Also, China was responsible for producing about 75 percent of bitcoin globally, according to the Cambridge Center for Alternative Finance.
Despite its desire to dominate the cryptocurrency market, the Chinese ambition collides with environmental concerns, especially with the increasing warnings of experts about the dangers of environmental mining that increases carbon consumption around the world.
The amount of electrical energy used in cryptocurrency mining raises concerns in Beijing, as the energy used in the process of mining these currencies is equivalent to the needs of one house for 5 million years.
Mining virtual currencies, specifically Bitcoin, requires a large electrical energy consumption, which increases the cost of trading on the one hand, and puts pressure on traditional energy sources in light of global efforts to combat climate change.
And China, whose electricity prices are the lowest compared to the global average, worries that it will turn into a large and terrifying focus of pollution due to digital currency mining. Therefore, China launched a campaign to control the chaos of virtual currencies that take place on its territory, as it prohibited financial institutions and payment companies to provide services. Cryptocurrencies.
Also, the ban, which began last May, came days after Beijing launched the “Xia” digital currency backed by the Chinese Central Bank, which appeared to ban the trading of virtual currencies to promote the rising local currency as well.
And the Chinese Central Bank explained in late June in a statement that it had summoned many major banks and payment companies, and asked them to tighten their measures regarding digital currencies used in commercial transactions, in a move that led to the decline of Bitcoin and other virtual currencies.
These measures coincided with the Chinese government’s request to financial institutions and payment companies not to provide any services related to cryptocurrencies, given that these assets represent a risk to investors.
Did the digital yuan win?
After China’s decision, the price of virtual currencies fell and their market value fell from an average of 2.53 trillion dollars to 1.7 trillion dollars.
The most popular virtual currency, Bitcoin, also plunged to an average of 35-39 thousand dollars per unit, compared to its peak last April of 63 thousand dollars.
Since China’s decision, Bitcoin, for example, has not managed to reach its peak again, and has not even exceeded the $42,000 barrier, which shows the weight of China in this market.
Until early trading on Tuesday, Bitcoin was trading at an average of $36.9 thousand per unit, while it was recorded at the beginning of trading this week at $32,000.
China’s campaign against cryptocurrency was not only aimed at reducing energy waste, but the digital yuan was the most important catalyst in China’s decisions.
China is at the fore in a global race to launch digital currencies by central banks and is testing the digital yuan in major cities including Shenzhen, Beijing and Shanghai, but has not set a timetable for its official implementation. According to data issued by the People’s Central Bank of China in mid-July, the transactions carried out using the digital (experimental) yuan amounted to 34.5 billion yuan (about 5.3 billion dollars) until the end of June.
The bank has opened wallets for about 20.8 million people across China to deposit digital currency, with more than 70.7 million transactions conducted.
“The digital yuan is not an alternative to the monetary yuan and is not analogous to cryptocurrencies, because the official digital yuan is issued by the Chinese Central Bank as a complementary payment method, not an alternative to the monetary currency,” the Chinese news agency “Xinhua” quoted the Deputy Central Bank Governor Fao Yi as saying.
Many analysts believe that the digital yuan will strengthen the global currency position as China eventually seeks to break the dominance of the dollar settlement system.
Despite recent reports that China’s share of the bitcoin mining market fell to only 46 percent last April, compared to 75 percent in September 2019, the Chinese government seems to be in control and is determining the direction of the cryptocurrency.
The US share of the bitcoin mining market rose to 16.8 percent in April from 4.1 percent in September 2019, and Kazakhstan’s share rose to 8.2 percent, while Russia came fourth and Iran fifth, during the same period.
Bitcoin mining is the process of creating a new currency using computers to solve algorithms and decipher complex mathematical codes. Bitcoin users, who are euphemistically called “miners” save data and transactions and record them in accounting chains, each called a “blockchain”, which is similar to a general ledger in the world of accounting.
The process of saving and recording data in the block chain requires highly efficient and effective computers.
Because the currency is decentralized, meaning it is not under the control of governments, it is constantly updated through a network of purpose-built computers around the world.
On average, one bitcoin mining process takes about ten minutes on the network to solve a complex program and process a block. The process ends with the use of a large amount of electrical energy due to the desire of many to mine the currency to get in return for bitcoins and exemption from processing fees
Although digital currencies are considered the future, they cause problems for governments that control the money supply, and do not like to replace money with an alternative.
The number of cryptocurrencies around the world is about 5,120, with a market value of more than $2.275 trillion as of Tuesday morning, and Bitcoin holds the largest share of it by 46 percent, with a value of $1.05 trillion.
Investors in virtual currencies are finding a feasible investment tool, after the decline in gold and dollar prices, which over the past nine months have formed a safe haven for dealers due to the Corona virus.