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Major bitcoin mining region in China sets tough penalties for cryptocurrency activities - CNBC

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A bitcoin mine near Kongyuxiang, Sichuan, China on August 12, 2016.
Paul Ratje | The Washington Post | Getty Images

GUANGZHOU, China — China's Inner Mongolia region has proposed punishments for companies and individuals involved in digital currency mining as it looks to further crack down on the practice.

The move comes after Chinese Vice Premier Liu He said last week in a statement that it is necessary to "crack down on Bitcoin mining and trading behavior" to prevent the "transmission of individual risks to the social field."

Those comments were seen as Beijing's intentions to continue a four-year crackdown on bitcoin trading and other cryptocurrency-related activities.

Inner Mongolia's latest draft proposals aim to target companies such as telecommunications and internet firms engaging in virtual currency mining. The Inner Mongolia Development and Reform Commission said such companies could have their business licenses revoked if they are found to be involved in mining.

Cloud computing or data centers could have preferential government support policies they currently enjoy revoked.

There are also harsh punishments for individuals involved in money laundering of fundraising via digital currencies.

Inner Mongolia's tough stance on mining began in March after it announced plans to ban new cryptocurrency mining projects and shut down existing activity to cut down on energy consumption. The northern Chinese region failed to meet Beijing's energy use targets in 2019 and subsequently laid out plans to reduce power consumption.

In the case of bitcoin, miners use purpose-built computers to solve complex mathematical puzzles that effectively allow a bitcoin transaction to happen. These miners are rewarded in bitcoin.

But because the computers are high-powered, they consume a lot of energy.

Bitcoin mining consumes around 112.57 terrawatt-hours per year of energy, more than entire countries such as the Philippines and Chile, according to the Cambridge Bitcoin Electricity Consumption Index, a project of the University of Cambridge.

China accounts for about 65% of the world's bitcoin mining. Due to its cheap energy, Inner Mongolia accounts for around 8% globally, a greater share than the U.S.

China's tough stance on cryptocurrencies is not new. China shut down local cryptocurrency exchanges in 2017 and that same year, banned so-called initial coin offerings (ICOs). But traders have continued to operate on the Chinese mainland though exchanges have moved offshore.

Inner Mongolia's scrutiny of bitcoin mining specifically comes as China tries to go green. President Xi Jinping said last year the country is targeting peak carbon dioxide emissions by 2030 and carbon neutrality by the year 2060.

But a study, published in peer-reviewed journal Nature Communications in April, said bitcoin mining could "undermine the emission reduction effort" taking place in the country.

The energy consumption of bitcoin mining operations was thrust back into the spotlight earlier this month after Tesla CEO Elon Musk said the electric carmaker will stop accepting the digital currency for purchases, citing environmental concerns. That came after Tesla revealed in regulatory filing in February that it bought $1.5 billion of the cryptocurrency and planned to allow customers to make purchases with bitcoin.

On Monday, Musk said in a tweet that he met with North American bitcoin miners and they "committed to publish current & planned renewable usage."

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