China's push to curb cryptocurrency mining is partly driven by concerns over the rise in illegal coal extraction, which endangers lives and undermines President Xi Jinping's ambitious environmental goals. Chinese authorities decided to act quickly after realizing that the rise in electricity consumption from the servers supporting Bitcoin and other cryptocurrencies was a major factor behind the increased demand for coal in certain parts of China, according to a source who participated in high-level government meetings on the issue and requested anonymity. The source indicated that the increased demand for coal prompted some producers to reopen idled mines without official approval, leading to higher safety risks and a rise in the number of incidents resulting in casualties since the beginning of 2021.
While the central government in China has imposed strict bans on digital asset exchanges and has clamped down on cryptocurrency mining for years, authorities in some remote regions of the country have been more welcoming of the industry because it generates critical revenue. By April 2020, approximately 65% of Bitcoin mining globally occurred in China, according to estimates from Cambridge University.
**Increasing Concerns**
Growing concerns about indirect environmental impacts helped explain why the China Financial Stability and Development Committee announced on May 21 that it would take severe actions against cryptocurrency mining and trading, marking one of the strongest denunciations by the government of the cryptocurrency ecosystem to date. The warning prompted sell-offs in cryptocurrencies from their record highs and ignited debate on how investors should respond to the environmental costs of digital assets.
Elon Musk, founder of Tesla and a cryptocurrency advocate, has influenced billions of dollars in market value changes in recent weeks. According to one estimate, each dollar of Bitcoin mined in 2018 is responsible for approximately $0.37 in health and climate damages in China and $0.49 in the United States. Bitcoin is highly centralized, with the overwhelming majority of its production controlled by a few large mining companies. Musk tweeted on May 16, "A coal mine in Xinjiang was flooded, killing almost all the workers, and Bitcoin's hash rate dropped by 35%. Doesn't seem very decentralized to you?" Since mid-April, Bitcoin has dropped by around 40%, reducing the significant rise that attracted everyone from Wall Street professionals to inexperienced investors in South Korea. The largest cryptocurrency was trading at $39,293 in Hong Kong morning trading.
The National Energy Administration of China and the National Development and Reform Commission did not immediately respond to requests for comment.
**Fatal Incidents**
Separating the impact of cryptocurrency mining on coal consumption in China is not straightforward, especially during economic recoveries when energy demand spikes. However, in regions like Xinjiang and Inner Mongolia, which have long been favored destinations for the industry, Chinese authorities have established a direct link between cryptocurrencies and coal. A preliminary government investigation into an incident where 21 people were trapped in a coal mine in Xinjiang last month revealed that the mine had been reopened without official permission to help meet the increasing energy demand from cryptocurrency farms, according to a source familiar with the investigation, who requested anonymity while discussing sensitive information.
No official update has been released on the status of the trapped coal miners since China's state-run Xinhua News Agency reported in early May that a rescue team had entered the mine. Xinjiang alone represents nearly 36% of Bitcoin mining capacity, according to Cambridge estimates, thanks to cheap coal-powered electricity, low temperatures that keep mining rigs cool, and underdeveloped power grids that sometimes lead to oversupply.
**China's Commitment**
Some observers question China's commitments to emissions, but the country's top leaders have vowed to prioritize climate change action despite potential short-term economic obstacles. At last month's climate summit hosted by President Joe Biden, President Xi emphasized China's plan to peak carbon emissions by 2030 and achieve net-zero emissions by 2060 by partially reducing coal consumption.
For a Chinese government concerned about the anonymity and volatility of boundless digital assets, cryptocurrency mining companies represent a clear target. Regulators in China have long warned that cryptocurrencies could facilitate money laundering, fraud, and terrorist financing. Although previous efforts to rein in cryptocurrency mining failed to gain local backing, there are signs of change.
Inner Mongolia, which banned digital currency mining in April, announced on Tuesday that it plans to increase penalties on companies and individuals and discipline government officials who assist cryptocurrency mining operations. Last week, Inner Mongolia revealed that it had established a system for individuals to report anyone violating the ban.
