As China and Iran Move to Ban Crypto Mining, Industry Faces Reckoning

The flourishing of the cryptocurrency industry has had an unexpectedly large influence on geopolitics. What started over a decade ago as a small-time movement aimed at restoring the balance of financial power in favor of the individual has turned into something much bigger and in some respects unrecognizable from its initial vision.

Bitcoin was born during the Great Recession back in 2009 and was a response to what was perceived to be a system that no longer operated in a fair way. The corporations that many viewed as responsible for the economic downturn were getting bailed out, while the regular people were left with no safety nets. That bitcoin was, by and large, an answer to what the creator (or creators) viewed as the failings of the economic system was highlighted and preserved for posterity in the first bitcoin transaction, which quoted a London Times headline from the 3rd of January 2009, saying, “Chancellor on brink of second bailout for banks.”

A lot has happened since then, with many of the people who got involved in bitcoin and other cryptocurrencies early profiting greatly from their prescience. However, the longer crypto has lasted and the more it is grown into a powerful industry, the more it has come to feature unpleasant aspects of the financial ancien regime.

Nowhere has this been more clear than in mining, the process of verifying transactions that rewards the verifiers with newly minted coins. In the beginning, mining was designed to be an activity that anyone could take part in with a regular computer set up. However, it soon became clear that the faster your computer could solve the complex mathematical puzzles, the more profit you would make.

The great mining arms race

Satoshi foresaw that this would become problematic and even posted about it on the Bitcointalk forum back in 2009, saying, “The average total coins generated across the network per day stays the same. Faster machines just get a larger share than slower machines. If everyone bought faster machines, they wouldn’t get more coins than before. We should have a gentleman’s agreement to postpone the GPU arms race as long as we can for the good of the network. It’s much easier to get new users up to speed if they don’t have to worry about GPU drivers and compatibility. It’s nice how anyone with just a CPU can compete fairly equally right now.”

Fast forward some on the timeline, and that arms race that Satoshi was talking about took on a whole new dimension, with huge corporations and nation-states competing, effectively driving out the average individual. Mining became a game of finding where you could gain access to the cheapest energy and use it to power huge mining operations that would produce the equivalent of millions of dollars in profits.

Nowhere was better for this than China, which had some of the cheapest energy on the planet and was teeming with big businesses looking to capitalize on it. The results were remarkable. Bitcoin was intended to be a decentralized network, yet it was estimated last year that up to 90% of bitcoin mining was happening in China. So when the price of bitcoin skyrocketed last year, the main beneficiaries were Chinese companies, many of which were tied to the state.

Beyond that, mining being centralized or controlled by a group of connected parties is at least potentially dangerous for the network. Theoretically, the group could manipulate the blockchain if they wished to. Now, this would have a negative effect on the price and perception of bitcoin, of course, so there would be little incentive to do this. Nonetheless, the nuclear option of being able to basically shut the currency down lying in the lap of China was concerning.

The mining diaspora

That was the situation at the start of this year. But now, to quote Bob Dylan, “things have changed.” China is under immense pressure to cut down on its carbon emissions and, as a result, has had to eliminate much of its coal-powered energy enterprises. The first to go turned out to be its crypto mining operations. Earlier this year China issued a ban on crypto mining that sent the price of bitcoin plummeting and left the massive mining industry completely in flux.

Many of the mining companies that were forced to pack up shop started looking beyond their borders for places where they could find similar circumstances and once again set up big mining facilities. Iran was one of the first choices, but the sudden influx of miners proved too much for the Iranian energy grid.

Over the past two months, there have been massive power outages in Iran that officials have blamed on crypto mining. Iranian officials have claimed the over 85% of the mining that is happening in Iran is illegal and have pointed the finger at China as the culprit. To get the situation under control, Iran has likewise moved to ban crypto mining, shutting down another landing spot for an industry looking to redefine itself in greener pastures.

Institutions getting in on the green

As a result, many are taking a different approach to solving the problem. Energy issues are not going to go away. There is currently immense pressure on the cryptocurrency industry to find a way of making its energy consumption more sustainable. If it is unable to do that, it may face extinction.

Companies looking to harness green energy to power mining operations have been making a big splash in the industry as investors have been eager to cash in on the opportunity presented by a hugely profitable business remaking itself overnight. Iris Energy, a Canadian mining company that utilizes hydroelectric power, raised over $25 million from institutional investors earlier this year.  Companies like this have proven popular among investors because they effectively allow them to invest in cryptocurrency without having to worry about buying in at a high price point. The industry is currently wide open, and if the company is able to make it work, investors will be rewarded and stand to profit handsomely.

And while bigger companies like Iris are drawing the attention of institutions, there is another movement that is happening that has a different approach to solving the problem. In DeFi, there are a number of projects that look at the current state of the industry as an opportunity to restore mining to the way it was originally intended to operate.

DeFi goes for a grassroots approach

Minto, a DeFi mining project based in northern Russia, is a company that is trying to make mining an activity open to regular people again. The project is housed in a mining facility in the Republic of Karelia that is supplied cheap energy by a private hydro-electric power plant. The cheap electricity and vast amount of mining equipment at Minto’s disposal has allowed them to build a DeFi mining ecosystem wherein users can participate and make a profit simply by acquiring the project’s native BTCMT token. Rewards from the mining operation get distributed to all token holders.

Minto is not the only DeFi project looking to do this, but it presents a revolutionary prospect. Not only can everyone participate in mining again, regardless of how much money they have, but the electricity being consumed is green and the business model is sustainable in the long term.

Judging by history, these latest developments, as heartening as they may be for those hoping and banking on a long future for bitcoin and crypto, are anything but a sure bet. Nonetheless, what is remarkable is the crypto industry’s ability to redefine itself on the fly. As international and governmental pressure rises, how the mining situation gets resolved will have wide-scale implications across the globe.