China’s control of bitcoin mining terrifies investors

The Chinese researchers forecast bitcoin mining to produce an equivalent of 130.5 million metric tonnes of carbon emissions by 2024, which would exceed the total greenhouse gas emissions output of the Czech Republic in 2016.

Other socially aware and progressive businesses buying into bitcoin over the past year include Tesla and Square, the payments company of Twitter founder Jack Dorsey. Wall Street and payments giants such as Goldman Sachs, JPMorgan, PayPal, Visa and Anthony Scaramucci’s Skybridge Capital are lining up to earn fees from clients interested in bitcoin exposure.

For the self-conscious and ESG-aware Western investors in cryptocurrencies, a type of Stockholm syndrome is arguably a problem: where an irrational emotional bond is attached to the cryptocurrencies once owners are financially captured by their price movements.

Moreover, brushing the environmental damage under the carpet gets harder when you consider the Chinese research estimates bitcoin’s Chinese energy consumption would equal 297 terrawatt hours by 2024. This would have placed it 12th in terms of energy consumption among all countries in 2016 and ahead of Italy and Saudi Arabia.

The China-based academics modelled their carbon emissions estimates by taking data across Chinese regions and assuming 40 per cent of miners are located in coal-based power generation provinces.

China’s dominance of large parts of the bitcoin market may produce two classes of bitcoin in the future, according to O’Leary, who said many institutions tell him they are put off bitcoin by China’s control.

In reality, China’s grip on bitcoin mining markets and deteriorating relations between it and the West underlines the potential to weaponise digital currencies for surveillance, hard power and economic coercion.

The research paper flags a consensus building for a punitive carbon tax on bitcoin miners in China, at the same time as the People’s Bank of China prepares a blockchain-based, potentially game-changing, national digital currency named the digital currency electronic payment.

More commonly known as the digital yuan, it is expected to replace paper-based cash or money supply in China on a one-for-one base and is expected to give the PBOC and, by extension, the Chinese state an Orwellian visibility into every financial transaction that happens across its blockchain.

In the West lawmakers are still unsure whether blockchain-based national digital currencies are needed at all. And if so, whether they should be issued by central banks or decentralised. Myriad questions over privacy, security and a potential road to anarchy also trouble policymakers shocked by the rise of crypto.

This week the total value of all decentralised cryptocurrency markets topped $US2 trillion ($2.6 trillion) for the first time, thanks to a record first quarter of inflows and a dramatic rally in junior altcoins such as ether, ripple, litecoin, cardano and stellar.