China's Crypto Conundrum

What you need to know today in crypto and beyond

July 14, 2021

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Today's must-reads

Top Shelf

COMMUNITY GOVERNANCE: Uniswap’s community voted to grant the DeFi Education Fund (DEF), a new policy organization to advocate for decentralized finance, 1 million UNI to kick-start the project. It was only the third Uniswap proposal to receive funding. The DEF ran into immediate controversy after converting half its grant (worth about $10 million) into USDC. It was also voted in, by an overwhelming majority, with support from some of the largest UNI holders.

THE BLOC: The European Central Bank (ECB) said it will move from discussion to exploration in its plans to develop a digital euro. This exploratory phase, to develop a “marketable” CBDC for the 19 euro countries, will last 24 months – after which comes a decision whether to implement a cash complement. Meanwhile, France is looking to hand off its power to regulate cryptocurrency to a supranational European regulator.

CHINA’S CRYPTO CONUNDRUM: Three more provinces in China – Henan, Gansu and Anhui – have ordered a halt to crypto mining amid a nationwide crackdown on the industry. China has set ambitious carbon neutrality goals for its Five Year Plan, a policy effort that named blockchain a nationally strategic technology for the first time. Out of China's 34 provinces and province-level cities, 33 have enacted policies to accelerate blockchain innovation.

LEAKED BILL: A leaked draft of Paraguay’s bitcoin law will require cryptos to be registered with the country’s Undersecretariat of State Taxation. “The purpose of this draft law is to establish legal certainty, financial and fiscal in the businesses derived from the production and commercialization of virtual assets,” a rough translation of a document Decrypt received reads. Paraguay will also look to regulate crypto mining and P2P trading.

BEAR MARKET BUILDERS: Blackrock CEO Larry Fink said demand for crypto has dwindled. “We see very little demand for those types of things,” he said in a CNBC interview Tuesday, adding he hasn’t been asked about crypto in the last two weeks. Separately, Compass Mining has signed a 20-year deal with nuclear fission startup Oklo to supply the bitcoin mining and hosting company with 150 megawatts of clean and cheap energy. Bram Cohen’s Chia Network has hired five VPs. And the Solana-based Phantom wallet raised $9 million in a round led by Andreessen Horowitz (a16z).

–D.K.

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What others are writing...

Off-Chain Signals

TikTok has banned crypto ads, but that may not stop coin shilling (Protos)

Uniswap V3 has been deployed to an Ethereum layer 2, Optimistic (Decrypt)

–D.K.

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Putting the news in perspective

The Takeaway

Renewable power

The idea that bitcoin mining could subsidize and catalyze a greener electricity grid is already playing out. It was announced today that Compass Mining, a startup that crowdsources hashrate, inked a 20-year deal with Oklo, a nuclear fission company that builds microreactors, to supply the crypto network with low-cost, carbon-neutral power.

Set to go live in 2023 or 2024, the partnership is a “beacon” for the intersection of cryptocurrency and clean-energy development, Oklo CEO Jacob DeWitte told CoinDesk’s Nathan DiCamillo. The deal sees Compass sop up excess energy from various microreactors – with the potential for nuclear sites eventually to be dedicated to bitcoin mining.

“As demand might change by a few megawatts here and there, you can put that off into bitcoin mining,” DeWitte said.

Climate activists and lawmakers have looked askance at crypto’s energy-heavy environmental footprint. The same qualities that make Bitcoin a secure, permissionless and tamper-proof payments network also make it an energy guzzler.

But crypto industry advocates have argued that Bitcoin and other cryptocurrencies are an essential part of developing a carbon-neutral grid.

“Bitcoin miners are unique energy buyers in that they offer highly flexible and easily interruptible load, provide payout in a globally liquid cryptocurrency, and are completely location agnostic, requiring only an internet connection,” reads “Bitcoin Is Key to an Abundant, Clean Energy Future,” a white paper authored by Square and ARK Invest last May.

This seems like a fanciful idea – and one that has rightfully received pushback – but it’s also happening in real time. Square is funding a solar-powered bitcoin mining facility with Blockstream, El Salvador is looking to tap into vast geothermal reserves as a mining experiment and several crypto firms are getting more involved in carbon offset programs.

The economic incentives of bitcoin mining allow firms to “overbuild” renewable energy sources. Solar and wind are intermittent sources of power – the sun doesn’t always shine and wind doesn’t always blow – but bitcoin mining can easily be turned on or off during periods of peak demand or low supply.

Of course, there are other environmental considerations of bitcoin mining. The dedicated computer chips for churning through cryptographic puzzles to secure the network are resource intensive and have a short shelf life (due to competitive pressure to upgrade and also burnout). And nuclear power is a whole other area of concern.

But the theory is being put into practice: Bitcoin can complement renewable energy development, rather than solely be a drain.

–D.K.

The cryptocurrency movement has never been so sprawling, reaching every corner of the planet.

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