Bitcoin has a Xinjiang problem

Influences that Elon Musk and star picker Cathy Woods have helped send bitcoin price increase in recent weeks.

But investors who weigh in on the popular cryptocurrency must also take into account the ethics surrounding it – as a significant portion of it is “broken” in China’s Xinjiang, where Beijing is accused of mass human rights abuses.

In cryptocurrency mining, people use huge energy-intensive computers to solve algorithmic puzzles and in return are rewarded with new bitcoin. It makes cheap energy integrated into bitcoin. From April last year about 65% of bitcoin mining capacity, or hashrate, was based in China because of its cheap electricity.

Xinjiang, which has large coal resources, accounted for more than half, or 36%, of this computing power in the country, according to Cambridge Bitcoin electricity consumption index, an online tool developed by the British University.

Trading in cryptocurrencies is prohibited in China, but bitcoin mining is legal, at least for now. Companies that produce bitcoin mining equipment such as Bitmain, the largest player in this industry, are steady out of stock due to strong demand for bitcoin and a global shortage of chips.

The importance of Xinjiang for cryptocurrency has increased steadily in the recent period for which Cambridge has data. The autonomous region in the northwestern part of China went from accounting for 14.4% of bitcoin mining in China in 2019 to its current share, followed by Sichuan, Inner Mongolia and Yunnan province, according to the index.

The situation poses a serious reputation challenge for bitcoin, or probably any currency trader and investor.

An estimated 1 million Uyghur Muslims and other ethnic minorities have been held in China’s so-called retraining camps. First person accounts from previous prisoners and reports from human rights groups suggest that rape, torture and forced sterilization have taken place in the facilities, leading to at least three countries explaining Beijing’s treatment of Uighur “genocide”.

Outgoing US Secretary of State Mike Pompeo made such a statement, while Canadian and Dutch legislators voted on proposals this month to make the same result.

Beijing has denied such allegations, describing the camps as vocational training centers that they say are helping Uighurs, who are largely Muslims, to eradicate extremist ideas.

In addition to the rumor that the cryptocurrency may bring, there is also regulatory issues. In January, the US government issued a comprehensive ban on imports containing all cotton or tomato products originating in Xinjiang with reference to China’s use of forced labor there, a step that would force American fashion brands to find alternative sources for its imports of $ 1.5 billion per year of garments containing materials from the region.

Similarly, companies such as Tesla, which have already been strongly involved in China, may also face similar regulatory challenges over their investments in the cryptocurrency. The company founded by Musk has created about $ 1 billion from their investments in bitcoin in paper profits, according to Wedbush Securities. Tesla did not immediately respond to a request for comment.

Meanwhile, there are signs of crypto mining becomes less dependent in China in time. Already, China’s total share of hash has declined from as high as 76% in September 2019. Beijing has promised to stop carbon dioxide emissions which comes mainly from coal-fired plants (such as those that generate electricity for bitcoin mining equipment), cement and other heavy industries, and has intensified efforts to encourage provinces to reduce their energy consumption. Inner Mongolia, which accounted for 8.7% of bitcoin mining in China in April last year, is set on banning crypto mining no later than April this year to meet Beijing’s requirements. Some miners have also begun exploring the use of alternative cheap energy such as excess natural gasand shifts focus from China to countries such as Iceland, Norway and Canada.

But its Xinjiang problem, which does not seem to be solved in the short term, is a test of the conscience of the bitcoin community.