The state of bitcoin mining regulations: what you should know
As any emerging industry, the cryptocurrency is facing lots of uncertainty surrounding regulation and legality, while the act of mining bitcoin – receiving fractional tokens for participating in the blockchain – falls under even more regulations worldwide.
In particular in China, there have been recent crackdowns on mining practices, including the termination and expulsion from the Communist Party for two school principals.
Let’s take a look at some mining regulations in different countries around the world.
Most of the countries inside the EU have favorable regulations when it comes to bitcoin mining. Recently in an official statement, Mariya Gabriel, European Commissioner for Digital Economy and Society, confirmed that crypto mining operations are considered legal within the EU.
“If the energy consumed for this activity is produced according to law, there is no legal basis to forbid or even limit it… As mining of cryptocurrency is not an illegal activity, the Commission did not put in place any means to track it, so far,” said Gabriel in the statement.
European Commission Vice President Andrus Ansip also stated that he wants Europe to be a leader in digital innovation, specifically in terms of developing blockchain technology solutions. Plans for a regulatory framework including both blockchain and crowdfunding standards have already been announced by the commission.
In the Netherlands, a court ruling back in March found that bitcoin had the ‘properties of wealth,’ and validated a claim by a complainant seeking the 0.591 BTC he had mined as a part of a previous agreement. The judgement is seen as a big step forward toward legitimizing the currency, and especially the practice of mining.
Questioning the legitimacy of crypto exchanges and ICOs, China currently represents one of the least favorable markets for crypto mining. As some of the reasons for it officials bring up excessive electricity usage and risk of financial fraud, as well as potential money laundering.
They have not explicitly banned mining, but are attempting to create additional difficulties for mining operations through imposing more taxes and tightening permissible energy consumption, as well as land use. Due to the fact that China maintains nearly 70% of bitcoin-related worldwide computing power, these government interventions have also contributed to recent price swings, experts say.
After passing Bill C-31, considered the world’s first national cryptocurrency legislation, Canada officially became one of the world’s friendliest states in regards to crypto. The law is not currently being enforced, however, since it would require all cryptocurrency companies to register with FINTRAC. The Canadian government is studying how best to modernize the law to better suit the industry.
However, even in a country that many consider a mining haven, Quebec is considering a complete halt of new mining operations. Due to China’s restrictions, a recent wave of relocating Chinese mining operations has created a sharply higher demand for electricity. Quebec boasts some of the lowest power rates in North America and a cool climate (which helps drive down computer cooling costs).
Still, Quebec imposed a moratorium on cryptocurrency mining for 90 days back in June, giving legislators time to “think about adopting a rule to better formulate construction permits for these types of businesses in our territory,” according to Robert Desmarais, Director General of Quebec’s Municipal Regional Council.
There’s been no official regulation of cryptocurrency mining operations at the federal level, although the SEC has been working to categorize ICOs as securities. This could have a potential impact on the market if no mechanism is placed to register these securities with the commission.
Individual U.S. states and cities have gotten more involved in cryptocurrency regulation themselves. Plattsburgh, NY was the first US city to clamp down on mining operations after local residents complained the activity was causing electricity rates to spike. Nearby power generations stations along the St Lawrence river result in some of the cheapest energy costs anywhere. Yet, the small town will not accept any new applications for commercial crypto mining businesses for at least 18 months.
With over 61% of the world’s cryptocurrency trading volume, Japan has slowly introduced regulatory solutions to protect investors and reduce fraud. The world’s third largest economy has recently been considering regulating ICOs. The government commissioned a study that proposed stricter restrictions and more oversight for token sales. Still, for now, Japan remains a cryptocurrency mining haven.
Crypto mining is perfectly legal here, but bitcoin trading is strictly regulated.
Iceland is one of the few countries that forbids trading bitcoin. According to the Icelandic Central Bank, “it is prohibited to engage in foreign exchange trading with the electronic currency bitcoin, according to the Icelandic Foreign Exchange Act.”
Despite that distinction, Iceland has a national cryptocurrency called Auroracoin, and is a popular mining location due to abundant geothermal energy and favorable climate. However, the excess demand on the power infrastructure is taking its toll, causing the country to be on the brink of running out of power-generation capacity.
India’s central bank (RBI) has ordered the institutions it regulates to stop working with companies that offer cryptocurrency services. As the bank stated, “entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling [cryptocurrencies].” Lending institutions have been ordered to close accounts of companies dealing in cryptocurrencies. Cryptocurrency-related businesses are taking the hint, and moving out of India in search of a more favorable regulatory climate.
Much like the overall cryptocurrency market, regulations for mining bitcoin vary widely around the world and can be extremely volatile. Inexpensive electricity rates and cold climates tend to draw mining companies, which tends to put a strain on local infrastructure. This ebb and flow means that what might be a great location today will not be tomorrow.
Regardless, there are many countries, especially within the EU, that are looking to be leaders in the cryptocurrency industry, and not in any hurry to place restrictions. The relatively high cost of electricity and real estate may not be attractive to miners, but the regulations are.