Why does Bitcoin need more energy than whole countries?

Running the cryptocurrency Bitcoin requires more energy than New Zealand and Belgium put together. How can something virtual keep power plants around the world so busy? DW's Timothy Rooks looks into the numbers.


An artist's rendition of what a Bitcoin could look like if it were made of metal

If you are reading this article, you are using electricity. The same goes for every Google search, email sent and photo saved to the cloud. As our lives go digital, we need more electricity to power those lives. Yet there is one digital outlier that keeps getting a lot of attention: Bitcoin.

For something that doesn't physically exist, Bitcoin really captivates the imagination and needs a lot of electric power to keep going. That's according to an ongoing study by the University of Cambridge's Bitcoin Electricity Consumption Index. They calculate that in one year the machines behind the cryptocurrency require more power than the Netherlands, a country with over 17 million inhabitants.

As the value of Bitcoin has skyrocketed recently to over $50,000 (€41,300), so has the need for electric power to run it.

Bitcoin supporters say this is OK since it is creating an entirely new financial system free of government interference. Mining gold and printing money too cost a lot to produce, transport and keep safe. Meanwhile, today's financial system with its digital platforms and offices uses lots of energy too.

How much power does Bitcoin need?

Undisputed numbers are hard to come by because of the complex nature of the calculations. Back at the start of 2017, Bitcoin was using 6.6 terawatt-hours of power a year. In October 2020, that was up to 67 terawatt-hours. Now a few months later, it has nearly doubled to 121 terawatt-hours, the Cambridge researchers found, enough to run their entire university for nearly 700 years.

By these same calculations, if Bitcoin were a country, only 30 other countries would use more electricity. It would surpass the yearly power needs of the UAE, the Netherlands, the Philippines, Belgium, Austria or Israel.

Dutch economist Alex de Vries is a bit more conservative and thinks Bitcoin uses 77 terawatt-hours of power a year. He has also been following the situation for years and publishes his research on Digiconomist's Bitcoin Energy Consumption Index.

Today all data centers globally — the ones that run Big Tech, the cloud, the internet and the current financial system — need around 200 terawatt-hours of electricity a year, according to de Vries. "At the moment the Bitcoin network consumes about half this amount," he told DW.

By comparison, one Bitcoin transaction had the same energy footprint as 80,000 Visa transactions in 2018. Now a single Bitcoin transaction uses the same electricity to run 453,000 Visa transactions, according to numbers on Digiconomist, a website "dedicated to exposing the unintended consequences of digital trends."

Why does Bitcoin need energy at all?

Bitcoin is a virtual cryptocurrency. Basically, that means it is run by a massive peer-to-peer computer network. To keep track of everything and to keep the network safe, it uses a ledger system called blockchain. This records all transactions and everyone in the network gets a copy and each copy is linked to each other. Since everything is interconnected the hope is that tampering with the system is impossible.

Anyone can become a part of the network; they just need to have a high-powered purpose-built computer, the more powerful the better. These computers solve increasingly difficult math problems to keep it all going. To avoid overheating, the busy machines must be kept cool.

Elon Musk, Bitcoin's most famous investor

The people running these computers, often called miners, don't get paid per se, but have the chance of being rewarded with Bitcoin. The more computing power they have, the higher their chances of getting some. When the price of Bitcoin goes up, it makes investing in more technology attractive. It's an upward spiral as more computers are added.

"The higher the price, the more miners will earn, and the bigger the incentive to add more machines to the network," said de Vries, adding that usage is also important "because the network can only process five transactions per second, it quickly gets more expensive to use Bitcoin if a lot of people try to do so. Since transaction fees also go to the miners, this also drives miner earnings and ultimately energy consumption."

Where are the Bitcoin miners?

Currently, over 65% of Bitcoin miners are in China, followed by the US and Russia both with around 7%, according to the researchers at Cambridge.

"In China, they can get cheap excesses of hydropower in the summer and take advantage of cheap coal-based power in the winter," de Vries told DW. "Since they still have to move seasonally within China to optimally benefit from this, we've recently seen countries like Iran and Kazakhstan gain popularity."

Critics see this as a big problem. Many countries have unstable power grids and some cannot handle the increased needs. In January, the Iranian government blamed Bitcoin mining for power outages in the country. On top of that, there is the giant CO2 footprint of all that electricity production.

Though Bitcoin's environmental damage is so far only a tiny fraction of what cars and industry produce, these ecological concerns have pushed many miners away from coal power to places with cheaper hydroelectric power. And despite most concerns, the cryptocurrency still has a big fan base, most famous among them Tesla's Elon Musk.

Bitcoin is not the only cryptocurrency on the block though. Understudied cryptocurrencies added 50% on top of Bitcoin's energy needs last year, according to de Vries. Some use a similar mining technique to Bitcoin. Others use alternatives in which the block creation process depends on wealth rather than computational power. "Theoretically this modification could also be implemented in Bitcoin and would remove any incentive to use specialized mining hardware, saving both energy and electronic waste," he concluded.


Watch video 01:31 A tipping point for Bitcoin?

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Date 16.02.2021
Author Timothy Rooks
Related Subjects Bitcoin, Blockchain
Keywords Bitcoin, cryptocurrency, blockchain, energy consumption, alternative energy, Tesla, Elon Musk
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DOUBLING DOWN ON TROUBLE

Zero-carbon bitcoin? The owner of a Pennsylvania nuclear plant thinks it could strike gold

Talen Energy plans to build a $400 million bitcoin mine at its Pa. nuclear plant.

"I think this is a great opportunity to prolong the life of a lot of plants."

The Susquehanna Steam Electric Station near Berwick, Pa., is a two-unit nuclear reactor owned by Talen Energy. Talen announced the week of Aug. 1, 2021, that it plans to go into partnership with a cryptocurrency producer, TeraWulf Inc., to build a $400 million bitcoin mining operation at the Luzerne County plant that will be called Nautilus Cryptomine.
Talen Energy

by Andrew Maykuth
Published
Aug 6, 2021

Could bitcoin mining be the salvation of the embattled nuclear energy industry in America?

The owners of several nuclear power plants, including two in Pennsylvania, have formed ventures with cryptocurrency companies to provide the electricity needed to run computer centers that “mine” bitcoin. Since nuclear energy does not emit greenhouse gases, the project’s investors say, the zero-carbon bitcoin would address climate concerns that have tarnished the energy-intensive cryptocurrency industry.

Talen Energy, the owner of the Susquehanna Steam Electric Station near Berwick, Pa., announced this week that it has signed a deal with TeraWulf Inc., an Easton, Md. cryptocurrency mining firm, to build a giant bitcoin factory next to its twin reactors in northern Pennsylvania. The first phase of the venture, dubbed Nautilus Cryptomine, could cost up to $400 million.

Talen’s project could eventually use up to 300 megawatts — or 12% of Susquehanna’s 2,500 MW capacity. It’s the second bitcoin-mining venture in the last month that involves owners of Pennsylvania nuclear facilities.

Last month Energy Harbor Corp., the former power-generation subsidiary of First Energy Corp., announced it signed a five-year agreement to provide zero-carbon electricity to a new bitcoin mining center operated by Standard Power in Coshocton, Ohio. Energy Harbor owns two nuclear units in Ohio and the twin-unit Beaver Valley Power Station in Western Pennsylvania.

A nuclear fission start-up, Oklo, also announced last month it signed a 20-year deal with a bitcoin miner to supply it with power, though the company has not yet built a power plant.

In recent years, commercial nuclear operators have struggled to compete in competitive electricity markets against natural gas plants and upstart renewable sources such as wind and solar. Unfavorable market conditions have hastened the retirements of several single-unit reactors, such as Three Mile Island Unit 1 in Pennsylvania. Lawmakers in New Jersey, New York and Illinois have enacted nuclear bailouts, paid by electricity customers, to stave off early retirement for other plants.

The cryptocurrency deals would provide nuclear generators with reliable outlets for their power, and bitcoin miners with predictable sources of power at cheap prices, along with a zero-carbon cachet.

Photo illustration showing the Susquehanna Steam Electric Station near Berwick, Pa., a two-unit nuclear reactor owned by Talen Energy (formerly owned by PPL Corp.), and a proposed 200,000 square-foot Talen Energy

“Nuclear energy is uniquely positioned to provide power to crypto mining companies and other major energy users who have committed to a carbon-free future,” John Kotek, senior vice president of policy development and government affairs at Nuclear Energy Institute, said in an email.

The nuclear industry views the crypto craze not as a crutch but as a launching pad for expansion. “U.S. nuclear power plants are ready and able to supply miners with abundant, reliable carbon-free power while also providing new business pathways for the nuclear developers and utilities, increasing their operating profits, and potentially accelerating the deployment of the next generation of reactors,” Kotek said.


Nuclear producers aren’t the only power generators getting in on the trend. Stronghold Digital Mining, a bitcoin miner that registered last month for a $100 million initial stock offering, plans to build its bitcoin mining operation in northwestern Pennsylvania, powered from Venango County waste coal. While its bitcoin would not be zero-carbon, it would reduce environmentally harmful piles of waste coal.

Energy and cryptocurrency experts say several trends are shifting the market in favor of U.S. nuclear power producers.

In May, Chinese regulators announced new measures to limit bitcoin mining in several regions that failed to meet Beijing’s energy-use targets. Bitcoin production levels have fallen since then, forcing bitcoin producers to relocate to places with low operating costs and cool climates to reduce the costs of cooling the bitcoin data centers. The state of Washington, which has lots of inexpensive hydroelectric power, has undergone a huge boom in bitcoin mining.

How mining is done

Bitcoin is a peer-to-peer virtual currency, operating without a central authority, and which can be exchanged for traditional currency such as the U.S. dollar. It is the most successful of hundreds of attempts to create virtual money through the use of cryptography, the science of making and breaking codes — hence, they are called cryptocurrency.

Bitcoin mining is built around blockchain technology, and it involves generating a string of code that decrypts a collection of previously executed bitcoin transactions. Successful decryption is rewarded with a new bitcoin. The supply of bitcoins is limited to 21 million — nearly 90% have already been mined. So the remaining bitcoins become increasingly scarce and more difficult to extract.

Data centers operated by bitcoin miners randomly generate code strings, called “hashes,” to solve the puzzle and earn new coins. Worldwide, miners on the bitcoin network generate more than 100 quintillion hashes per second — that’s 100,000,000,000,000,000,000 guesses per second, according to Blockchain.com. The first phase of the Nautilus project in Pennsylvania would generate five quintillion hashes per second.

Such guesswork requires muscular computing power, robust internet connections, and lots of electricity. Smaller bitcoin miners have teamed up in consortiums to pool their computing power. Bigger players have built huge data centers devoted exclusively to producing lines of random code.

An electrician checks cryptocurrency computer mining rigs in Hennepin, Ill., where Sangha Systems is converting the bitcoin mining facility to solar power to address growing concerns about the industry's carbon footprint. The owner of a Pennsylvania nuclear power plant announced that it would form a partnership with a cryptocurrency mining operation to produce and market "zero carbon" bitcoin produced from nuclear energy.
Antonio Perez / MCT

“Mining cryptocurrency is an international, profitable, and energy-intensive business,” ScottMadden a management consulting firm, said in a paper it published last year. Bitcoin mining consumes an estimated 0.5% of the electricity produced worldwide or about as much as the country of Greece.

Some lawmakers have called for greater regulation of cryptocurrency, citing the enormous amount of resources required to produce it. “There are computers all over the world right now spitting out random numbers around the clock, in a competition to try to solve a useless puzzle and win the bitcoin reward,” Sen. Elizabeth Warren (D., Mass.) said in June, calling for a crackdown on “environmentally wasteful cryptocurrencies.”

Why possible numbers look good

But as a business proposition, bitcoin has appeal. ScottMadden, the consulting firm, suggested last year that nuclear operators in some states were in a unique position to profit from cryptocurrency ventures.

Diverting 1 megawatt of power to an efficient mining operation could conservatively generate top-line revenue of $900,000 a year and profits of $650,000, not accounting for cooling, repairs, or technicians, according to ScottMadden. Its analysis predicts that a project could break even in about 15 months.

The consulting firm’s conceptual project was based upon a bitcoin price of $9,275. The price of a bitcoin last week varied between $38,000 and $42,000.

Such numbers no doubt got the attention of Talen Energy, which plans to divert about 180 MW to the first phase of the Nautilus Cryptomine, which would be producing bitcoin at the Susquehanna plant in Luzerne County.

”I think it’s a great opportunity for our plant,” said Dustin Wertheimer, vice president and divisional chief financial officer of Talen Energy. He is based in Allentown, home to Talen’s previous owner, PPL Corp. Talen is now based in the Woodlands, Texas.

Unlike other crypto projects in which the power generator is an arms-length electricity supplier, the Nautilus Cryptomine is a 50-50 venture between Talen and TeraWulf. The project would be directly connected to the Susquehanna plant — “behind the meter,” in industry parlance — and would avoid any transmission costs from the grid.

Bitcoin tokens. The price of a bitcoin traded for about $40,000 last week.

Dan Kitwood / MCT

The direct connection also guarantees that the operation is sourced exclusively with carbon-free energy, Wertheimer said.

“You’ve seen some of the press and the negative publicity that bitcoin has received recently and the impact of fossil fuel,” Wertheimer said. “So that’s a great thing for us to have a direct connection into a carbon-free power source.”

The cryptomine would be located inside a 200,000-square-foot building — about four football fields. The mining operation would be built on a data center campus that Talen is developing next to the Susquehanna plant. The data center would generate about 1,000 construction jobs, Wertheimer said. The cryptomine would employ about 50 people to operate.

The first phase of the project would cost about $350 million to $400 million. The Nautilus venture is negotiating with fiber-optic providers to bring in super-charged internet connections required to transmit and receive the huge amounts of code it generates, Wertheimer said.

“As you look across the United States, and you look at kind of the challenges that are facing nuclear plants, I think this is a great opportunity to prolong the life of a lot of plants,” he said.

The Inquirer explores what work will look like in the pandemic and beyond.
The Future of Work is produced with support from the William Penn Foundation and the Lenfest Institute for Journalism. Editorial content is created independently of the project’s donors.

Published
Aug. 6, 2021

Andrew Maykuth
I cover how we produce and use energy, as well as its impact on the economy and the environment.

A Straightforward Explanation for Why Financial Giants Want to Issue a Spot Bitcoin ETF

George Kaloudis
Wed, June 21, 2023 


The institutions are taking a fresh look at crypto and they’re flooding in.

Last week, BlackRock (BLK) applied for a spot bitcoin exchange-trade fund (ETF). This week, another comically large asset manager in Invesco (IVZ) reapplied for approval to offer a spot bitcoin ETF. The less-comically large ETF-sponsor WisdomTree also refiled for a spot bitcoin asset yesterday (WisdomTree’s filing was initially rejected by the SEC in 2022).

Elsewhere in non-bitcoin crypto, a crypto exchange backed by Fidelity, Schwab and Citadel Securities launched in the United States and Deutsche Bank applied for a digital asset license in Germany.

Read more: George Kaloudis – BlackRock’s Bitcoin ETF Would Be a Big Deal | Opinion

So yes, the institutions are back. But why did $10 trillion asset manager BlackRock and $1.5 trillion asset manager Invesco decide it was time for the spot bitcoin ETF again? Many have offered convoluted and tinfoil-hat theories (some which I quite like).

Theories like BlackRock is scrambling to backstop Coinbase for some reason or the big firms are acting on behalf of three letter agencies to keep self-custodied bitcoin away from everyday people or that Wall Street can’t let the crypto crowd get too far ahead of them.

There are more theories out there, but here’s a much simpler one: Financial institutions like making money and offering a spot bitcoin ETF is a way to make money.

Let’s focus on BlackRock for a second. If you operate under the assumption that BlackRock has clients (it does) and those clients have money they want to give to BlackRock (they do) and those clients are willing to pay BlackRock to take care of that money (they are) and that BlackRock listens to clients (it mostly does), then it doesn’t take a massive leap of faith to believe that there is some amount of client demand for “crypto exposure” that would make offering customers exposure to crypto worth it. In exchange, of course, for a fee.

The fact that BlackRock sees a spot bitcoin ETF as the path of least resistance in offering that exposure to its clients is a different story. BlackRock will only make money on this ETF if approved. So far about a dozen spot bitcoin ETF applications have been rejected by the SEC (though there are reasons to believe BlackRack’s latest application will satisfy the market surveillance and disclosure requirements demanded by the SEC).

Read more: George Kaloudis – 'Wall Street’ Doesn’t Need Bitcoin; Bitcoin Doesn’t Need ‘Wall Street’ | Opinion

To be sure, the path of least resistance for crypto exposure is that way since the SEC has committed to, as CoinDesk’s David Z. Morris puts it, “burning the earth and salting the fields of the cryptocurrency industry.” This while making it abundantly clear that it doesn’t really have an issue with bitcoin and that its issue lies with other alleged securities masquerading as cryptocurrencies.

Also, it’s not that BlackRock specifically likes bitcoin or crypto overall. In fact, BlackRock’s CEO Larry Fink once called the Bitcoin protocol an “index of money laundering.” If the spot ETF is approved I’d expect other BlackRock-sponsored crypto products in the future.

I, for one, don’t think that BlackRock would apply for this spot bitcoin ETF if it didn’t think that it, arguably the most powerful company on Wall Street, could get it approved. If I had my tinfoil hat on, then maybe there is a secret plot to make bitcoin look completely unappetizing to the world since even BlackRock couldn’t get a spot ETF through. I don’t think this is the case.

Perhaps that’s a bit naïve and there is an insidious reason behind the recent influx of spot bitcoin ETFs, but in the end you can point to one simple explanation for it all.

Financial institutions want to make money and this is a way to make money.

Invesco and WisdomTree Follows BlackRock in Filing for a Bitcoin ETF

Hope C
Wed, June 21, 2023 

WisdomTree and Invesco Have Filed for Spot Bitcoin Exchange-Traded Funds in the US

WisdomTree and Invesco have filed applications for spot Bitcoin exchange-traded funds (ETFs) in the US, following BlackRock's move on June 15.

New York-based asset management firm WisdomTree has applied for a third time, requesting that the SEC allows WisdomTree to list its “WisdomTree Bitcoin Trust” on the Cboe BZX Exchange under the ticker “BTCW.” The SEC previously rejected its application in December 2021, and again in October 2022, claiming concerns of fraud and market manipulation.

Meanwhile, Invesco has "reactivated" its application for its “Invesco Galaxy Bitcoin ETF.” According to the filing, the spot Bitcoin ETF will make use of "professional custodians and other service providers."

One crucial distinction in the BlackRock filing is that it intends to enter into a “surveillance sharing agreement” with the Chicago Mercantile Exchange futures markets. Similarly, WisdomTree signaled it is open to signing a surveillance agreement with "an operator of a US-based spot trading platform for Bitcoin." Fidelity Investments is also rumored to be considering its own spot Bitcoin ETF.

Commentary: Bitcoin, the 12-year-old bubble that could eventually be worth nothing

In contrast to other assets like gold, Bitcoin is purely speculative. Its value is whatever markets say it is, says Willem H Buiter.

The logo of the Bitcoin digital currency is seen in a shop in Marseille, France, February 7, 2021. 

By Willem H Buiter

17 Feb 2021 

NEW YORK CITY: On Feb 8, Elon Musk’s electric car firm Tesla announced that it had invested US$1.5 billion of its cash reserves in Bitcoin back in January. The news helped to boost the cryptocurrency’s already skyrocketing price by a further 10 per cent, to a record high of more than US$44,000.

But, especially in Bitcoin’s case, what goes up can just as easily come crashing down.

READ: Bitcoin pulls back from brink of US$50,000

Bitcoin was invented in 2008 and began trading in 2009. In 2010, the value of a single Bitcoin rose from around eight-hundredths of a cent to eight cents. In April 2011, it traded at US$0.67, before subsequently climbing to US$327 by November 2015.

As recently as Mar 20 last year, Bitcoin traded at about US$6,200, but its price has since increased more than sevenfold.

Today, Bitcoin is a perfect, 12-year-old bubble. I once described gold as “shiny Bitcoin”, and characterised the metal’s price as a 6,000-year-old bubble

That was a bit unfair to gold, which used to have intrinsic value as an industrial commodity (now largely redundant), and still does as a consumer durable widely used in jewelry.

READ: Commentary: Gold may have lost some of its shine but don’t write it off just yet

Bitcoin, by contrast, has no intrinsic value; it never did and never will. It is a purely speculative asset – a private fiat currency – whose value is whatever the markets say it is.

A WASTEFUL AND SPECULATIVE ASSET

 

But Bitcoin is also a socially wasteful speculative asset, because it is expensive to produce.

FILE PHOTO: Employees work on bitcoin mining computers at Bitminer Factory in Florence, Italy, April 6, 2018. Picture taken April 6, 2018. REUTERS/Alessandro Bianchi

The cost of “mining” an additional Bitcoin – solving computational puzzles using energy-intensive digital equipment – increases at such a rate that the total stock of the cryptocurrency is capped at 21 million units.

Of course, even if Bitcoin’s protocol is not changed to allow for a larger supply, the whole exercise can be repeated through the issuance of Bitcoin 2, Bitcoin 3, and so on. The real costs of mining will thus be replicated, too.

READ: Commentary: Amid record high value, Tesla's bitcoin bet raises uncomfortable questions

Moreover, there are already well-established cryptocurrencies – for example, Ether – operating in parallel with Bitcoin.

But as the success of government-issued fiat currencies shows, the universe of speculative bubbles is by no means restricted to cryptocurrencies like Bitcoin.

After all, in a world with flexible prices, there is always an equilibrium where everyone believes the official fiat currency has no value – in which case it consequently has no value.

And there are infinitely many “non-fundamental” equilibria where the general price level – the reciprocal of the fiat currency’s price – either explodes and goes to infinity or implodes and falls to zero, even when the money stock remains fairly steady or does not change at all.

READ: Commentary: US dollar could face turning point soon

Finally, there is the unique “fundamental” equilibrium at which the price level (and the value of the currency) is positive and neither explodes nor implodes. Most government-issued fiat currencies appear to have stumbled into this fundamental equilibrium and stayed there.

Keynesians ignore these multiple equilibria, viewing the price level (and thus the price of money) as uniquely determined by history and updated gradually through a mechanism like the Phillips curve, which posits a stable and inverse relationship between (unexpected) inflation and unemployment.

REAL-WORLD HYPERINFLATIONS

Regardless of which perspective one adopts, real-world hyperinflations – think of Weimar Germany or the recent cases of Venezuela and Zimbabwe – that effectively reduce the value of money to zero are examples not of non-fundamental equilibria, but rather of fundamental equilibria gone bad.

Venezuela's currency, the bolivar. (Photo: AFP/LEO RAMIREZ)

In these cases, money stocks exploded, and the price level responded accordingly.

Private cryptocurrencies and public fiat currencies have the same infinite range of possible equilibria. The zero-price equilibrium is always a possibility, as is the unique, well-behaved fundamental equilibrium.

Bitcoin clearly is exhibiting neither of these equilibria at the moment. What we have instead appears to be a variant of a non-fundamental explosive price equilibrium.

READ: Commentary: The rise and further rise of Bitcoin

It is a variant because it must allow for Bitcoin to make a possible, if unexpected, jump from its current explosive price trajectory to either the nice fundamental equilibrium or the not-so-nice zero-price scenario.

This multiple-equilibrium perspective doubtless makes it appear risky to invest in intrinsically valueless assets like Bitcoin and other private cryptocurrencies.

The real world is of course not constrained by the range of possible equilibria supported by the mainstream economic theory outlined here. But that makes Bitcoin even riskier as an investment.

READ: Commentary: Is Dogecoin the next investment craze after GameStop?

BITCOIN A TEXTBOOK EXAMPLE OF EXCESS VOLATILITY

Tesla’s recent Bitcoin buy-in shows that a large additional buyer entering the market can boost the cryptocurrency’s price significantly, both directly (when markets are illiquid) and indirectly through demonstration and emulation effects.

But an exit by a single important player would likely have a similar impact in the opposite direction. Positive or negative opinions voiced by market makers will have significant effects on Bitcoin’s price.

FILE PHOTO: A GameStop store is pictured in the Manhattan borough of New York City, New York, U.S., January 29, 2021. REUTERS/Carlo Allegri/File Photo

The cryptocurrency’s spectacular price volatility is not surprising.

Deeply irrational market gyrations like the one that drove GameStop’s share price to unprecedented highs in January (followed by a significant correction) should serve as a reminder that, lacking any obvious fundamental value anchor, Bitcoin is likely to remain a textbook example of excess volatility.

This will not change with time. Bitcoin will continue to be an asset without intrinsic value whose market value can be anything or nothing. Only those with healthy risk appetites and a robust capacity to absorb losses should consider investing in it.

If none of what happened with GameStop made sense to you, listen to financial veterans break down how different players powered the surge and which listed company could see copycat attacks in CNA's Heart of the Matter podcast:










Willem H Buiter is Visiting Professor of International and Public Affairs at Columbia University.  Source: Project Syndicate/el

 

Elon Musk wants clean power, but Tesla's dealing in environmentally dirty bitcoin

Cryptocurrency may be digital, but real fuel is burned to mine it

REUTERS

Feb 13th 2021 

LONDON — Tesla boss Elon Musk is a poster child of low-carbon technology. Yet the electric carmaker's backing of bitcoin this week could turbocharge global use of a currency that's estimated to cause more pollution than a small country every year.

Tesla revealed on Monday it had bought $1.5 billion of bitcoin and would soon accept it as payment for cars, sending the price of the cryptocurrency though the roof

So what's the problem, you may ask? Bitcoin's virtual, so it's not like it's made from paper or plastic, or even metal.

The digital currency is created via high-powered computers, an energy-intensive process that currently often relies on fossil fuels, particularly coal, the dirtiest of them all.

At current rates, such bitcoin "mining" devours about the same amount of energy annually as the Netherlands did in 2019, the latest available data from the University of Cambridge and the International Energy Agency shows.

Bitcoin production is estimated to generate between 22 million and 22.9 million metric tons of carbon dioxide emissions a year, or between the levels produced by Jordan and Sri Lanka, according to a 2019 study in scientific journal Joule.

The landmark inclusion of the cryptocurrency in Tesla's investment portfolio could complicate the company's zero-emissions ethos, according to some investors, at a time when ESG — environmental, social and governance — considerations have become a major factor for global investors.

"We are of course very concerned about the level of carbon dioxide emissions generated from bitcoin mining," said Ben Dear, CEO of Osmosis Investment Management, a sustainable investor managing around $2.2 billion in assets that holds Tesla stock in several portfolios.

"We hope that when Tesla's bitcoin ventures are over, they will concentrate on measuring and disclosing to their market their full suite of environmental factors, and if they continue to buy or indeed start mining bitcoin, that they include the relevant energy consumption data in these disclosures."

Tesla did not respond to a request for comment.

Still, it's not all eco-doom and gloom, and Tesla's bet on bitcoin comes amid growing attempts in the cryptocurrency industry to mitigate the environmental harm of mining. This movement could be advanced by billionaire entrepreneur Musk, who this week separately offered $100 million for inventions that could pull carbon dioxide from the atmosphere or oceans.

The entrance of big corporations into the crypto market could also boost incentives to produce "green bitcoin" using renewable energy, some sustainability experts say. They add that companies could buy carbon credits to compensate too.

Yet in the shorter term, Tesla's disclosure of its bitcoin investment, made in a securities filing, could indirectly serve to exacerbate the environmental costs of mining.

Other companies are likely to follow its lead by buying into the currency, investors and industry experts say. Greater demand, and higher prices, lead to more miners competing to solve puzzles in the fastest time to win coin, using increasingly powerful computers that need more energy.

"It's (bitcoin) not a sustainable investment and it's hard to make it sustainable with the kind of system it is built on," said Sanna Setterwall, a consultant at corporate sustainability advisory South Pole.

Can Tesla turn bitcoin green?

Estimates on bitcoin's reliance on fossil fuels versus renewables vary, with detailed data on the bitcoin mining industry's energy mix hard to come by.

Projects from Canada to Siberia are striving for ways to wean bitcoin mining away from fossil fuels, or at least to reduce its carbon footprint, and make the currency more palatable to mainstream investors.

SJ Oh, a former bitcoin trader based in Hong Kong and a self-professed "tree-hugger," was aware that his passion for the environment was somewhat at odds with his day job. So a year ago he co-founded Pow.re, a firm that runs green bitcoin mining operations in the Canadian subarctic.

Located in Labrador, Pow.re's machines run on hydropower, with plans to repurpose the heat generated by the mining to serve local agriculture, heating and other needs, he said.

"Overwhelmingly, I do think there will be a concerted effort by the bitcoin industry to be environmentally friendly," said Oh, who believes Musk and his company can come up with better methods.

"Tesla is one of the greenest companies on the planet so I'm sure they'll figure it out."

Other projects aimed at reducing bitcoin's carbon impact include that run by an arm of Russian gas producer Gazprom in the Khanty-Mansi region of Siberia.

There, power generated by flare gas — a by-product from oil extraction usually burned off — is used for cryptocurrency mining. The process leaves a lower carbon footprint than coal power, said Gazprom Neft, the unit behind the project.

In theory, blockchain analysis firms say, it is possible to track the source of bitcoin, raising the possibility that a premium could be charged for green bitcoin. Stronger climate change policies by governments around the world might also help.

"It's not so much bitcoin that is the problem." said Yves Bennaim, the founder of 2B4CH, a Switzerland-based cryptocurrency think-tank.

"People are saying it's energy intensive therefore it's polluting, but that is just the nature of the energy we are using today. As bitcoin goes up there will be more incentive to make investments in renewable sources of energy."

Some bitcoin proponents note, meanwhile, that the existing financial system with its millions of employees and computers in air-conditioned offices uses large amounts of energy too.

'Objective is making a profit'

However it is early days for such green projects, and some ESG experts say bitcoin could have a tough task being accepted by mainstream investors en masse in the foreseeable future.

"I still think the big players will refrain from bitcoin for these particular reasons - one being very a negative climate angle to it, given the way it's mined, and two, the compliance and ethical issues related to it," said Sasja Beslik, head of sustainable business development at Bank J. Safra Sarasin in Zurich.

Some industry players and academics warn that the dominance of Chinese miners and lack of motivation to swap cheap fossil fuels for more expensive renewables means there are few quick fixes to the emissions problem.

Chinese miners account for about 70% of bitcoin production, data from the University of Cambridge's Centre for Alternative Finance shows. They tend to use renewable energy — mostly hydropower — during the rainy summer months, but fossil fuels — primarily coal — for the rest of the year.

"Every miner's objective is making a profit, so they don't care about what kind of energy they use, if it is generated by hydro, wind, solar or burning coal," said Jack Liao, CEO of Chinese mining firm LightningAsic, adding that government incentives for miners to favor renewable energy might help.

Others are less optimistic that significant change is on the horizon.

"Production of renewables is extremely volatile, it's not ideal as a consistent form of power," said Alex De Vries, the founder of research platform Digiconomist.

"The problem is that the miners that will last the longest will be the ones using cheap fossil fuels, simply because it is the cheapest and more stable source."

Energy-thirsty Bitcoin miners seek ways to dump fossil fuels


Thu, April 21, 2022



HELENA, Mont. (AP) — For the past year a company that “mines” cryptocurrency had what seemed the ideal location for its thousands of power-thirsty computers working around the clock to verify bitcoin transactions: the grounds of a coal-fired power plant in rural Montana.

But with the cryptocurrency industry under increasing pressure to rein in the environmental impact of its massive electricity consumption, Marathon Digital Holdings made the decision to pack up its computers, called miners, and relocate them to a wind farm in Texas.

“For us, it just came down to the fact that we don’t want to be operating on fossil fuels,” said company CEO Fred Thiel.

In the world of bitcoin mining, access to cheap and reliable electricity is everything. But many economists and environmentalists have warned that as the still widely misunderstood digital currency grows in price — and with it popularity — the process of mining that is central to its existence and value is becoming increasingly energy intensive and potentially unsustainable.

Bitcoin was was created in 2009 as a new way of paying for things that would not be subject to central banks or government oversight. While it has yet to widely catch on as a method of payment, it has seen its popularity as a speculative investment surge despite volatility that can cause its price to swing wildly. In March 2020, one bitcoin was worth just over $5,000. That surged to a record of more than $67,000 in November 2021 before falling to just over $35,000 in January.

Central to bitcoin's technology is the process through which transactions are verified and then recorded on what's known as the blockchain. Computers connected to the bitcoin network race to solve complex mathematical calculations that verify the transactions, with the winner earning newly minted bitcoins as a reward. Currently, when a machine solves the puzzle, its owner is rewarded with 6.25 bitcoins — worth about $260,000 total. The system is calibrated to release 6.25 bitcoins every 10 minutes.

When bitcoin was first invented it was possible to solve the puzzles using a regular home computer, but the technology was designed so problems become harder to solve as more miners work on them. Those mining today use specialized machines that have no monitors and look more like a high-tech fan than a traditional computer. The amount of energy used by computers to solve the puzzles grows as more computers join the effort and puzzles are made more difficult.

Marathon Digital, for example, currently has about 37,000 miners, but hopes to have 199,000 online by early next year, the company said.

Determining how much energy the industry uses is difficult because not all mining companies report their use and some operations are mobile, moving storage containers full of miners around the country chasing low-cost power.

The Cambridge Bitcoin Electricity Consumption Index estimates bitcoin mining used about 109 terrawatt hours of electricity over the past year — close to the amount used in Virginia in 2020, according to the U.S. Energy Information Center. The current usage rate would work out to 143 TWh over a full year, or about the amount used by Ohio or New York state in 2020.

Cambridge's estimate does not include energy used to mine other cryptocurrencies.

A key moment in the debate over bitcoin’s energy use came last spring, when just weeks after Tesla Motors said it was buying $1.5 billion in bitcoin and would also accept the digital currency as payment for electric vehicles, CEO Elon Musk joined critics in calling out the industry’s energy use and said the company would no longer be taking it as payment.

Some want the government to step in with regulation.

In New York, Gov. Kathy Hochul is being pressured to declare a moratorium on the so-called proof-of-work mining method — the one bitcoin uses — and to deny an air quality permit for a project at a retrofitted coal-fired power plant that runs on natural gas.

A New York State judge recently ruled the project would not impact the air or water of nearby Seneca Lake.

“Repowering or expanding coal and gas plants to make fake money in the middle of a climate crisis is literally insane,” Yvonne Taylor, vice president of Seneca Lake Guardians, said in a statement.

Anne Hedges with the Montana Environmental Information Center said that before Marathon Digital showed up, environmental groups had expected the coal-fired power plant in Hardin, Montana, to close.

“It was a death watch,” Hedges said. “We were getting their quarterly reports. We were looking at how much they were operating. We were seeing it continue to decline year after year — and last year that totally changed. It would have gone out of existence but for bitcoin.”

The cryptocurrency industry “needs to find a way to reduce its energy demand,” and needs to be regulated, Hedges said. “That’s all there is to it. This is unsustainable.”

Some say the solution is to switch from proof-of-work verification to proof-of-stake verification, which is already used by some cryptocurrencies. With proof of stake, verification of digital currency transfers is assigned to computers, rather than having them compete. People or groups that stake more of their cryptocurrency are more likely to get the work — and the reward.

While the method uses far less electricity, some critics argue proof-of-stake blockchains are less secure.

Some companies in the industry acknowledge there is a problem and are committing to achieving net-zero emissions — adding no greenhouse gases to the atmosphere — from the electricity they use by 2030 by signing onto a Crypto Climate Accord, modeled after the Paris Climate Agreement.

“All crypto communities should work together, with urgency, to ensure crypto does not further exacerbate global warming, but instead becomes a net positive contributor to the vital transition to a low carbon global economy,” the accord states.

Marathon Digital is one of several companies pinning its hopes on tapping into excess renewable energy from solar and wind farms in Texas. Earlier this month the companies Blockstream Mining and Block, formerly Square, announced they were breaking ground in Texas on a small, off-the-grid mining facility using Tesla solar panels and batteries.

“This is a step to proving our thesis that bitcoin mining can fund zero-emission power infrastructure," said Adam Back, CEO and co-founder of Blockstream.

Companies argue that cryptocurrency mining can provide an economic incentive to build more renewable energy projects and help stabilize power grids. Miners give renewable energy generators a guaranteed customer, making it easier for the projects to get financing and generate power at their full capacity.

The mining companies are able to contract for lower-priced energy because “all the energy they use can be shut off and given back to the grid at a moment’s notice,” said Thiel.

In Pennsylvania, Stronghold Digital is cleaning up hundreds of years of coal waste by burning it to create what the state classifies as renewable energy that can be sent to the grid or used in bitcoin mining, depending on power demands.

Pennsylvania’s Department of Environmental Protection is a partner in the work, which uses relatively new technology to burn the waste coal more efficiently and with fewer emissions. Left alone, piles of waste coal can catch fire and burn for years, releasing greenhouse gases. When wet, the waste coal leaches acid into area waterways.

After using the coal waste to generate electricity, what’s left is “toxicity-free fly ash,” which is registered by the state as a clean fertilizer, Stronghold Digital spokesperson Naomi Harrington said.

As Marathon Digital gradually moves its 30,000 miners out of Montana, it's leaving behind tens of millions of dollars in mining infrastructure behind.

Just because Marathon doesn’t want to use coal-fired power anymore doesn’t mean there won’t be another bitcoin miner to take its place. Thiel said he assumes the power plant owners will find a company to do just that.

“No reason not to,” he said.

Amy Beth Hanson, The Associated Press

Going green: How to ditch fossil fuels powering the bitcoin network

The amount of energy used by computers to solve the puzzles grows as more computers join the effort and puzzles are made more difficult

AP | Helena (US) Last Updated at April 21, 2022


For the past year a company that mines cryptocurrency had what seemed the ideal location for its thousands of power-thirsty computers working around the clock to verify bitcoin transactions: the grounds of a coal-fired power plant in rural Montana.

But with the cryptocurrency industry under increasing pressure to rein in the environmental impact of its massive electricity consumption, Marathon Digital Holdings made the decision to pack up its computers, called miners, and relocate them to a wind farm in Texas.

For us, it just came down to the fact that we don't want to be operating on fossil fuels, said company CEO Fred Thiel.

In the world of bitcoin mining, access to cheap and reliable electricity is everything.

But many economists and environmentalists have warned that as the still widely misunderstood digital currency grows in price and with it popularity the process of mining that is central to its existence and value is becoming increasingly energy intensive and potentially unsustainable.

Bitcoin was was created in 2009 as a new way of paying for things that would not be subject to central banks or government oversight.

While it has yet to widely catch on as a method of payment, it has seen its popularity as a speculative investment surge despite volatility that can cause its price to swing wildly.

In March 2020, one bitcoin was worth just over USD 5,000. That surged to a record of more than USD 67,000 in November 2021 before falling to just over USD 35,000 in January.

Central to bitcoin's technology is the process through which transactions are verified and then recorded on what's known as the blockchain.

Computers connected to the bitcoin network race to solve complex mathematical calculations that verify the transactions, with the winner earning newly minted bitcoins as a reward.

Currently, when a machine solves the puzzle, its owner is rewarded with 6.25 bitcoins worth about USD 260,000 total. The system is calibrated to release 6.25 bitcoins every 10 minutes.

When bitcoin was first invented it was possible to solve the puzzles using a regular home computer, but the technology was designed so problems become harder to solve as more miners work on them. Those mining today use specialised machines that have no monitors and look more like a high-tech fan than a traditional computer.

The amount of energy used by computers to solve the puzzles grows as more computers join the effort and puzzles are made more difficult.

Marathon Digital, for example, currently has about 37,000 miners, but hopes to have 199,000 online by early next year, the company said.

Determining how much energy the industry uses is difficult because not all mining companies report their use and some operations are mobile, moving storage containers full of miners around the country chasing low-cost power.

The Cambridge Bitcoin Electricity Consumption Index estimates bitcoin mining used about 109 terrawatt hours of electricity over the past year close to the amount used in Virginia in 2020, according to the US Energy Information Center.

The current usage rate would work out to 143 TWh over a full year, or about the amount used by Ohio or New York state in 2020.

Cambridge's estimate does not include energy used to mine other cryptocurrencies.

A key moment in the debate over bitcoin's energy use came last spring, when just weeks after Tesla Motors said it was buying USD 1.5 billion in bitcoin and would also accept the digital currency as payment for electric vehicles, CEO Elon Musk joined critics in calling out the industry's energy use and said the company would no longer be taking it as payment.

Some want the government to step in with regulation.

In New York, Gov. Kathy Hochul is being pressured to declare a moratorium on the so-called proof-of-work mining method the one bitcoin uses and to deny an air quality permit for a project at a retrofitted coal-fired power plant that runs on natural gas.

A New York State judge recently ruled the project would not impact the air or water of nearby Seneca Lake.

Repowering or expanding coal and gas plants to make fake money in the middle of a climate crisis is literally insane, Yvonne Taylor, vice president of Seneca Lake Guardians, said in a statement.


Anne Hedges with the Montana Environmental Information Center said that before Marathon Digital showed up, environmental groups had expected the coal-fired power plant in Hardin, Montana, to close.

It was a death watch, Hedges said.

We were getting their quarterly reports. We were looking at how much they were operating. We were seeing it continue to decline year after year and last year that totally changed. It would have gone out of existence but for bitcoin.

The cryptocurrency industry needs to find a way to reduce its energy demand, and needs to be regulated, Hedges said. That's all there is to it. This is unsustainable.

Some say the solution is to switch from proof-of-work verification to proof-of-stake verification, which is already used by some cryptocurrencies. With proof of stake, verification of digital currency transfers is assigned to computers, rather than having them compete.

People or groups that stake more of their cryptocurrency are more likely to get the work and the reward.

While the method uses far less electricity, some critics argue proof-of-stake blockchains are less secure.

Some companies in the industry acknowledge there is a problem and are committing to achieving net-zero emissions adding no greenhouse gases to the atmosphere from the electricity they use by 2030 by signing onto a Crypto Climate Accord, modeled after the Paris Climate Agreement.

All crypto communities should work together, with urgency, to ensure crypto does not further exacerbate global warming, but instead becomes a net positive contributor to the vital transition to a low carbon global economy, the accord states.

Marathon Digital is one of several companies pinning its hopes on tapping into excess renewable energy from solar and wind farms in Texas.

Earlier this month the companies Blockstream Mining and Block, formerly Square, announced they were breaking ground in Texas on a small, off-the-grid mining facility using Tesla solar panels and batteries.

This is a step to proving our thesis that bitcoin mining can fund zero-emission power infrastructure," said Adam Back, CEO and co-founder of Blockstream.

Companies argue that cryptocurrency mining can provide an economic incentive to build more renewable energy projects and help stabilize power grids.

Miners give renewable energy generators a guaranteed customer, making it easier for the projects to get financing and generate power at their full capacity.

The mining companies are able to contract for lower-priced energy because all the energy they use can be shut off and given back to the grid at a moment's notice, said Thiel.

In Pennsylvania, Stronghold Digital is cleaning up hundreds of years of coal waste by burning it to create what the state classifies as renewable energy that can be sent to the grid or used in bitcoin mining, depending on power demands.

Pennsylvania's Department of Environmental Protection is a partner in the work, which uses relatively new technology to burn the waste coal more efficiently and with fewer emissions.

Left alone, piles of waste coal can catch fire and burn for years, releasing greenhouse gases. When wet, the waste coal leaches acid into area waterways.

After using the coal waste to generate electricity, what's left is toxicity-free fly ash, which is registered by the state as a clean fertilizer, Stronghold Digital spokesperson Naomi Harrington said.

As Marathon Digital gradually moves its 30,000 miners out of Montana, it's leaving behind tens of millions of dollars in mining infrastructure behind.

Just because Marathon doesn't want to use coal-fired power anymore doesn't mean there won't be another bitcoin miner to take its place. Thiel said he assumes the power plant owners will find a company to do just that.

No reason not to, he said.

A Fossil Fuel Power Plant That Mines Bitcoin Is Fighting to Stay Open

Regulators say the Greenidge plant in New York State is fighting an an "uphill battle" to prove it's environmentally-friendly enough to stay open.

By Audrey Carleton
20.4.22

A natural gas-fired power plant connected to a Bitcoin mine in Dresden, New York is fighting to green its image as it vies for renewed permits from the state.

The Greenidge power plant has become the center of fierce debate over Bitcoin mining in New York State and how the industry fits into the state’s climate goals. Decommissioned as a coal-fired plant in 2011, Greenidge was reopened in 2017 after being purchased by Atlas Holdings and converted to a natural gas plant, spinning up Bitcoin mining starting in 2019. Today, it’s one of the largest Bitcoin mining facilities in the U.S., running 17,000 rigs.

Greenidge lauds itself as “carbon neutral,” claiming to offset the emissions that come from burning fossil fuels to generate bitcoins with “reliable, verified” credits and systems that it says are more efficient than the network standard. But that’s not enough for many environmentalist opponents, including Sen. Elizabeth Warren (D-MA), who say the environmental footprint of Bitcoin mining outweighs any justification for its existence, especially when it uses fossil fuels directly.

“Given the extraordinarily high energy usage and carbon emissions associated with Bitcoin mining, mining operations at Greenidge and other plants raise concerns about their impacts on the global environment, on local ecosystems, and on consumer electricity costs,” Warren wrote in a letter to the plant’s CEO, Jeffrey Kirt, last December.

Despite purchasing offsets, the plant’s emissions increased “nearly tenfold from 2019 to 2020,” Warren’s letter claims, citing data from the New York State Department of Environmental Conservation (DEC) obtained by the Committee To Preserve The Finger Lakes, which opposes the Greenidge plant’s mining operation. In 2020, those emissions were comparable to that of 50,000 cars, the letter reads. At the time, Greenidge told Bloomberg that the operation “meets all of New York’s nation-leading environmental standards.”

Even so, the plant faces an “uphill battle,” for its permits, DEC Commissioner Basil Seggos told Binghamton, New York-based broadcaster WSKG on Monday, noting that he still has “significant concerns” about the environmental impact of its operations.

“DEC has advised the applicant, Greenidge Generation, LLC, of the need for additional greenhouse gas (GHG) mitigation measures to meet the requirements of the Climate Leadership and Community Protection Act,” a warning on the DEC website reads. “On March 25, the applicant, Greenidge Generation, LLC, proposed GHG mitigation measures for the facility as part of the current Title V and IV permit renewal process. DEC has not made a determination regarding the sufficiency of the proposed GHG mitigation measures in meeting these requirements.”

“DEC subjects every application to all applicable federal and State standards to ensure the agency’s decision is protective of public health and the environment and upholds environmental justice and fairness,” the agency told Motherboard in an email.

The regulator is still “reviewing additional information submitted by” Greenidge, alongside some 4,000 public comments it received about the plant, the notice continues.

The agency’s hesitation primarily comes down to a piece of landmark climate legislation passed in 2019 that, at the time, positioned New York state as a national leader in environmental policy. The Climate and Community Leadership Protection Act (CLCPA) established a set of legally-binding environmental targets requiring 70 percent of New York’s energy to come from renewable sources by 2030 in order to reduce statewide greenhouse gas emissions by 85 percent by 2050. Now, three years after the Act’s passage, advocates say the state is far from achieving these goals. Allowing the proliferation of Bitcoin mining tied to fossil fuel plants would set New York even farther back from them, critics say, as it extends a lifeline to fossil fuel infrastructure that would otherwise have no reason to exist.

Greenidge underscored in its March 25 proposal to the DEC that it is “prepared do more than the legal minimum—and more that it has already done—to reduce [greenhouse gas] emissions in support of the Department’s effort to achieve CLCPA’s goals.” It proposed reducing its overall emissions volumes by 40 per cent from what’s currently permitted by the end of 2025, five years before the CLCPA’s 2030 renewable targets. The plant underscored that its own emissions comprise well under one percent of the state’s overall emissions and power volumes.

“The State of New York should lead, embracing the cryptocurrency industry and all the opportunity we’ve shown it can create for New Yorkers while complying with the nation’s most aggressive environmental standards and laws addressing climate change,” Greenidge said in a statement emailed to Motherboard. “We look forward to finalizing a strong, renewed [air] permit to allow Greenidge to continue its environmental and economic stewardship in New York.”

In addition to regulators’ concerns, local critics like Seneca Lake Guardian and Committee to Preserve the Finger Lakes oppose not just Greenidge’s atmospheric emissions, but its potential impact on water quality around the plant. Last year, a claim that the facility has turned the glacial lake it sits next to into a “hot tub” went viral. That claim wasn’t true, but shows the level of angst Greenidge has fomented in the region, and may have a kernel of truth to it. The facility’s intake pipe draws up fresh water from the nearby Seneca Lake to power the facility with steam and cool it, pumping it back out at an allowed maximum of 108 degrees. Greenridge maintains that in 2021 it never reached that temperature and the average discharge temperature is approximately 32 degrees below the permitted level.

That this type of setup can imperil local wildlife is a well-documented phenomenon. Intake pipes suck in water and wildlife indiscriminately, Grist reported in 2021. This can result in fish and wildlife being mangled by facilities, which the Sierra Club once described as “giant fish blenders.”

Many of these environmental groups hope to see the state issue a moratorium on the issuing of permits for Bitcoin mining as a whole: Citing the state’s move to ban fracking in 2014, advocates say the state has a well-defined legislative pathway to putting an end to Bitcoin mining. Most recently, that chorus of voices came to include New York City Public Advocate and gubernatorial candidate Jumaane Williams, who called on Governor Kathy Hochul to place a moratorium on Proof-of-Work mining. The technique for providing network security used by Bitcoin and other cryptocurrencies involves brute-force number crunching in a global lottery to add a block of valid transactions to the chain. To Bitcoiners, this is a critical part of the system, but to critics, it’s a lot of wasted energy.

“Bitcoin mines that use a 'Proof-of-Work' process are known to cause significant damage to the environment and local economy, which is why many countries have completely banned the practice,” Williams told local broadcaster Spectrum News in February. “Unfortunately New York has fallen behind, allowing nearly 20 percent of the country's mines to operate in our state without any oversight or regulation. We need to ask questions now rather than dealing with the fallout later."

A bill that would put a two-year moratorium on all Proof-of-Work mining in New York has garnered traction in the state legislature—it would put an end to what The New York Times called a “Bitcoin boom” in Northern and Western New York. Bitcoin mining doesn’t need fossil fuels, and New York State is home to ample hydropower and shuttered industrial plants, making it a leading producer of new bitcoins nationwide as firms seek cheap power.

Still, many environmentalists fear that Greenidge’s case is part of a larger wave of once-mothballed power plants coming back to life via Bitcoin. There are an estimated 30 mothballed coal and oil-powered plants across the state that could be fodder for mining operations like this one, Buffalo News reported last July.

Greenidge, for its part, remains firm that it’s taken steps to meet the requirements the DEC has laid out for its permit approvals.

“We are willing to do far more than we have already done to further reduce [greenhouse gas] emissions and help the state achieve its statewide CLCPA goals,” the plant said in a statement on March 31. “Notwithstanding the noise from our few remaining opponents, this is a standard air permit renewal governing permitted emissions levels, not a cryptocurrency permit. Their efforts to mislead the public—and to cause our team members and IBEW [union] partners to lose their jobs without any basis in law or fact—have been shameful.”

How Bitcoin Mines Were Airlifted From China to the US

After China banned Bitcoin, an exodus of mining computers made their way all over the globe.

By Melissa Chan
21.4.22

This article is based on reporting for the seventh episode of CRYPTOLAND, Motherboard’s documentary series about how cryptocurrency is affecting culture, politics, the environment, and our shared future. Watch it on Motherboard’s YouTube.

Outside a warehouse in upstate New York, Sam Tabar stands transfixed, gazing at a pile of coal as a Caterpillar excavator scoops chunks up for removal. His company, Bit Digital, is one of the world's largest cryptocurrency mining firms, and it has taken over this former coal plant for its own operations.

“It’s come full circle now,” he marvels. “We have these places that were devastated by China's takeover of manufacturing,” referring to American Rust Belt deindustrialization over the past few decades. But now, “the future is coming back to Buffalo, thanks to China.”

China once dominated the Bitcoin mining market, the computing process by which new Bitcoin enters circulation. The country once accounted for more than 80 percent of the world’s Bitcoin mining. But in the way authoritarian states can, Beijing decided to ban all foreign cryptocurrencies last year in part to bolster its own centrally-controlled digital yuan. As miners scrambled to move their valuable hardware out, they made bets on which countries were safest to install their machines. By geographic proximity and the promise of cheap energy, some transferred their assets to Russia and Kazakhstan. Others opted for higher transport fees and sent their equipment to the United States. Given Russia’s invasion of Ukraine and Kazakhstan’s own violent political unrest this January, the choice has brought to sharp focus the mining risks in closed societies versus open societies.

Bit Digital had 30,000 ASICs—the machines used for mining—in China. Tabar, the company’s Chief Strategy Officer, and the rest of the team spent months shipping units, each worth thousands of dollars, out by plane, train, and boat. Choosing the United States made sense to Tabar.

“There's rule of law, there's transparency on decision making,” he says. The Biden administration’s March executive order on cryptocurrencies, though absent on specifics, indicates that the US views digital assets as important to maintaining American leadership in global finance. “I am hopeful that the FCC and other stakeholders [will] have a very thoughtful conversation about regulation and not stamp out innovation,” says Tabar.

Time was of the essence when companies were deciding where to relocate their machines. Every minute an ASIC is not plugged in is a minute it isn’t mining for potential Bitcoin. When miners look for efficiency, autocracies have their appeal. Leaders can make magic happen with a snap of their fingers. Kazakhstan saw an opportunity as mining units left China and its president, Kassym-Jomart Tokayev, welcomed crypto cowboys to his frontier, promising minimal regulation and cheap electricity.

Kazakh startup Enegix quickly threw up data centers where incoming miners could pay to plug in their machines. In addition to low energy costs, Enegix CEO Yerbolsyn Sarsenov touted its northern operations in the near-Siberian cold as an asset, because Bitcoin mines generate a lot of heat, and keeping ASICs from overheating can be a challenge at certain mines. Enegix's facility is “dry and cool, so hardware has a long service life and stays operational for a long time,” he explains to Motherboard.

Short-term ease-of-setup in an authoritarian state, however, can translate to long-term uncertainty. Tokayev giveth, and he taketh away. A few months after the leader’s crypto pronouncement, the government unexpectedly limited the amount of power prospectors could tap into, saying it would be rolled back by up to 95 percent. Mining activity crashed overnight. As the future of mining in the country suddenly looked dicey, problems deepened as nationwide anti-government protests prompted a bloody crackdown.

Following the unrest, Tokayev has devoted the past few months to consolidating power and putting pressure on the family and associates of Kazakhstan’s previous leader, Nursultan Nazarbayev, who ruled for almost three decades. Some of these curbs included stopping their Bitcoin ventures. Along with pursuing elites, officials also went after smaller mining operators, forcing many unlicensed ones to shutter.

Alex Gladstein, author of Check Your Financial Privilege: Inside the Global Bitcoin Revolution and Chief Strategy Officer at Human Rights Foundation, believes most miners exiting China “would’ve preferred to have rack space in Canada, Iceland, Norway, or the United States.” China’s Bitcoin ban had happened quickly, and many Western operators were unprepared to absorb the flood of hardware. Kazakhstan, he argues, was more of a backup option.

Cambridge University’s Center for Alternative Finance shows Kazakhstan grabbing second place after the US in global Bitcoin mining rankings, but most observers expect it to slip this year. It may still stick around as a significant player, however, given Russia’s new status as a pariah state and a potential exodus of Russian miners who would prefer to operate in a country free of sanctions. While the fall of the ruble has led to cheaper energy costs in Russia, miners there will soon face difficulties procuring hardware. Several firms have already pivoted from Russia to Kazakhstan. Enegix’s future success may partly depend on this second migration of ASICs.

The outcome for now however, puts the US firmly in the global lead, a warp speed transfer of wealth within one year from China — or a transfer of a boondoggle, depending on one’s assessment of cryptocurrencies. Bitcoin and other cryptocurrencies remain a highly divisive and debated digital development, and US politicians have wrestled over whether to welcome the industry to their respective jurisdictions.

Here US federalism is an asset, allowing states and cities to explore different policies. Texas has leaned in hard, with Senator Ted Cruz (R-TX), himself a Bitcoin investor, pledging the state will "become the center of the universe for Bitcoin and crypto.” Elsewhere however, including in New York State and imperiling Bit Digital’s operations there, legislators have introduced a bill seeking to impose a two-year moratorium on cryptocurrency mining.

Gladstein believes that Bit Digital and other companies would simply move to other states. Ultimately, he believes mining activity will largely settle in democracies. “You’re probably going to see over the coming decade the majority of infrastructure inside countries that have stronger rule of law,” he says.

For miners who must contend with the wild fluctuations in the value of Bitcoin and other cryptocurrencies, a reliable and stable business environment is most welcome.

I Spoke to the Experts. Bitcoin Isn’t Going to Change.

April 20, 2022

Credit...Illustration by The New York Times; 

Images by CSA-Images, and Maximkostenko, via Getty Images



By Peter Coy
Opinion Writer
You're reading Peter Coy's newsletter,. A veteran business and economics columnist unpacks the biggest headlines. 

The people behind Bitcoin, the No. 1 cryptocurrency by market value (and renown), are under heavy pressure to reduce its carbon footprint — the planet-warming emissions from burning fossil fuels for electricity to run the network’s computations, known as mining. I spoke with people on both sides of the argument and came away thinking that Bitcoin is highly unlikely to change its fundamental way of operating.

Bitcoin feels wasteful to a lot of people because its security depends on buying lots of specialized computing hardware that’s useless for any other purpose and then running it hard, which consumes joules and joules of electricity. The Cambridge Center for Alternative Finance calculates that Bitcoin mining, on the whole, consumes slightly more energy than gold mining, which is a fair comparison, since both Bitcoin tokens and gold are pitched as alternatives to fiat currencies such as the U.S. dollar. Bitcoin mining consumes more electricity than Norway but slightly less than Egypt, the center says, and accounts for 0.62 percent of the world’s total electricity consumption.

Here is a mind-blowing stat about Bitcoin: Every second, the Bitcoin network performs about 200 quintillion hashes, which are essentially guesses about a certain very long string of digits. There’s a race among Bitcoin network participants, known as miners, to make guesses faster and faster so they can be first and win rewards in the form of Bitcoin. It’s cheaper for them than buying Bitcoin on the open market: The token’s price is up more than thirtyfold over the past five years.

As the miners get faster, the network automatically makes the problem they need to solve harder, essentially spinning the treadmill faster. The Bitcoin network was designed this way to limit the pace at which new blocks of verified data are formed to one every 10 minutes. Unlike with most other cryptocurrencies, there is a built-in ceiling on production of tokens. More than 90 percent of the 21 million Bitcoin that will ever exist have already been mined, making each one more valuable.

Pressure on Bitcoin to switch to a less energy-intensive approach is coming from several directions. Ethereum, the No. 2 cryptocurrency, is switching from proof of work, which Bitcoin uses, to proof of stake, which requires much less computing power and therefore does less damage to the environment. Briefly, you prove your work by doing those quintillions of calculations. You prove your stake by pledging cryptocoins that you own. As in a company’s shareholder vote, the people with the most coins have the biggest say.

The difference in energy consumed per transaction between the two systems is like the difference in height between the world’s tallest building and a single screw, according to one creative comparison. Once Ethereum makes the switch, Bitcoin will be the only one of the most highly valued cryptocurrencies using proof of work.

The European Parliament is moving toward insisting that all cryptocurrencies meet environmental sustainability standards, although in March a draft document stopped short of banning the proof-of-work system that Bitcoin uses. Also in March, Greenpeace USA, the Environmental Working Group, and other environmental advocacy groups began the Change the Code campaign, which involves advertising as well as putting pressure on cryptocurrency fanboys like Elon Musk of Tesla and Jack Dorsey of Block (formerly Square), as well as Abigail Johnson of Fidelity Investments, which manages mutual funds that invest in Bitcoin miners. The campaign got a $5 million boost from Chris Larsen, the executive chairman, a former chief executive and a co-founder of Ripple, a blockchain company for global enterprises.

There is no Bitcoin headquarters that you can call for an official response on this matter. Jameson Lopp, one of the currency’s defenders I spoke with, said, “There is no official anything when it comes to Bitcoin. There is no leader. There is only the protocol.”

Lopp, a co-founder and the chief technology officer of the Bitcoin storage company Casa, who describes himself as a professional cypherpunk, said it wasn’t up to people like him to defend Bitcoin. “I believe it defends itself. The game theory and the incentives are what keep this working. People can scream about environmental concerns all day long, but until you come up with a better system, it’s going to keep going.”

He and others also argue that Bitcoin isn’t as much of an energy hog as it first appears. Because Bitcoin miners can rapidly turn on or off, they are stabilizing the electrical grid in places such as Texas by throttling back when other demand is high and cranking up consumption when other demand is weak, advocates argue. Some of the electricity that Bitcoin uses is from energy resources that nobody else can easily access, such as overbuilt hydroelectric power plants, they say. (There’s some truth to this, but Bitcoin mining still contributes to global warming.)

Another Bitcoiner argument is that its proof of work method is more secure than proof of stake or other protocols. “The open question is not whether proof of stake is secure but whether it’s secure enough for a global form of digital gold. Bitcoin is,” said Ryan Selkis, a co-founder and the chief executive of Messari, which builds data and research tools for crypto. (Backers of proof-of-stake cryptos respond that their systems are just as secure as Bitcoin’s. “They’re literally being attacked by every hacker on earth, constantly. And they’re holding up,” said Larsen.)

There’s also some bad blood between the Bitcoin community and Larsen, whose company, Ripple, uses a security system that isn’t proof of work or proof of stake. In March, Selkis called Larsen a “Judas” on Twitter. The Securities and Exchange Commission sued Ripple, Larsen, and another Ripple executive in 2020, charging that its sale of $1.3 billion in crypto tokens constituted an “unregistered, ongoing digital asset securities offering.” In an interview, Larsen said he thinks the S.E.C. is wrong because Ripple is a virtual currency and is thus exempt from securities regulation.

Make of those arguments what you will; the important fact is that there’s no evidence that the key players in Bitcoin are interested in making the big switch to energy-saving proof of stake. It wouldn’t benefit the miners, who have invested heavily in specialized computing technology that would go to waste. And there’s no groundswell for it in the other key interest group, the operators of nodes — computers that keep up-to-date digital records of crypto transactions. The node operators collectively decide whether each new block of transactions should or should not be legitimized and appended to the blockchain. Some fear that moving to proof of stake would diminish Bitcoin’s decentralization, which they value.

It’s possible that some Bitcoiners will decide to switch to proof of stake. That would be what the community calls a hard fork, as in a fork in the road, where people have to choose which direction to go. But “even if there is a fork, that fork will eventually fail, and it will have zero or close to zero economic value,” said Daniel Frumkin, the director of research at Braiins, a Bitcoin-mining software company that operates a network of miners called Slush Pool.

For Bitcoin to change direction would require “almost like a constitutional convention of sorts,” said Selkis. “Inertia usually wins.”

OK, but what if the European Parliament does ban proof of work someday and the United States and other nations follow suit? That’s the nightmare scenario for the Bitcoin community, which has a strong libertarian streak. “Bitcoin would not be a trillion-dollar asset if the European Union and the United States were doing their jobs” of maintaining sound money, Selkis said. “That’s the real reason they don’t like it. It exposes their underperformance.”

“At least as of today, there is no one world, global government,” said Lopp. “There will always be somewhere that these miners will be able to go.” He laughed and added, “Worst-case scenario, they could all go to El Salvador, which loves Bitcoin.” (El Salvador adopted Bitcoin as an official currency in September, though the experiment has had some hiccups.)

I see lots of reasons for Bitcoin to stick with its current game plan. Quintillions of reasons, actually.