A Chinese court has quashed a cryptocurrency mining contract on the grounds that the emissions it generates accelerate climate change.
The judgment last week shows judges in China are starting to make a link between national carbon targets and energy-intensive activities.
The case relates to a dispute between one company that contracted another to buy and operate cryptocurrency mining machines but did not get all the bitcoin it believed it had paid for. The first company sued. Its claim was rejected by a court which judged the mining agreement itself invalid because it harmed the public interest.
On 11 July, the Beijing Third Intermediate People’s Court upheld the verdict, ruling that mining cryptocurrency threatens national economic security and social order. This is consistent with a decision by the People’s Bank of China last September to ban all cryptocurrency transactions, citing their role in facilitating financial crime and growing risks to the country’s economy.
The court added that mining cryptocurrency wastes energy resources in a way that is incompatible with China’s path to carbon neutrality. “Judging from the high energy consumption of ‘mining’ and the impact of bitcoin trading activities on the country’s financial and social order, the contract involved should be invalid,” it ruled.
Mining cryptocurrency like bitcoin is hugely energy-intensive. A study published in Nature Communications last year found that about 40% of China’s bitcoin mines are powered with coal, while the rest use renewables. Given that Chinese mines power nearly four fifths of the global trade in cryptocurrencies, the study concluded that the industry risks undermining Chinese climate goals and wider global action.
Experts said the latest court ruling is primarily about enforcing the ban on cryptocurrency activities, since covert mining is on the rise again. But growing environmental and energy security concerns among the public do have a role to play.
With restrictions on activism and wider public debate, litigation has proved a powerful route for public prosecutors and NGOs to enforce environmental measures.
Lawsuits about climate change are only just starting to emerge, in part because China lacks any national climate legislation. But following president Xi Jinping’s commitment to peak national emissions by 2030 and reach climate neutrality by 2060, courts are starting to consider non-legal policy documents or statements by leaders in cases before them.
Danting Fan, climate and finance lawyer at ClientEarth China, said that, in the absence of a national climate law, the latest judgment was the first time a ruling of final effect explicitly mentioned China’s carbon peaking and carbon neutrality goals and “determined a commercial contract to be null and void because of the high energy consumption of the bitcoin mining process, among other reasons, and required parties to promote sustainable development”.
She noted that Zhou Qiang, chief justice of the Supreme People’s Court, has encouraged judges to understand the climate implications of the cases before them. “This is the first example we know of where the judge picked up on this.”
How the decision will affect China’s cryptocurrency market is unclear. Alex de Vries, data scientist at De Nederlandsche Bank, researcher at Vrije Universiteit Amsterdam and the man behind Digiconomist, said that because miners have scaled down their operations to stay under the radar it is hard for the authorities to weed them all out.
The price of bitcoin dropped from an all-time high of over $65,000 in November 2021 to $18,000 in June, slashing the margins for miners. But de Vries 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 devices 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.”