US raises red flag on crypto mining, concern over carbon emissionsbit2main
The U.S. said the carbon footprint of the cryptocurrency industry does not align with the country’s goals to decarbonize the economy, suggesting it may rein in the operations of crypto miners, according to a report released Thursday by the Office of Science and Technology in the White House.
Cryptocurrency has long attracted controversy for the large amounts of electricity consumed by computers used to verify transactions on proof-of-work (PoW) blockchains such as Bitcoin, with critics saying this encourages increased burning of fossil fuels and additional carbon emissions.
The report out of the White House, which is the result of an executive order signed in March by President Joe Biden titled “Ensuring Responsible Development of Digital Assets,” adds a further official voice to this debate.
The report says miners need to consult with the Environmental Protection Agency and other bodies on how to reduce emissions. It adds that the government will promote the use of more “environmentally responsible crypto-asset technologies” and will collect more data on industry power requirements.
“Should these measures prove ineffective at reducing impacts, the Administration should explore executive actions, and Congress might consider legislation, to limit or eliminate the use of high energy intensity consensus mechanisms for crypto-asset mining,” the report said.
While this suggests tougher rules and standards may be coming for crypto miners in the U.S. — which includes Marathon Digital Holdings Inc. and Riot Blockchain Inc. — Jeremy Britton, chief financial officer at crypto fund Boston Trading Co., said he sees some “political window dressing” taking place.
“Biden wants to show a few wins because there’s been some criticism of him” including a lack of progress on environmental initiatives, Britton told Forkast in an interview. “So, they want to look like they’re actually doing something about the environment and crypto’s an easy target.”
The report estimates that annual global electricity usage by the Bitcoin blockchain is between 90 to 145 billion kilowatts hours (kWh), with the mid-range of that estimate in line with the consumption of Argentina.
In another measure, the report said total energy use of all home refrigerators in the U.S. comes to 85 billion kWh. A kilowatt-hour is a unit of energy equal to one kilowatt of power sustained for one hour.
“[It’s] not a fair comparison because Bitcoin is in every country, it’s a worldwide system,” Britton said. “So, to compare apples with apples, they’d have to actually say, ‘let’s compare how much power Bitcoin uses compared to the World Wide Web or compared to the Visa [payment] system.’”
The report stated that the U.S. accounts for 38% of the global Bitcoin mining hashrate, up from just 3.5% in 2020 before China instituted a ban on crypto mining and trading.
A report from cryptocurrency firm Galaxy Digital released in May 2021 during the crypto market bull run said the estimated annual energy consumption of the global banking system, including credit card payment systems, reached 263.72 billion kWh a year.
Its findings for Bitcoin were roughly equal to that of the White House report.
Another report from data aggregation site Statista this year said that 1 Bitcoin transaction required 2,188.59 kWh of energy in April 2022, while 100,000 Visa transactions required just 148.63 kWh.
Texas or Kazakhstan?
Where power is sourced is also important for calculating global emissions.
A report by CoinShares Research found that as of January 2022, 59% of the energy required to mine Bitcoin was created through coal and gas, 11% was nuclear power and the majority of the remainder used renewable sources such as wind and solar.
This gives rise to a concern that driving these operations out of the U.S. could force them to relocate to other jurisdictions where a higher percentage of power is generated using fossil fuels, such as Kazakhstan.
“Although we can estimate and compare the magnitude of different industry’s energy usage, the question is still fundamentally a value judgment,” the Galaxy Digital report said of the question ‘is the Bitcoin network’s electricity usage an acceptable use of energy?’
“One’s answer depends on their beliefs about the utility of Bitcoin,” it added.
The added strain on the energy grid is already causing issues for the world’s largest economy.
Many crypto miners in the state of Texas, one of the largest crypto mining hubs in the country, opted to shut down their operations amid a crippling heatwave in June to reduce strain on the state’s electricity grid.
The miners included Nasdaq-listed Core Scientific and London-headquartered Argo Blockchain, while Marathon Digital also suspended 75% of its mining in the state of Montana due to power outages caused by a storm.
The White House report comes just days before the Ethereum “Merge” next week, which will see the world’s number two network transition from a PoW network to proof-of-stake.
Once complete, Ethereum’s carbon footprint is expected to drop by as much as 99% as transactions are verified by users staking Ether back into the system, as opposed to energy-intensive mining practices with PoW.
Britton is skeptical the U.S. would ban crypto mining outright, given the size of the industry and the impact on the jobs of those who work in the sector.
“Is Bali going to ban tourism? Hell no, because they want it,” he said. “[If] the U.S. banned Bitcoin, all those Bitcoin miners would move to another country and there’d be a massive swath of tax that they would actually lose. So, I don’t think they can or will ban it; it doesn’t make any economic sense.”