Can the Use of Renewables Answer Critics of Cryptocurrency?

by Ricky Gill and Dr. Julia Nesheiwat

Bitcoin has earned the nickname “The King of Cryptocurrencies” and has become a model for other cryptocurrencies seeking to compete with fiat money. To strengthen its long-term position, Bitcoin will have to address critics who claim that the bitcoin mining process can consume too much energy. A critical turning point was recently approved in the fourth quarter of 2021, when renewable energy provided more than half of the global energy requirements of Bitcoin mining. In fact, the pivot to cleaner and cheaper energy sources could very well define the future success of the cryptocurrency movement.

Mining a single block of bitcoins consumes enough electricity to power more than 28 U.S. homes for an entire day, raising the issue of the industry’s energy intensity. In fact, the acceptance of large-scale Bitcoin mining operations and the size of a warehouse has made these concerns all the more salient. The massive amounts of electricity needed for Bitcoin are not a system failure; was designed to provide a free service (involving computing and communications resources) in exchange for competitively resolving more difficult cryptographic challenges by a “cut” or claim of declining monetary participation. The confluence of competition (i.e., futile effort), increased computational rigor, and diminished rewards end up producing lost effort (electricity). This explains how Bitcoin, the antithesis of physical currency, could involve the use of fossil fuels and associated emissions in the same way as physical mining.

As much power as Bitcoin requires, it can be a surprisingly energy efficient system. The more miners enter the space, the greater the “difficulty” of bitcoin and the hash (energy) power required to resolve a blockchain (which compromises new transactions securely with the chain). This is a deliberate construction of the code: if the miners go out and there is less energy / power hash moving each block, the “difficulty” will decrease. This ensures that there are always enough competing parties providing their computing power for Bitcoin to reach the block reward: currently 12.5 bitcoins per block in about 10 minutes. In fact, the more energy used, the more “secure” the blockchain becomes.

Even with this design, Bitcoin does not “waste” energy. To consider the effects that mining has on the environment, you need to consider where it is done and how. In fact, a significant percentage of the hash power comes from remote regions with abundant renewable energy (mainly hydroelectric). These areas have enormous potential to generate and distribute renewable energy, which otherwise would not be marketable due to lack of local demand. The supply of electricity to populated areas creates ancillary revenue possibilities for these bitcoin mining sites, improving their attractiveness for capital investment. Bitcoin mining “connects energy infrastructure and electricity source,” said Paul Prager, CEO of TeraWulf, and “hydropower is one of the most reliable renewable energy sources we have available,” said Mas Nakachi, director of the mining company. Bitcoin XBTO. Bitcoin therefore allows the monetization of previously inactive natural resources and at the same time creates economic and environmental value.

Although it is relatively energy efficient, the mining process can still become less energy intensive overall. Today, many of the world’s leading bitcoin mining pools operate from remote places with excess energy. Whether it is a rural area of ​​the United States or a large data facility in Iceland, these areas often provide sustainable energy in the form of geothermal and hydroelectric power. The use of this green renewable energy allows a responsible bitcoin mining operation to become sustainable and minimize its impact on the environment. These facilities are usually based on places with cold natural ambient air, which provides the necessary cooling for bitcoin mining, with little or no dependence on powered air conditioning, further reducing greenhouse gas emissions. Colder weather also extends the life of mining hardware, which means less waste is removed. As mining chip technology develops, we will see much more efficient mining hardware introduced to the market, with a higher hash rate per kW and lower heat dissipation requirements, making bitcoin mining more respectful of environment over time.

The signals from government and industry leaders will inexorably contribute to the emphasis on clean energy in Bitcoin mining. In response to the huge environmental toll on the use of fossil fuels in Bitcoin mining and its inconsistency with the carbon neutrality targets set by Xi Jinping for 2060, China has imposed a ban that has paralyzed the industry and forced miners to abandon operations or flee. abroad. Prior to the crackdown, it was projected that bitcoin mining in China would generate more than 130 million metric tons of carbon emissions by 2024, according to a study published in the scientific journal Nature Communications. On May 12, 2021, Elon Musk announced via Twitter that Tesla would no longer accept Bitcoin for the purchase of cars because “the growing use of fossil fuels for bitcoin mining shows the amount of clean energy that is essential for mining “. According to Musk, Tesla will retain its holdings of Bitcoin and use it for transactions as soon as mining makes the transition to more sustainable energy. .

U.S. universities must also play a key role in helping to develop more sustainable cryptocurrency mining methods. Stanford, in particular, has the potential to become a leader in sustainability research given the recent $ 1 billion donation by venture capitalist John Doerr to establish a climate school dedicated to Stanford. Part of this money should be used to fund sustainable cryptographic research, perhaps through an interdisciplinary research institute that combines professors from the new climate school and the School of Engineering.

Electricity is an inextricable part of any Bitcoin mining operation. However, many innovative miners have begun a methodical transition to various energy sources for mining activities and are therefore calming down environmental concerns. Given that bitcoin mining is expected to continue until 2140, it is prudent for Bitcoin mining entities to systematically incorporate sustainable energy sources and send messages publicly about their best practices. This adoption of clean energy has the potential to make Bitcoin mining an environmental innovation and a source of clean energy generation as a financial disruptor.

Dr. Julia Nesheiwat has served as Deputy Secretary of State for Energy Resources, Director of Resilience for the State of Florida, and Assistant Under Secretary of State for Homeland Security and Resilience. He is currently a Distinguished Fellow at the Global Energy Center, Atlantic Council.

Ricky Gill is the former director of Russia and European Energy Security for the National Security Council, and previously served as senior advisor in the U.S. State Department’s Office of Building Operations Abroad, coordinating clean energy and resilience efforts. for diplomatic missions abroad.

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