China's Underground Bitcoin Mining

Recently, the news has been flush with underground Bitcoin mining operations being found across the globe. From a prison in Russia, to an underground operation in China, even countries that publicly ridicule Bitcoin seem to be interested in mining it. 

Keep reading to learn more about a recent incident which occured, in which a study showed that one fifth of all Bitcoin is still mined in China despite the widespread ban, and what the authorities plan to do about it. 

How Does China Feel About Cryptocurrency

One of the first questions people ask when it comes to China and cryptocurrency is what is the government's stance on cryptocurrency. The answer is very simple. The Chinese government is openly against cryptocurrency and has banned Bitcoin and other forms of cryptocurrency, except of course for the one they invented (figures!)

The Chinese government cited the reason for the ban is the volatility that Bitcoin creates in the economy and the instability that it can bring. Although this might be slightly true, many suspect that the real reason the government banned Bitcoin and cryptocurrencis, is because the government didn’t want people to have the economic freedom that Bitcoin can provide. 

In case you are unfamiliar with the government in China, they have a very strict and authoritarian communist regime. Almost every aspect of life in China is heavily regulated including access to certain websites like Facebook. Due to the fact that the government is communist, there are very limited opportunities for Chinese people to invest any money that they may have saved up. 

The Chinese government is especially strict when it comes to preventing money from exiting the country. For example, Chinese citizens are not allowed to buy property overseas or invest in foreign stocks in order to prevent capital from exiting the country. This is why the government was so quick to ban Bitcoin since it presented an avenue for large amounts of money to be transferred out of the country. 

Do People Use Bitcoin in China?

Now that you know that the Chinese government has banned Bitcoin, you might be wondering if it is still used in China. The answer is, absolutely. Despite the ban that was instituted by the government in 2021, people in China continue to buy and use Bitcoin, just in secret.

One of the main reasons why people in China can continue to use Bitcoin is that it is very hard for the Chinese government, or any government, to regulate crypto activity. Due to the large amounts of freedom that the internet gives people, it is extremely hard to track the activities of people that use Bitcoin. 

The people that continue to use Bitcoin even after the ban take several precautions such as using proxies in other countries to disguise their true location. As a result of measures like this taken by Bitcoin users, it has proven quite difficult for the Chinese government to effectively enforce its ban. Even after the ban, China continues to be one of the countries where Bitcoin is used the most. 

The truth is that a ban such as the one implemented in China can’t work. The only feasible way to realistically stop every single person in the country from mining or using Bitcoin is to remove access to the internet. However, in today’s society that is impossible. To remove access to the internet from people would be a backward step that would cause much more harm to the country than allowing Bitcoin to be mined would. 

Although the ban is never going to stop everyone from mining or using Bitcoin, it has surely discouraged many Chinese people from being part of the network of Bitcoin mining. The risk that the ban by the government added acts as a deterrent that will stop many Chinese people from involving themselves with Bitcoin in the future. 

The true goal of the ban is to prevent as many people as they can from becoming involved with Bitcoin. However, to think that the ban could stop Bitcoin mining in its entirety would be more than naive. 

Is Bitcoin Still Mined in China?

As you could probably guess, Bitcoin is still mined in China despite the fact that it is prohibited by the Chinese government. In fact, China is responsible for about 20% of the worldwide Bitcoin mining. 

It may be hard to believe at first that a country such as China with a very strict government can continue to be one of the largest Bitcoin mining countries in the world despite its ban on Bitcoin and cryptocurrencies. However, as was mentioned earlier, it is extremely difficult to enforce this ban which is why thousands of people in China continue to mine Bitcoin. 

However, the ban has definitely caused miners to implement several changes to their operations. For example, miners are now more than ever forced to use a VPN to alter their location. Many of them change their location to overseas places such as Europe or North America, while many of them change their locations to other places within the country to throw the authorities off their tail. 

In addition, Bitcoin miners have to regulate their energy consumption to make sure that a single spot isn’t consuming more energy than what could be considered normal. Since the energy company in China is owned by the government, unusual energy consumption can be reported to the government in order to enforce the ban on the mining of Bitcoin. 

Because it is so easy to alter one’s location using VPN services which can be purchased for only a few dollars a month, it is relatively easy for these miners to prevent detection. Their main concern is being detected by the electricity providers in China. 

Despite the ban that the Chinese government put in place to prohibit the mining of Bitcoin, One study by Cambridge believes that Chinese miners have created an underground Bitcoin mining network that accounts for about one-fifth of the Bitcoin mined worldwide. They deduced this from a series of studies they conducted since the execution of the cryptocurrency ban. 

Thus, regardless of how much the Chinese government might dislike Bitcoin, it is clearly still being mined and will continue to be mined within the country. With time the government might get better at catching miners, however it is very unlikely that the ban will ever be 100% effective. As of the writing of this article, it is not clear what becomes of Chinese miners who are caught mining Bitcoin.

This article was brought to you by the Plinko Game on MintDice. Originally posted to the MintDice Bitcoin Blog.