Last week we learned that China, which is estimated to be home to around 70% of cryptocurrency mining, is considering a ban on the activity.
On April 8, the country’s National Development and Reform Commission (NDRC) published a list of sectors it intends to promote, restrict or eliminate, and cryptocurrency mining was cited as lacking safe production conditions, a waste of resources and extremely harmful to the environment. Cryptocurrency mining requires huge amounts of electricity and the companies involved tend to be located in coal-dependent provinces, where the cost of energy is cheaper. It is estimated that the activity generates between three and 15 tons per year of carbon dioxide. China has been criticized for its failure to meet environmental goals, but at least in this area the authorities there have taken the right decision.
In September 2017, China also banned so-called Initial Coin Offerings (ICO), describing them as an unregulated market open to fraud. The ban closed 88 ICO exchange platforms and 85 ICO projects, although some claim that the measure is relatively easy to circumvent, but the huge amount of electricity involved in cryptocurrency mining makes it easy to locate.
China’s reasons for banning cryptocurrency mining are easy to understand: it’s a pointless waste of energy. In fact, much of the initial excitement about cryptocurrencies is waning: cryptocurrencies are being targeted by a few powerful speculators, and rather than helping with the exchange of goods or services, are useless, due mainly to their built-in economics. Even companies that initially explored them, obtaining patents, such as Bank of America, have slowed their developments and are increasingly skeptical.
Cryptocurrencies and blockchain have an extremely expensive consensus algorithm, while their promise of total security has never been fulfilled, because even fully decentralized mechanisms are vulnerable to those with the determination to break them.
In their current state, cryptocurrencies and blockchain are promising, but problematic to use. That could change with initiatives such as Vitalik Buterin’s idea of replacing the proof of work in Ethereum with a proof of stake, as some cryptocurrencies have already proposed, offering potential energy savings of 99%, but even this is not entirely clear and would only respond to one of many challenges.
Until these problems are solved, the future of the blockchain and cryptocurrencies remains in doubt and need to be fully overhauled and redefined.