Cryptocurrency’s Dirty Secret: Energy Consumption


The dirty secret of cryptocurrency: energy consumption

Although skeptics may characterize cryptocurrency as “fake money,” “worse than tulip bulbs,” or a “bigger madman” scheme, it’s a very real business. The market capitalization of nearly 19,000 cryptocurrencies in circulation is currently around $ 1.75 trillion, roughly the same as Italy’s gross domestic product, the world’s eighth largest economy. While you may not be able to buy a loaf of bread with Bitcoin in the corner store, many investors are putting a lot of legal tender money into cryptocurrencies.

But cryptography has a little dirty secret that is very relevant to the real world: use it a lot of energy. How much energy? Bitcoin, the world’s largest cryptocurrency, currently consumes about 150 tera-hours of electricity per year, more than the entire country of Argentina, with a population of 45 million. Producing that energy emits about 65 megatons of carbon dioxide into the atmosphere a year, comparable to Greece’s emissions, making cryptography a major contributor to air pollution and global climate change.

And the energy thirst for cryptocurrencies is growing as mining companies rush to build larger facilities to take advantage of the gold rush of the 21st century.

“Bitcoin mining operations are in an arms race between time, the volume of miners and the efficiency of the machines they use,” said Joshua D. Rhodes of the Center for Global Energy Policy. “When it comes to the energy use of Bitcoin, it’s currently something like a“ wild ”market. add another Houston to the network.

In February 2021, Texas suffered a major power crisis after severe winter storms caused failures in the state’s troubled power grid. The previous transition shows NASA satellite imagery of night lights in Houston before (February 7) and after (February 16) light cuts caused by storms. Some four million customers across the state were left without electricity during the crisis.

As Bitcoin mining is increasingly criticized for its increasing use of energy, the phenomenon may be approaching a turning point where, to prove that it is a real game changer, cryptography will have to be clean and environmentally friendly. .

The Line Rises

Bitcoin enthusiasts, or miners, make money using computers to solve puzzles in the decentralized database that supports it, the blockchain. In the early days of Bitcoin, about a decade ago, miners could use home computers to mint new coins worth a few dollars, at least on a screen. As the market grew over time, the puzzles that miners had to solve to earn new coins became more and more complex, which required more computing power and, by extension, energy.

Today, Bitcoin mining is a highly competitive business, with extensive, climate-controlled facilities that house tens of thousands of high-tech computers that run all day. Although it is very volatile, so far this year the value of a single Bitcoin has been around $ 40,000.

Value of a single Bitcoin in USD (area) and trading volume (bars at the bottom), January 1, 2016 – May 2, 2022. Source: Yahoo! Finance [view large]

Like any evolving industry, cryptocurrency mining companies have sought to streamline their operations and maximize profits as they expand. Finding cheap and abundant energy is a key part of this strategy and a decisive factor in where mining operations choose to settle. Until recently, about 75% of all Bitcoin mining took place in China, which offered access to both electricity and cheap hardware. But, citing concerns about fraud, economic instability and meeting its climate targets, the Chinese government abruptly disconnected decentralized digital currencies in 2021. Mining companies rushed to find suitable places with more lenient policies. Today, most Bitcoin mining takes place in the United States, where 35% of Bitcoin hashrate is now found, the total computing power used to mine and process transactions.

Foundry USA Bitcoin Hashrate Percentage Map by US State, March 2022. [view large]

Unfortunately, China’s crackdown on digital currencies seems to have made cryptographic mining even dirtier. Some mining operations in China had reduced their carbon emissions by taking advantage of cheap and abundant hydroelectric power, a renewable energy source, during the rainy season. But after China’s crackdown, the proportion of natural gas used in Bitcoin’s electric mix has doubled to 31%. And Kazakhstan, now the world’s second-largest Bitcoin hub, gets about 50 percent of its energy from high-emission coal-fired power plants.

Perhaps even more troubling, some U.S. companies UU. they are now bringing the retired power plants online to take advantage of the crypto. Greenidge Generation, a natural gas-fired Bitcoin mining plant in the picturesque Finger Lakes region of upstate New York, is a controversial example of this trend. Local groups point out that the plant not only pollutes the air, but also harms Lake Seneca’s ecosystem by discharging up to 134 gallons of hot water a day into New York’s deepest glacial lake. More broadly, there is concern that the plant may be a canary in the cryptographic mine for both New York State and the nation.

Digital and Sense Dollars

Like other disruptive new technologies, cryptocurrency has caught governments unprepared and unsure how to regulate the new explosive market. Although Plattsburgh, NY became the first city in the United States to temporarily ban cryptocurrency mining in 2018, there is currently no federal legislation that specifically focuses on cryptocurrency mining. At the state level, last week the New York State Assembly passed a bill that would impose a two-year moratorium on energy-intensive labor-proof cryptocurrency mining facilities that receive energy behind the fossil fuel power plant meter. .

“That moratorium is important because it would give New York time to assess the environmental risks of the state’s expanding cryptocurrency mining industry, including the potential impacts of the industry on the state’s ability to meet its greenhouse gas emission reduction targets. of the Climate Leadership and Community Protection Act., and develop appropriate regulations in response, “said Jacob Bryce Elkin. Elkin is a fellow at the Sabin Center for Climate Change Law who wrote an article on the subject in March.

A corresponding bill is currently awaiting approval in the state Senate, where it faces fierce opposition from the crypto industry. However, the fate of the existing Greenidge plant remains unclear.

The Greenidge Generation Power Plant. Photo: Brian Kahn

Greenidge Generation’s air quality permit expired last September, but the New York Department of Environmental Conservation twice delayed a decision on the renovation. During this time, Greenidge rushed to install thousands of new computers and drastically increase their power generation capacity. Although it prohibits expansion, if approved in its current form the state moratorium would not apply to existing mining facilities. But critics of the Greenidge plant, including DEC Commissioner Basil Seggos, have said it conflicts with New York’s Climate Leadership and Community Protection Act, which calls for reducing greenhouse gas emissions from the entire economy by 40 % by 2030. It is estimated that the cryptocurrency. mining could account for up to 7% of all carbon emissions in New York State by the end of the decade.

The deadline to make a decision on the Greenidge permit now was June 30, two days after the statewide primary election. Meanwhile, mining operations and the expansion of Greenidge continue.

The future of cryptocurrency: can gold be green?

Proponents of digital currencies and the blockchain point out that they are innovative technologies and that we are just beginning to explore their potential.

“There are certain inefficiencies in our financial services industry that can be alleviated through blockchain technologies, which allow us to address important issues such as equity, access and costs,” said RA Farrokhnia, Executive Director of Advanced Projects and Applied Research at Fintech Columbia. “With the right safeguards, oversight, and responsible deployments of innovation, we could combine advances in fintech and blockchain with increasingly sophisticated data analytics tools, particularly machine learning and artificial intelligence, to create and deliver robust products and solutions. more efficiently and intelligently, ethically and inclusively. ”

Graph of Bitcoin emissions and wind turbines

Graphic: Freepik.com

Still, such a promise may not be enough for skeptics, especially when it comes to such a high price. But cryptography may have another chance to prove its worth beyond its financial portfolio: by becoming a leader in the transition to sustainable energy sources.

“Some of my research has shown that if mines are willing to be flexible, they can be combined well with renewables by quickly adjusting their energy use depending on current grid conditions,” Rhodes said. “However, it is not a fact that they do. It is important that cryptographic mining supports the development of renewable energy (or other carbon-free energy), because otherwise it will only be another industry that contributes to the climate crisis.

Like other industries, the cryptocurrency space will face many challenges if it tries to turn green, such as recognizing its impact on the environment, integrating truly sustainable practices (such as the consensus-proof mechanism of participation) into its operations, and finally, avoid seeking profit at any cost.

If the cryptographic community is willing to face these challenges, it can still prove to be truly transformative by leveraging both finance and technology to stimulate the transition to renewable energy sources. If not here’s a new product just for you!




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