the dirty secret of cryptocurrencies: energy consumption
Although skeptics may characterize cryptocurrencies as “fake money,” “worse than tulip bulbs,” or a “dumber” scheme, it is a very real business. The market capitalization of the nearly 19,000 cryptocurrencies in circulation is currently around $1.75 trillion, about the same as the gross domestic product of Italy, the world’s eighth-largest economy. Although you may not be able to buy a loaf of bread with bitcoin at the corner store, many investors are pouring a large amount of legal tender money into cryptocurrencies.
but cryptography has a dirty little secret that is very relevant to the real world: it uses a lot of energy. Bitcoin, the world’s largest cryptocurrency, currently consumes approximately 150 terawatt-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 annually, comparable to Greece’s emissions, making cryptocurrencies a significant contributor to global air pollution and climate change.
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and cryptocurrency’s thirst for energy is growing as mining companies rush to build larger facilities to cash in on the 21st century gold rush.
“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 Center on Global Energy Policy. “When it comes to bitcoin power usage, it’s currently something of a ‘wildcatter’ market. Texas grid operator Ercot estimates that crypto miners may increase power demand by as much as 6 gigawatts by mid-2023, roughly the equivalent of adding another Houston to the grid.”
As bitcoin mining is increasingly criticized for its increasing energy use, the phenomenon may be reaching a tipping point where, to prove to be a true game changer, cryptocurrencies will need to be clean and go green.
row goes up
Bitcoin enthusiasts, or miners, earn coins by using computers to solve puzzles on the decentralized database that underpins it, the blockchain. In the early days of bitcoin, about a decade ago, miners could use home computers to mint new coins that were worth a few dollars, at least on a screen. As the market grew over time, the puzzles miners had to solve to earn new coins became increasingly complex, requiring more computing power and, by extension, energy.
Today, bitcoin mining is a highly competitive business, with sprawling climate-controlled facilities housing tens of thousands of high-tech computers running 24 hours a day. Although highly volatile, so far this year the value of a single bitcoin has hovered around $40,000.
Like any evolving industry, cryptocurrency mining companies have sought to streamline their operations and maximize profits as they have grown. Finding cheap and abundant energy is a key part of this strategy and a deciding factor in where mining operations choose to locate. Until recently, about 75% of all bitcoin mining was done in China, providing access to cheap hardware and electricity. But, citing concerns about fraud, economic instability, and meeting its climate goals, China’s government abruptly canceled decentralized digital currencies in 2021. Mining companies scrambled to find suitable locations with more lenient policies. Today, most bitcoin mining takes place in the United States, where 35% of bitcoin’s hashrate, the total computing power used to mine and process transactions, is now located.
Unfortunately, China’s crackdown on digital currencies seems to have further sullied crypto mining. Some mining operations in China had reduced their carbon emissions by harnessing cheap and abundant hydropower, a renewable energy source, during the rainy season. But after the Chinese crackdown, the proportion of natural gas used in bitcoin’s electricity mix doubled to 31%. and Kazakhstan, now the second largest bitcoin hub in the world, gets about 50% of its power from high-emitting coal plants.
perhaps even more concerning, some companies in the us. uu. they are now bringing decommissioned power plants back online to cash in on cryptocurrencies. Greenidge Generation, a natural gas-powered bitcoin mining facility in the picturesque Finger Lakes region of upstate New York, is a controversial example of this trend. Local groups say the plant not only pollutes the air, but also harms Seneca Lake’s ecosystem by dumping up to 134 million gallons of hot water a day into New York’s deepest glacial lake. More broadly, there are concerns that the plant could be a canary in the crypto mine for both New York State and the nation.
digital dollars and sense
Like other disruptive new technologies, cryptocurrencies have caught governments off guard and unsure how to regulate the explosive new market. Although Plattsburgh, NY became the first US city. city to temporarily ban cryptocurrency mining in 2018, there is currently no federal legislation specifically focused on cryptocurrency mining. At the state level, the new york state assembly last week passed a bill that would impose a two-year moratorium on energy-intensive proof-of-work cryptocurrency mining facilities that receive power behind the meter from power plants. fossil fuel energy.
“Such a moratorium is important because it would buy new york time to assess the environmental risks of expanding the state’s cryptocurrency mining industry, including the industry’s potential impacts on the state’s ability to comply with greenhouse gases. climate leadership act greenhouse and community protection emission reduction targets, and develop appropriate regulations in response,” said jacob bryce elkin. elkin is a fellow at the sabin center for climate change law and the author of an article on the subject in march.
A corresponding bill currently awaits approval in the state senate, where it faces fierce opposition from the cryptocurrency industry. however, the fate of the existing greenidge plant remains unclear.
greenidge generation’s air quality permit expired last september, but the new york department of environmental conservation has twice delayed making a decision on renewal. During this time, Greenidge has rushed to install thousands of new computers and dramatically increased its power generation capacity. Although it prohibits expansion, if approved in its current form, the state’s moratorium would not apply to existing mining facilities. But critics of the Greenidge plant, including December Commissioner Basil Seggos, have pointed out that it conflicts with New York’s landmark Climate Leadership and Community Protection Act, which requires reducing greenhouse gas emissions throughout the economy. by 40% by 2030. It has been estimated that crypto mining could account for up to 7% of all carbon emissions in New York State by the end of the decade.
The deadline for making a decision on the greenidge permit has now been set for June 30, two days after the state primary. meanwhile, greenidge’s mining operations and expansion continue.
the future of cryptocurrencies: can gold turn green?
Advocates of digital currencies and the blockchain point out that they are innovative technologies and that we have only just begun to explore their potential.
“There are certain inefficiencies in our financial services industry that can be alleviated using blockchain technologies, allowing us to address important issues such as fairness, access and cost,” said r.a. farrokhnia, executive director of advanced projects and applied research in fintech of columbia. “With the right protections, oversight, and responsible implementation 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 products and solutions. solids more efficiently and intelligently. , ethical and inclusive.”
Still, such a promise may not be enough for skeptics, especially when it comes to such a high price. But cryptocurrencies may have another opportunity to prove their value beyond your 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 combine well with renewables by quickly adjusting their energy use based on current grid conditions,” said Rhodes. “However, it is not a given that they will. It is important that crypto mining supports the development of renewable energies (or others that do not generate carbon) because, otherwise, it will be one more industry that will contribute to the climate crisis.”
Like other industries, the cryptocurrency space will face many challenges if it attempts to go green, such as acknowledging its impact on the environment, integrating truly sustainable practices (such as proof-of-stake consensus mechanism) into its operations, and, ultimately, avoiding profit-seeking at any cost.
If the cryptocurrency community is willing to take on these challenges, it can yet prove that it is truly transformational by leveraging both finance and technology to drive the transition to renewable energy sources. if not, then perhaps the skeptics are right: when the bitcoin bubble finally bursts, it will not only leave investors but the planet itself with the stock market.
update: new york denies air quality permit to a cryptocurrency mining facility (July 7, 2022)