Op-Ed: Can crypto help reduce environmental impact?
Ethereum uses the power equivalent to the nation of Qatar. As the price of cryptocurrency increases, more and more miners may try to mine these currencies. This leads to more energy consumption and a potentially greater environmental impact. But this doesn’t have to be the case.
The advent of cryptocurrencies has revolutionized the work of businesses and industries all over the world, including the finance, banking, and retail sectors.
In April 2021, the prices of Bitcoin and Ethereum exploded – rising by over four to nine times – demonstrating that the world might witness a crypto boom with digital currencies being adopted in the mainstream.
However, the rise of cryptocurrencies has always been accompanied by increasing concern about their environmental impact. Many scholars and environmentalists have been concerned about the impact of cryptocurrency mining on the environment which may lead to an increase in carbon emissions and climate change.
A recent analysis by Cambridge University suggests that bitcoin mining consumes 121.36 Terawatt-hours (TWh) per year i.e., more than the entire country of Argentina. Mining cryptocurrency requires a lot of power as it involves heavy computer calculations in order to verify transactions.
Similarly, according to Digiconomist, Ethereum uses the power equivalent to the nation of Qatar. As the price of cryptocurrency increases, more and more miners may try to mine these currencies. This leads to more energy consumption and a potentially greater environmental impact. But this doesn’t have to be the case.
This year, the outlook on cryptocurrency’s energy consumption has begun to shift. The Chinese government’s crackdown on its crypto mining landscape, for example, has led to a large-scale mining migration.
With China practically taking down more than half of its miners due to financial and environmental risks, there have been significant changes in the world’s mining landscape.
The new data from Cambridge University suggests that the mining geography has changed drastically in the last few months which is expected to reduce the carbon footprint of Bitcoin overall. In this article, we will be discussing what these changes are and how they can lead to a greener mining process.
China’s Mining Migration
China has been the center of cryptocurrency mining with more than three-quarters of all miners at its peak. Chinese provinces including Xinjiang, Inner Mongolia (Inner Mongolia), Sichuan, and Yunnan have been the hotspots for Bitcoin mining with 65-75% of the miners located in these regions. But China has been imposing a crackdown on mining operations ever since it announced its own state’s cryptocurrency.
May 2021 was the harshest time for cryptocurrency miners as the government decided to shut mining operations due to both financial and environmental risks. The Sichuan Provincial Development and Reform Commission, and the Sichuan Energy Bureau, ordered local electricity companies to shut down and terminate all mining operations. It also requested that the electricity companies stop supplying power to crypto projects altogether.
The pressure to make this change came from both China’s failure to meet Beijing’s Climate Goals as well as the global increase in crypto frauds and data breaches.
Such regulations have drastically reduced the mining operations in China, which heavily relied on coal; thereby, reducing the country’s power consumption and its subsequent emissions. Now, Bitcoin is using 70 TWh of energy per year which is almost half of what it was used in May.
Since cryptocurrency mining is a portable market, miners in China are looking to migrate to places with the cheapest sources of power – which is often renewable. This means there might be a move to greener crypto mining methods sometime soon. In order to compete in the growing market, miners have to reduce their energy costs and renewable sources are providing a better and cheaper alternative for doing so.
The US: An Alternative for Miners
To the surprise of many, the US is becoming the cryptocurrency hotspot of the world. Data has shown that the US is a popular destination for Chinese miners who are making their way to the country with the cheapest sources of energy.
In April, China was leading in crypto mining operations, but after the stringent regulations imposed by its government, the US share of the market has grown dramatically. In fact, Texas has emerged as the most popular destination for cryptocurrency miners who have migrated from China.
Many Chinese Bitcoin companies are looking to settle in Texas due to cheaper electrical bills, subsidized wind power, and greater political stability for the crypto market. The Governor of Texas, Greg Abbott, is a highly vocal supporter of cryptocurrency and is looking forward to making Texas a crypto leader.
The move of crypto miners to the US will also, hopefully, mean the adoption of greener sources of energy for mining operations. Many Americans have been pushing for increased use of renewable energy sources for quite some time. The 2020 Lazard report showed that the cost of renewable energy sources is either cheaper or equal to conventional sources of energy.
Renewable energy sources are also expected to get cheaper over time as the technology continues to improve. This means the miners in the US would likely be using renewable sources of energy for their mining operations. However, at the moment, this is still an assumption.
It is estimated that Bitcoin mining in the US is more than 50% powered by renewable sources of energy. Recently, the US government has made some changes in the tax provisions related to cryptocurrency.
The Internal Revenue Services (IRS) considers cryptocurrency as capital gains that mean you will be taxed if they are sold at a profit. The government imposes taxes on Bitcoin transactions, receiving Bitcoin as payment, and Bitcoin mining. This has been done to regulate and streamline the growing crypto industry.
There is also an increased probability that the government might intervene to regulate the use of non-renewable sources of energy as in the current modern era people are increasingly becoming aware of the implications of climate change and carbon emissions. The Mayor of Miami Francis Suarez is also popularizing the idea of Bitcoin mining using nuclear power in Florida. Therefore, a shift towards greener renewable sources for mining is expected.
Carbon Footprint of an Average Crypto User
Technology determinists and crypto advocates have argued that the environmental impact of cryptocurrency is much less as compared to fiat money like gold and physical currency notes.
A new 2020 study reveals that the process of gold mining and refining uses 265 TWh per year. Similarly, the banking system branches, ATMs, manufacturing of notes and coins use 700 TWh of energy per year.
These numbers are much higher than cryptocurrency mining due to which several crypto advocates have called Bitcoin one of the greenest technologies invented by humanity.
It seems that the mainstream adoption of green cryptocurrencies is on the way and it might be a good time to start investing in cryptocurrencies – given the market boom.
With greater decentralization, more transparency, faster transaction times, and greater financial inclusion, cryptocurrency has the potential to replace fiat currencies if it adopts the greener sustainability model.