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The State of Bit­coin Min­ing: Legal Reg­u­la­tions Around the World

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While bit­coin min­ing can be a good way to earn cryp­tocur­ren­cy, there is cur­rent­ly a lot of con­cerns about the legal­i­ty of both the own­er­ship of cryp­tocur­ren­cy and min­ing oper­a­tions around the world.
Through­out this arti­cle, we’ll try to clear up some con­cerns about min­ing reg­u­la­tions. We’ll also exam­ine a few recent cas­es in cryp­tocur­ren­cy min­ing reg­u­la­tion and take a look at some of the ques­tions sur­round­ing the future of this indus­try.

The Malaysian Case Study

In Jan­u­ary 2018, Malaysian offi­cials raid­ed two res­i­dences that had been con­duct­ing ille­gal bit­coin min­ing oper­a­tions. While cryp­tocur­ren­cy itself had already been deemed ille­gal in Malaysia, this was not the offi­cial charge that the gov­ern­ment used to shut down these par­tic­u­lar min­ing oper­a­tions. Instead, local offi­cials jus­ti­fied the raid based on oth­er charges. For exam­ple, they said that these min­ers did not have an offi­cial busi­ness per­mit and also cit­ed a few oth­er rea­sons (caus­ing a poten­tial fire haz­ard and con­sum­ing exces­sive amounts of ener­gy).

What makes the Malaysian case so dif­fi­cult to under­stand is that, basi­cal­ly, any gov­ern­ment in any oth­er coun­try could also cite sim­i­lar rea­sons to shut down min­ing oper­a­tions, even in places where bit­coin min­ing is sup­posed to be com­plete­ly legal. Will this hap­pen? Prob­a­bly not, but it is some­thing to con­sid­er as a pos­si­bil­i­ty.

Is Min­ing Legal In My Coun­try?

The gen­er­al rule of thumb regard­ing bit­coin min­ing remains rel­a­tive­ly straight­for­ward. If you are able to own and use cryp­tocur­ren­cy where you live, you should also be able to mine cryp­tocur­ren­cy in that loca­tion as well. If own­ing cryp­tocur­ren­cy is ille­gal where you live, min­ing is most like­ly also ille­gal. How­ev­er, there are few excep­tions to this rule and the legal­i­ty of cryp­tocur­ren­cy is not that clear. One such excep­tion is Ice­land. While cryp­tocur­ren­cy is tech­ni­cal­ly ille­gal to own/trade in Ice­land, there are still a num­ber of large-scale, well-known min­ing oper­a­tions through­out the coun­try.

*Note that laws are always sub­ject to change, so it’s impor­tant to do thor­ough research before invest­ing in min­ing equip­ment. If you don’t already know whether the own­er­ship of cryp­tocur­ren­cy itself is legal or ille­gal in your coun­try, here’s a com­plete nation-by-nation break­down.

Bit­coin Min­ing and Ener­gy Con­sump­tion Con­cerns

Despite the fact that min­ing accounts for about 0.60% of the world’s total ener­gy con­sump­tion (more than the total ener­gy con­sump­tion of Argenti­na), cryp­tocur­ren­cy min­ing remains legal through­out most of the world. In the EU, for exam­ple, there hasn’t been much offi­cial dis­cus­sion about ban­ning cryp­to itself. How­ev­er, there have been talks about ban­ning cryp­tocur­ren­cy min­ing due to the high ener­gy con­sump­tion asso­ci­at­ed with min­ing. Offi­cials fear min­ing might make it more dif­fi­cult for coun­tries try­ing to reach car­bon emis­sion reduc­tion goals set by the Paris Agree­ment that will take effect in 2020.

Self-Reg­u­la­tion through Algo­rithms

Most gov­ern­ments ban the own­er­ship of cryp­tocur­ren­cy out of fear that nation­al cur­ren­cies will lose val­ue and the gov­ern­ment will lose con­trol over their respec­tive finan­cial sys­tems (a.k.a. decen­tral­iza­tion).

At the oppo­site end of the spec­trum, cryp­tocur­ren­cy projects also real­ize that there is a need to pre­vent cen­tral­iza­tion of their new cur­ren­cies. Projects them­selves are try­ing to make sure that no one per­son or small group of peo­ple can take over the sup­ply of a cryp­tocur­ren­cy through large min­ing oper­a­tions.

To pre­vent cen­tral­iza­tion, many projects use Proof-of-Work con­sen­sus algo­rithms like SHA-256, which is intend­ed to stop min­ers from using ASIC chips. While this is not as extreme as ban­ning min­ing alto­geth­er, it does lim­it how peo­ple can set up and prof­it off of min­ing oper­a­tions. The good thing is that this sort of self-reg­u­la­tion not only ensures the decen­tral­iza­tion of dig­i­tal cur­ren­cies but also helps to pre­vent events like large-scale 51% attacks from hap­pen­ing.

The Future of Min­ing Reg­u­la­tions

As cryp­tocur­ren­cy becomes more pop­u­lar, we will like­ly con­tin­ue to see changes in cryp­tocur­ren­cy min­ing and reg­u­la­tions. As more mine­able cryp­tocur­ren­cies enter the mar­ket and as prices go up, there will be increased inter­est in bit­coin min­ing. Here are a few things that will help deter­mine the future of min­ing reg­u­la­tions:

  1. A shift towards Proof-of-Stake (PoS) projects could make the “legal vs. ille­gal” dis­cus­sion regard­ing min­ing an irrel­e­vant top­ic. While PoW con­sen­sus algo­rithms that rely upon min­ers are still impor­tant for most of the top cryp­to projects, we are see­ing a lot of move­ment towards PoS con­sen­sus algo­rithms, which, of course, elim­i­nate the need for min­ing to ver­i­fy and approve cryp­to trans­ac­tions. Ethereum’s Casper is one exam­ple of this.
  2. More projects like Chia could allow for the cre­ation of ener­gy-effi­cient, cool­er min­ing oper­a­tions. If projects such as this are suc­cess­ful, gov­ern­ments will have few­er con­cerns over mining’s cur­rent exces­sive ener­gy con­sump­tion. As a result, this could very well help improve the reg­u­la­to­ry out­look for min­ing, espe­cial­ly with­in the EU.
  3. How will min­ing mal­ware affect the future of cryp­tocur­ren­cy min­ing? As con­cerns grow over these con­tin­ued attacks, who exact­ly has the author­i­ty or capa­bil­i­ty to reg­u­late min­ing in a way that pre­vents these attacks from hap­pen­ing while also ensur­ing that legit­i­mate min­ing oper­a­tions can exist to sup­port the future of cryp­tocur­ren­cy?
This is just a short list of activ­i­ties that could influ­ence the future of min­ing. As men­tioned ear­li­er, the indus­try is rapid­ly evolv­ing and what may be impor­tant today could be a non-fac­tor tomor­row.

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