China Orders Local Governments to Phase Out Mining Electricity Subsidies
Chinese authorities instruct local governments to eliminate electricity subsidies supporting Bitcoin mining operations, beginning a campaign against domestic mining activity.
On January 16, 2018, reports emerged that Chinese authorities had ordered local governments to begin phasing out electricity subsidies and other preferential treatment for cryptocurrency mining operations. The directive represented an escalation of China's efforts to control cryptocurrency activity following its 2017 ban on cryptocurrency exchanges and initial coin offerings (ICOs).
The move targeted one of China's remaining cryptocurrency industries: mining.
China had become the global center of Bitcoin mining, with estimates suggesting Chinese mining operations controlled well over 50% of Bitcoin's hash rate—the total computational power securing the network. Chinese miners benefited from several advantages: access to cheap electricity (especially hydroelectric power in regions like Sichuan during the wet season), proximity to ASIC chip manufacturers, and established infrastructure.
However, Chinese authorities viewed cryptocurrency mining with increasing suspicion, seeing it as an energy-intensive activity that provided little economic value to China while facilitating capital flight and circumventing financial controls. The directive to phase out subsidies, along with other regulatory pressures, began what would become a multi-year campaign culminating in China's complete ban on cryptocurrency mining in 2021.
For Bitcoin, the Chinese regulatory pressure highlighted concerns about mining centralization and geographic concentration. If Chinese authorities could influence such a large portion of Bitcoin's hash rate, it raised questions about Bitcoin's censorship resistance and decentralization. However, the situation also demonstrated Bitcoin's resilience: as regulatory pressure increased in China over subsequent years, mining operations gradually migrated to other jurisdictions including North America, Kazakhstan, and other regions, showing that hash rate could relocate even if individual miners could be shut down.The January 2018 directive marked an important early step in Bitcoin mining's geographic diversification, though the process would take several years to fully unfold.