Why Doesn’t the State Ban Mining (Why Doesn’t the State Sanction Mining)?

Why doesn’t the state ban mining? Let’s briefly understand why the country does not prohibit cryptocurrency mining.

1. Bitcoin is considered the representative technology of virtual commodities, with significant economic and social impact. Ethereum, as a global distributed system, has already dominated in terms of computing power. However, due to its decentralized nature and the shortcomings of its consensus mechanism, Bitcoin’s price fluctuates dramatically. Furthermore, factors such as its high efficiency and low cost make it highly speculative. Additionally, some people view these types of digital assets as a means to hedge against currency depreciation risks. So what exactly causes this phenomenon? It is because it conducts transactions through blockchain technology and creates new productivity. Does this behavior constitute an illegal activity?

2. Current laws in our country stipulate that “no organization or individual may engage in business related to legal tender” or “engage in related financial business”. In other words, as long as there are legally compliant companies engaged in such business, they can operate in accordance with the relevant requirements set by the government.

3. “Virtual currency,” “virtual cash,” “digital tokens,” and “electronic payments” are concepts within the scope of national regulation. Therefore, they cannot be regulated by government agencies or other entities. If virtual currency is defined as “illegal public financing,” it must be implemented in accordance with Article 19 of the National Industrial Structural Adjustment Guidance Catalog. The “Notice of the Ministry of Industry and Information Technology of the People’s Republic of China on Preventing the Risk of Token Issuance Financing” has been in effect since the end of 2017, starting from August 2019.

4. In recent years, some large domestic enterprises have started to enter the field of virtual currency. For example, the Development and Reform Commission of Hainan Province has issued a notice stating that it will comprehensively clear and shut down virtual currency mining projects throughout 2020 and eliminate a batch of unlicensed taxpayers and some illegal private institutions participating in virtual currency mining. In addition, it mentioned the “Opinions of the People’s Bank of China and the China Securities Association on Supporting the Comprehensive Rectification of Beijing’s Equity Market”.

Why Doesn’t the State Sanction Mining

According to the latest news, “on Friday, May 16, 2021, the People’s Bank of China issued the first document regarding the comprehensive investigation of ‘speculative’ chaos surrounding virtual currencies”. This document has officially taken effect since mid-December 2019. At the end of November 2019, the “Resolution of the Central Political Bureau Meeting of the Communist Party of China and the 18th Collective Study” (referred to as the “Resolution”) had been reviewed and approved by the Supreme People’s Court. (Xinhua News Agency, Beijing)

In the crackdown on virtual currencies by the state, besides cracking down on mining of “digital assets” such as Bitcoin, there are also other illegal activities. These illegal activities mainly involve:

1. Engaging in illegal fund settlement businesses.

2. Causing losses to protect personal legitimate rights and interests.

3. Seriously undermining social stability.

4. The “two highs and one low”.

If we say that since September last year, our country has fined or rectified ICO projects mainly focused on the “coin circle,” “blockchain,” and “air coins,” it is equivalent to giving a small country a green light. Then today, we are going to discuss the topic of “prohibiting the use of encryption technology.”

The term “sanction” mentioned in this title refers to the government and relevant departments using some resources to rectify various virtual currency mining activities, and at the same time, prevent financial risks and tilt towards the upstream and downstream industries. This also includes very strict measures and policies against violations related to virtual currency mining. “Prohibition” is a notice issued by the State Council and distributed to various ministries and commissions regarding strengthening information supervision in key areas, requiring localities to carry out self-examination and rectification work, urging and guiding companies within their jurisdiction to withdraw from relevant industries as soon as possible, firmly maintaining market order and social stability, and ensuring that all work proceeds in an orderly manner. “Power rationing” and “shutdown” are just provisions in the notice, which do not necessarily mean that specific policies will be implemented, nor does it mean that new laws and regulations will not be introduced. However, for those who participate in such activities, it can still be understood as a restricted production and operation behavior, as long as they follow the country’s guidelines. – Yang Dong, Associate Professor, School of Journalism, Central University of Finance and Economics

According to the latest news, “on Friday, May 16, 2021, the People’s Bank of China issued the first document regarding the comprehensive investigation of ‘speculative’ chaos surrounding virtual currencies,” and it has officially taken effect since mid-December 2019. At the end of November 2019, the “Resolution of the Central Political Bureau Meeting of the Communist Party of China and the 18th Collective Study” (referred to as the “Resolution”) had been reviewed and approved by the Supreme People’s Court. (Xinhua News Agency, Beijing)

So since this time is not a heavy blow, it means that since October this year, domestic cryptocurrency prices have continued to rise, and there have been abnormal fluctuations in virtual currency trading venues worldwide. Since the end of 2020, with the occurrence of large price fluctuations in Bitcoin, many regions even saw business closures, leading to significant economic losses for many investors. Therefore, it can be said that the impact of this epidemic has not yet subsided, but may continue to spread in the future.

In fact, in recent years, the mining of Bitcoin in China has gradually resumed normal operations mainly due to subsidies, electricity costs, equipment leasing, cheap hydropower, and dual energy control. Therefore, various countries have expressed high levels of attention recently. However, although there is currently no specific tax reduction plan in place, the state’s regulatory attitude towards the cryptocurrency field remains strong under the current situation. Moreover, the impact on ordinary people is relatively limited.