Blockchain mining needs a makeover – but so does mining policy

Like so much of civil discourse in America these days, the debate over the environmental implications of digital assets, particularly cryptocurrencies, is needlessly polarized. The politics that govern the energy-intensive computer “mining” of assets like bitcoin from hidden corners of cyberspace often descend into a pit of binary parley — a zero-sum game in which one political team can win as long as the other team loses.

Where can America find common ground for bitcoin mining? What solutions can lead to mutually beneficial outcomes for both proponents and opponents of the process? Entrepreneurs and regulators can each achieve their goals by welcoming a little more creative destruction and stimulating the public’s ability to make its own choices.

On one side of the debate are bitcoin enthusiasts and investors who downplay bitcoin’s power-guzzling image and suggest that bitcoin mining will save the world. On the other hand, environmental groups and researchers state that cryptocurrencies exacerbate environmental justice concerns by mining in communities that are poor or rural and complain that bitcoin is destroying the planet. Both sides seem to have an infuriating determination to prove the other wrong.

But this blunt style of verbal combat leaves little room for creativity in terms of how to replenish the earth without harming our basic democratic values ​​of liberty and economic freedom. This is a case where these goals need not conflict.

With calls for moratoriums and bans on bitcoin mining, state lawmakers and federal regulators have displayed unusually autocratic behavior in their targeting of an entire industry subsector. To meet climate change goals, New York recently passed a bill to ban certain bitcoin mining operations that run on conventional, carbon-based energy sources. The bill explicitly prohibits the “proof of work” approach to mining, which powers the Bitcoin blockchain and uses highly energy-intensive mining. In its Crypto Assets Climate report, President Biden’s Office of Science and Technology Policy (OSTP) also recommended that the administration consider limiting or eliminating proof-of-work consensus mechanisms.

If such bans were implemented, state and federal governments would effectively pick winners and losers by favoring ethereum — a blockchain alternative with a more energy-efficient method of online mining — over industry leader bitcoin. Denying the public a fair choice underscores the unbalanced role that government, rather than the market, plays in addressing these issues and shaping the future of the digital asset economy.

While proponents of government investment suggest that financing renewable energy innovation could spur a transformation of several industries, including bitcoin mining, and lead to some job growth, if it crowds out private sector investment, we may lose out on much of the contribution of private innovation . Relying too much on government actions and specific mandates can hinder experimentation and market discovery, especially where conventional and emerging industries intersect. Government moratoriums can also cripple the ability of bitcoin mining to improvise and find stops to reduce environmental risk, thereby reducing short-term innovation, economic activity and value creation. If conflict resolution theory tells us anything, enforced compliance is a last resort and rarely bridges the gap between disagreeing parties.

Instead, the market should be motivated to experiment and develop a diversity of solutions for the short, medium and long term – systematic and sustainable improvements in energy efficiency and reliability that minimize environmental risk to local communities.

North Carolina’s market-driven approach to bitcoin mining is one factor that allowed the state to place first in CNBC’s 2022 America’s Top States for Business survey. Because of its permissive bitcoin mining policy, entrepreneurs in North Carolina are free to experiment with new ways of mining in an environmentally sustainable manner. One company has invented a process called “thermal demanufacturing” to divert waste tires from landfills and convert them into byproducts of steel and energy to power data centers and bitcoin mining. Although many bitcoin miners still need to address their external design, noise pollution and the water waste that rural communities are particularly vulnerable to, entrepreneurial efforts like this will help the transition to a cleaner, more sustainable ecosystem, while giving the industry a much-needed reputation- makeover.

Before adopting moratoriums or bans on bitcoin mining and other energy-intensive industries, policymakers should try to avoid setting unrealistic expectations for innovative industries where new challenges are inevitable. A culture of innovation and understanding often simply needs time to find solutions to complex technological and environmental challenges.

This softer, less ultimatum-driven policy approach is more reasonable and addresses the realities of market forces, which are unlikely to quickly meet politicized policy goals—especially those overly reliant on threats of regulatory bans.

Agnes Gambill West is a Visiting Senior Research Fellow at the Mercatus Center at George Mason University.

*Disclaimer: The author is co-chair of the North Carolina Blockchain Initiative and a member of the North Carolina Innovation Council. The author has no financial stake in the blockchain mining industry.