A Chinese court has voided a cryptocurrency mining contract on the grounds that the emissions it generates are accelerating climate change.
The ruling last week shows that judges in China are beginning to make a link between national carbon targets and energy-intensive activities.
Case concerns to a dispute between one company that contracted another to buy and operate cryptocurrency mining machines but did not receive all the bitcoin they thought they had paid for. The first company sued. The claim was rejected by a court which ruled the mining agreement itself invalid because it harmed the public interest.
July 11 became Beijing’s Third Intermediate People’s Court upheld the judgmentand ruled that cryptocurrency mining threatens national economic security and social order. This is in accordance with the decision of People’s Bank of China last September to ban all cryptocurrency transactions, citing their role in facilitating financial crime and increasing risks to the country’s economy.
The court added that cryptocurrency mining wastes energy resources in a way that is incompatible with China’s path to carbon neutrality. “Judged from the high energy consumption of ‘mining’ and the impact of bitcoin trading activities on the country’s economic and social order, the contract involved should be void,” it ruled.
Mining cryptocurrency like bitcoin is hugely energy intensive. ONE study published in Nature communication last year found that around 40% of China’s bitcoin mines are coal-fired, with the rest using renewable energy. GIf Chinese mines drive nearly four-fifths of global cryptocurrency trade, the study concluded, the industry risks undermining Chinese climate goals and broader global action.
Experts said that the latest court decision is primarily about enforcing the ban on cryptocurrency activities, since hidden mining is on the way up again. But growing environment and energy security concerns among the public have a role to play.
With restrictions on activism and wider public debatelitigation has proven to be a powerful avenue for public prosecutors and NGOs to enforce environmental measures.
Climate change litigation have only just begun to emerge, in part because China lacks any national climate legislation. But follows President Xi Jinping’s commitment to reach the peak of national emissions by 2030 and reach climate neutrality by 2060, the courts are beginning to consider non-legal policy documents or statements by leaders on matters before them.
Danting Fan, climate and finance lawyer at ClientEarth China, said that in the absence of a national climate law, the latest ruling was the first time a final ruling explicitly mentioned China’s carbon cap and carbon neutrality goals and “determined a commercial contract to be void due to of the high energy consumption of the bitcoin mining process, among other reasons, and mandated parties to promote sustainable development.
She noted that Zhou Qiang, Chief Justice of the Supreme Court, has urged judges to understand the climate implications of the cases before them. “This is the first example we know of where the judge addressed this.”
How the decision will affect China’s cryptocurrency market is unclear. Alex de Fries, computer scientist at De Nederlandsche Bank, researcher at Vrije Universiteit Amsterdam and the man behind Digiconomist, said that although miners have scaled back their operations to stay under the radar, it is difficult for authorities to weed them all out.
The price of bitcoin fell from an all-time high of over $65,000 in November 2021 to $18,000 in June, reducing margins for miners. But de Fries said that under the right conditions, mining can still be very profitable.
“The price crash hit older and less efficient mining operations hard, but those operating with very cheap electricity and the latest mining equipment can still make good money,” he said. “It really depends on what machines you have, how efficiently you can cool them and how much you pay for electricity.”
