Experts have weighed in on the possibility of government authorities banning cryptocurrency mining. They explain why such a scenario is improbable and how taking such action would lead to a global redistribution of mining capabilities.
Bitcoin, the world's first cryptocurrency that has become immensely valuable in recent years, operates on a Proof-of-Work algorithm. To keep the network running constantly and smoothly, computational power is required. It is the miners' computational power that enables all transactions within the Bitcoin network.
Curtis Spencer, the director of Electric Capital, asserts that depriving the population of the primary cryptocurrency and "shutting it down" is technically possible and could be done quickly. Governments worldwide have the ability to halt the operations of existing mining farms. However, authorities are not inclined to take such radical measures. While they may not actively support cryptocurrency, they also do not hinder its development.
The director of the blockchain company Electric Capital discussed how the Bitcoin network's hashrate dropped to its lowest point recently, relative to October 2020 data. This occurred because all mining farms were shut down in the Xinjiang province of China. It was on April 20, 2021, that the Bitinfocharts service showed a decrease in the Bitcoin network's hashrate to 98.53 EH/s.
Governments' Interests
Many governments turn a blind eye to Bitcoin. They have not embraced the integration of cryptocurrency into people's lives but have not actively hindered the network's development either. According to Maxim Krupyshev, CEO of the Coinspaid exchange, governments need independent shadow channels for transferring funds. Governments easily use them for funding intelligence operations and participate in military conflicts with other countries.
The expert also emphasizes the significance of financial lobbying. Major participants in stock markets are not interested in stopping the Bitcoin network and losing such a profitable tool. Another crucial factor indicating that governments cannot «shut down» cryptocurrency is that the decision must be unanimous. Government decisions involve communities of groups with different interests that rarely align. If a decision were made by one person or a small group, eliminating cryptocurrency would be possible, but in the current scenario, it is highly unlikely.
Jahon Khabilov, CEO of Sigmapool, supports this perspective. According to him, about 80% of the Bitcoin network's hashrate comes from the United States, China, Iran, and Russia. The likelihood that these powerful countries simultaneously decide to discontinue the use of cryptocurrency and «shut it down» is practically nonexistent.
Impact of Recent Events in Turkey
On April 16, the world's first cryptocurrency experienced a significant drop in value. Its price fell by 5% after Turkey decided not to accept Bitcoin for virtual payment of services and goods. The Central Bank of Turkey justified this decision by stating that cryptocurrency is not controlled by authorities, is unstable, and poses potential financial and security risks.
However, the CEO of the Sigmapool mining pool is confident that the Turkish authorities' decision is not related to the security, legality, and control of Bitcoin. According to Jahon Khabilov, these restrictions were imposed due to a sharp depreciation of the Turkish lira. The decline in the national currency's value, political unpredictability, rising inflation, and the worsening economic situation in Turkey after the COVID-19 outbreak prompted such a decision regarding cryptocurrency.
Johann Khabilov reminds us that Turkey has never been a mining center. The country consistently experiences electricity shortages. Therefore, such a decision had certain advantages for the state.
Why and How Redistribution of Power Can Occur?
Maxim Krupyshev emphasizes that only a unanimous decision by all heads of states to ban mining would lead to the «shutdown» of the Bitcoin network and the removal of cryptocurrency from financial circulation. However, achieving such a consensus is practically impossible. The government of one country rarely comes to a unanimous decision, let alone all the countries on Earth. They would never agree to «shut down» cryptocurrency.
The expert also describes what would happen if only one or a few countries decide to abandon Bitcoin. Prohibiting mining farms within these countries would simply result in the global redistribution of mining power. Miners would start looking for new regions to relocate their farms or those that offer better working conditions.
Some countries, catching onto such migrations, would begin offering miners various unique conditions for cryptocurrency mining in their territories. Relocating mining farms to these countries would allow them to quickly take leading positions in the mining market.
