Commentary: Regulation of Cryptocurrency Mining Should Take into Account the Factor of Water Disposal and Dissipation and Give Space to Emerging Industries

We support the state’s efforts to regulate behaviors that undermine financial stability, but we also hope to rationally analyze the pros and cons of cryptocurrency mining, which is not completely “useless”, such as the reuse of discarded water, the financial livelihood of poor areas, and the development of chip technology.

Commentary: Regulation of Cryptocurrency Mining Should Take into Account the Factor of Water Disposal and Dissipation and Give Space to Emerging Industries

We support the state’s efforts to regulate and control behaviors that undermine financial stability, but we also hope to rationally analyze the pros and cons, and that cryptocurrency mining is not completely “useless”, such as the reuse of abandoned water, the financial livelihood of poor areas, and the development of chip technology.
On May 21, the Financial Stability Development Committee of the State Council (hereinafter referred to as the Financial Committee) held its 51st meeting, proposing to crack down on bitcoin mining and trading practices, and resolutely prevent individual risks from being passed on to the social sector.

On the evening of May 25, the Inner Mongolia Development and Reform Commission proposed to organize and draft the “Inner Mongolia Autonomous Region Development and Reform Commission on resolutely combating and punishing virtual currency “mining” behavior eight measures (draft for comment)” in accordance with the deployment requirements of the Financial Stability Development Committee of the State Council. The National Energy Administration’s Sichuan Supervision Office will hold a research forum on virtual currency mining on June 2, which will report on the impact of shutting down mining on the amount of abandoned water and electricity.

As bitcoin prices have risen more since last year, as well as the recent Musk shouting orders dog coins, etc., resulting in a large number of retail investors entering the cryptocurrency industry, affecting China’s financial stability, at this time, the three associations and the Finance Committee have been speaking out one after another, there is indeed a need to remind investors. However, considering the complexity of the emerging industry, industry players generally hope that policymakers can rationally analyze the pros and cons, tailor regulation to local conditions, and strike a balance among stability, livelihood and development.

First, in the eight articles of Inner Mongolia, it is clearly seen that the local government is very strict in invoking various existing laws and regulations, highlighting the basic state policy and spirit of following the rule of law. However, it is also pointed out that the article “the relevant enterprises and relevant personnel involved in virtual currency mining shall be included in the blacklist of defaulters in accordance with the relevant regulations” is a bit vague, and it seems that it is not legitimate to be included in the defaulters when they are involved in mining, which may require further detailed official explanation.

Second, under the current Chinese legal system, it is not illegal for individuals to hold bitcoin as a virtual commodity, and the use of computers by individuals to produce bitcoin seems to be “prohibited by law”. Whether new regulations or laws will be enacted in the future, or whether the current laws and regulations will be used to combat and restrict the use of bitcoin, mainly from the perspective of high energy consumption, non-setting, and pyramid schemes, will require the advancement and interpretation of the relevant legal departments.

Thirdly, the carbon neutral policy is a major national policy. However, there is a study that cryptocurrency mining can effectively consume the “abandoned electricity” inevitably generated by new energy due to the instability of the generator system, which is conducive to the new energy facilities to gain more revenue and further expand the construction, which is actually beneficial to carbon neutrality in some aspects.

Currently in the US, Musk is involved in organizing the Green Mining Alliance, several companies have signed up for 100% green energy mining, and many mining companies have set up green energy funds, including Ether to accelerate the POS transition, all of which are trying to push the cryptocurrency industry to become “greener”. A more market-based, rather than administrative, approach, such as a carbon credit system, may be a better option.

Fourth, according to China Energy News, water abandonment in 2020 will mainly occur in Sichuan Province, with over 40 billion kilowatt-hours of abandoned power from 2015-2019 at just one of the company’s power stations, Guoneng Daduhe. Mining, in addition to consuming abandoned water and electricity and benefiting local financial employment, is currently a major buyer of bitcoin from U.S. institutions, and Chinese miners are in fact using abandoned water and electricity to earn U.S. funds and pay domestic electricity bills.

In addition, mining has driven the development of high-performance chips. Currently TSMC 5nm, 7nm domestic only mass production is the mining company bitmainland, the company’s main machine sold to North America, in the domestic training chip talent, and pay a lot of tax, feed independent independent AI chip technology development.

Fifth, as former central bank deputy governor Li Bo said: cryptocurrency is an investment tool or alternative investment, and many countries, including China, are studying it, and we will continue to maintain the current initiatives and practices until we figure out what regulatory rules are needed. Premier Li Keqiang stressed when talking about the future development of e-commerce: For the emerging industry can not kill it with a stick. The risks that should be controlled should be kept under control as much as possible, but room for development should also be given.

At present, the cryptocurrency compliance system in developed countries is still advancing, but the direction of compliance is consistent. Considering the pressure of financial risk and social stability in China, it is completely understandable that the current attitude is mainly restrictive. However, as a good tradition in China, it is also necessary for policy makers to avoid a broad-brush approach, leave some space and balance the relationship between regulation and development.

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