the majority of the traders will want to square off their positions by buying smaller crypto coins.

It is only the savvy crypto investors who will buy more of Bitcoin and Ethereum.

Either way, it will cause an increase in the demand for coins in the market where others will want to enter and capitalize on the rise in demand for the coins.

Such prohibitions will also cause a change in the behavior of the investors.

There will be an increase in their tendency to buy in the dip so that they can make the most out of the opportunity provided to strengthen their positions.

This is however a common occurrence in the crypto market after any news because it creates FUD or Fear, Uncertainty and Doubt among the investors and traders.

Effects on Mining Equipment Market

After the ban on crypto mining by the Chinese government the miners moved out of China leaving their machines there.

This has sparked random sale of the mining rigs just like scrap metal since almost all of them started to sell their machines after shutting down their operations in China.

Due to their relocating, the prices of the mining equipment came down to as low as 4,000 Yuan or $620 dollars just after the ban but it continued to fall down and could be bought for half that price after a couple of months.

Even the major manufacturers of crypto mining machines in China, such as Bitmain, suspended their sales as a result of the ban on crypto mining.

They, instead, started to look to supply these machines to the miners in other countries overseas such as the United States, Canada, Russia, Australia, and even to smaller countries like Kazakhstan and Indonesia.

Even the miners in the smaller countries started to import these machines in large numbers.

For example, the miners who relocated in Kazakhstan imported more than 300 machines in their first batch and the total number of machines ordered by the Central Asian countries in two batches was 2600 within a couple of months after the ban.

This signifies that the mining equipment market did not experience the effect of the ban on crypto mining by the Chinese government as severely as the crypto miners themselves.

In fact, the companies not only accelerated their overseas market development strategies for supplying high-quality mining machines but major companies like BIT Mining also started investing in crypto mining data centers in overseas locations such as in Texas.

Other companies also started exploring other avenues in other overseas countries that have embraced crypto mining such as Kazakhstan.

Environmental Effects

The ban on crypto mining by China has not only affected the crypto miners and the mining equipment market but it has also affected the environment significantly.

This is, once again, due to the fact that the miners are moving after the crackdown to newer places where energy required to mine are still available in abundance, if not for cheap, and also the regulations on crypto mining are looser, if at all.

And this move has increased a lot more six months after the ban by China on crypto mining.

This has ideally shifted the extremely energy intensive crypto mining process from one place to another.

This means that the epicenter has shifted from China to the other countries.

Now, the environmental effect has shifted from China to these countries.

The electrical energy consumed for solving the complex math problems is depleting in these countries and so are their natural resources.

The carbon emissions as well as the e-waste in these countries are also on the rise which is affecting the environment seriously.

Therefore, the effect of the ban on crypto mining by China has literally shifted the blame of causing harm to the environment from one country to another.

In addition to that, the countries supporting crypto mining have also started to make some significant changes in their regulations regarding crypto mining as an effect of the ban by China.

For example, specific crypto exchanges in specific countries have imposed restrictions in crypto mining by placing limits on it.

However, for how long these countries can hold up against the strain of the mining operations and its effect on the environment causing a change in climate is to be seen.

The recent power outages in these countries are already showing signs that things are not good and the future of crypto mining does not look very bright.

Conclusion

The ban on crypto mining especially by China in June last year has had a serious effect on the industry on the whole.

As you can see after reading this article, it is not restricted to the crypto miners only but also has affected the climate and the market.