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China Decrees All Cryptocurrencies, Including Bitcoin, Illegal

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China has banned all cryptocurrency-based exchanges by Chinese banks. Credit: Onov3065/Wikimedia Commons/CC BY-SA 4.0

China’s central bank declared all transactions involving Bitcoin and other virtual currencies illegal on Friday, stepping up a campaign to block use of unofficial digital money. Chinese banks were banned from handling cryptocurrencies in 2013, but the government issued a reminder this year.

That reflected official concern cryptocurrency mining and trading might still be going on, or the state-run financial system might be indirectly exposed to risks. It is the latest in China’s national crackdown on what it sees as a volatile, speculative investment at best – and a way to launder money at worst.

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China is one of the world’s largest cryptocurrency markets. Fluctuations there often impact the global price of cryptocurrencies. The price of Bitcoin fell by more than $2,000 in the wake of the Chinese announcement. “Virtual currency-related business activities are illegal financial activities,” the People’s Bank of China said, warning it “seriously endangers the safety of people’s assets”.

Bitcoin transactions banned in China

Trading cryptocurrency was officially banned in China since 2019, but has continued online through foreign exchanges. However, there has been a significant crackdown this year. Friday’s notice complained Bitcoin, Ethereum and other digital currencies disrupt the financial system and are used in money-laundering and other crimes.

In May, Chinese state intuitions warned buyers they would have no protection for continuing to trade Bitcoin and other currencies online. Government officials vowed to increase pressure on the industry. In June, it told banks and payment platforms to stop facilitating transactions and issued bans on “mining” cryptocurrencies – the trade of using powerful computers to make new coins.

Promoters of cryptocurrencies say they allow anonymity and flexibility. But Chinese regulators worry they might weaken the ruling Communist Party’s control over the financial system and say they might help to conceal criminal activity. The statement makes clear that those who are involved in “illegal financial activities” are committing a crime and will be prosecuted. And foreign websites providing such services to Chinese citizens online is also an illegal activity, it added.

Crypto “mining” inexpensive in China

The technology at the core of many cryptocurrencies, including Bitcoin, relies on many distributed computers verifying and checking transactions on a giant shared ledger known as the blockchain. As a reward, new “coins” are randomly awarded to those who take part in this work – known as crypto “mining”.

China, with its relatively low electricity costs and cheaper computer hardware, has long been one of the world’s main centers for mining. The activity is so popular there that gamers have sometimes blamed the industry for a global shortage of powerful graphics cards, which miners use for processing cryptocurrencies.

In September 2019, China accounted for 75% of the world’s Bitcoin energy use. By April 2021, that had fallen to 46%. The People’s Bank of China is developing an electronic version of the country’s yuan for cashless transactions that can be tracked and controlled by Beijing.

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