China’s answer to the Bitcoin

Almost two-thirds of all bitcoins that are on the market worldwide are mined in China; the state still tolerates this, but trading in cryptocurrencies is no longer allowed. The Chinese government has its plans.

China is the world’s largest producer of bitcoins. Hardly anyone in this country knows company names like Bitmain or MicroBT. Still, they are among the largest manufacturers of cryptocurrencies internationally. Two main reasons have made China a paradise for modern Bitcoin miners in the past: low energy prices and cheap hardware.

Cheap electricity, fast computers

Chinese mining company created around 65 per cent of all Bitcoin last year. They are mainly found where energy is particularly cheap: in the north, in Inner Mongolia, for example. Coal and wind power produce a lot of electricity there – for a few consumers. This also applies to the provinces of Sichuan and Yunnan in the southwest. Here, mainly hydropower supplies cheap energy.

The low energy prices and the proximity to computer manufacturers are another reason for companies in China to mine cryptocurrency because the country is the world’s most important manufacturer of IT equipment, including high-performance computers, which can solve the arithmetic tasks for Bitcoin mining.

The central bank plans its currency

The Chinese Bitcoin companies have their electricity cut off from time to time,– but that’s not all; Beijing’s government is uncomfortable with cryptocurrency. Many Chinese have used digital currencies to avoid the strict capital export rules: large sums of yuan were exchanged for Bitcoin and later exchanged for dollars and euros abroad. That is why the Chinese government has now banned Bitcoin trading.

The central bank is working on its digital currency. CBDC, “Central bank digital currencies”, is the new currency’s name; it is not a cryptocurrency based on the so-called blockchain technology. The Chinese market is too big for cryptocurrencies, said Li Lihui, former president of the state-owned Bank of China, to the Chinese Internet portal Sina Finance. He emphasized that the planned Chinese digital currency was more reliable and safer than Bitcoin.

Insight into the finances

The Chinese central bank will spend the new money and gain direct insight into the customer’s financial data. From a technical perspective, CBDC is another digital payment method such as “WeChat pay” or “Alipay”, which are already used everywhere in China. To test CBDC, the Chinese central bank had given 200 digital yuan(equivalent to around 25 euros) away for free in four cities last year.

A final evaluation of the project is still pending. The plan is to introduce the new currency CBDC nationwide by the end of 2021. Bitcoin mining will continue to be tolerated until then. Nevertheless, Bitcoin mining is slowly turning away from China: In Central Asian countries such as Kazakhstan, Bitcoin production is even cheaper.