In a blow to Bitcoin and other cryptocurrencies, the government of China has issued a crackdown on these digital tokens. China has a recent history of presenting challenges to virtual currencies, so the latest action isn’t a complete surprise. However, the scope of the action might be stronger than expected. Following the fall of many cryptos by 5 to 10-percent on the news, what’s next?
Cryptocurrency is legal in most parts of the world, but concerns are being raised globally about the sudden rise in activity driven by the internet and several governments are considering regulation of some sort. While it is completely legal in the United States currently, legislators are discussing how to manage the surge of interest and potential problems related to digital coins that can be mined with a computer and traded anonymously.
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China recently banned all cryptocurrency-related transactions within the country, leading to big drops for several top tokens, including Bitcoin, which fell 7-percent. Ether, EOS, Litecoin, and Dash were down more than 10-percent. This pattern is fairly common with successes and challenges to top crypto bleeding over to others, since most are based on very similar technology and systems. In addition, to banning crypto transactions, Bloomberg noted that China is planning to root out crypto mining operations as well, taking an active role in stopping this activity rather than simply making the announcement that it is considered illicit.
Why And What Happens Next
China explained that it can’t meet its carbon goals with so much energy being used for mining cryptocurrency. Reaching 46-percent of the total global hash rate, a huge portion of the world’s mining activity occurs in China, using electrical power that is mostly generated from carbon-based power plants. The government is also concerned that the process is being used for money laundering as well. Both issues are a source of debate within the crypto community, and there is good reason to agree with China on the dangers.
While there are solutions that reduce energy use in crypto mining and ways to avoid mining entirely, it is harder to address money laundering. There are several anonymous exchanges that convert between government currency and digital tokens used for crypto. If the source of funds can’t be tracked, it makes for an easy option for those that come by money illegally. This is similar to laundering money via gambling, which is also illegal in China. There is a chance this strong action from China will lead to a domino effect with more countries following the example. raising the possibility that Bitcoin and other cryptocurrencies might be facing some hard times ahead.