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China intensified its crackdown on cryptocurrency on Friday, declaring all financial transactions involving cryptocurrencies illegal and issuing a nationwide ban on cryptocurrency mining, the power-hungry process in which computer networks compete to solve calculations in return for newly created crypto tokens.
In a joint statement by 11 Chinese government entities, authorities vowed to work closely to punish “illegal” crypto mining activities to help prevent the “hidden risks caused by the blind and disorderly development” of the industry and to help the country achieve its carbon reduction goals.
China’s central bank announced that services offering trading, order matching, token issuance and derivatives for virtual currencies would be strictly prohibited. The bank also said that overseas crypto exchanges providing services in mainland China were illegal.
Bitcoin, the world’s largest cryptocurrency, dropped as much as 7 percent, to around $41,100, after the notice was posted by China’s central bank.
China is not alone in its focus on the $2 trillion blockchain sector, nor is it the only country to have restricted access to unregulated exchanges and offerings online. But crypto fans have found workarounds for these restrictions, masking their locations.
U.S. officials have also recently expressed concern about users gaining access to offshore crypto exchanges. The exchanges are required to block access to U.S. users, which has prompted the most devoted crypto exchanges and traders — be they Chinese or American — to hop countries in search of opportunities in digital gold.
The clampdown comes as China’s central bank has been testing its own digital currency, the electronic Chinese yuan. The notice posted by the central bank explicitly called out Bitcoin and Ether, the two most popular cryptocurrencies, for being issued by “non-monetary authorities,” suggesting that the electronic Chinese yuan, or eCNY, would not be affected by the latest announcements.
The moves on Friday were the latest signal of Beijing’s determination to turn the screws on cryptocurrencies, which it has long viewed as a threat to its control over capital flows in the country. China banned domestic cryptocurrency exchanges years ago, but trading has continued on other platforms. And China has remained a major hub for cryptocurrency mining operations, in which vast computer farms compete to solve complex equations in return for Bitcoin.
Statements in recent months from top policymakers and in state media have suggested the desire to further control financial risks.
In May, China’s State Council, or cabinet, vowed to crack down on bitcoin trading and mining, leading local authorities in several parts of China to shut down crypto mining operations. As recently as 2017, China made more than two-thirds of all Bitcoin issued daily.
The latest announcements also come amid a regulatory blitz that has seen Chinese authorities cracking down on the country’s booming tech, education and property sectors.
Worldwide, governments are racing to keep up with developments in the $2 trillion cryptocurrency sector, which is growing exponentially and beginning to disrupt traditional banking and finance. U.S. banking regulators have held interagency “crypto sprints” and met separately in recent months to lay out pathways for regulation.
Given the explosion in interest in cryptocurrency this year alone, some officials fear these digital tokens could become a systemic risk, threatening the wider financial system as the new crypto businesses increasingly build bridges with old-school financial institutions.
In some smaller nations, like El Salvador, which recently adopted Bitcoin as legal tender, the open, global financial system fueled by cryptocurrencies is being promoted as a tool to foster financial inclusion and economic renewal that will attract capital and create new industries and jobs.
Questions have been raised about cryptocurrency’s adoption in El Salvador, but some tech and human rights advocates say the project has great promise.
“Bitcoin has a strange mechanism,” said Alex Gladstein of the Human Rights Foundation. “It turns people’s greed and self-interest into greater human freedom.”
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