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:
- 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.
- 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.
- 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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