Crypto is here to save the grid. Or crash it.

Like energy, cryptocurrency is prone to booms and busts — and last year was definitely a bust.

But with the value of bitcoin and other digital currencies starting to rebound after plunging in 2022, there are renewed concerns that cryptominers could wreak havoc on the electric grid and America’s carbon-cutting plans.

That has led crypto companies to change their role on the grid, looking at ways to both minimize power needs and increase ties to renewable energy. The industry is aware that a possible regulatory crackdown could put an end to the days of unrestrained electricity use.

“This is an industry with a lot of ethical holes in it, and one of the biggest is the impact on the environment,” Erran Carmel, a technology professor at American University, said of cryptocurrency.

Cryptocurrency has long been labeled a climate villain. Companies acquire virtual coins by solving a series of computational tasks in a “mining” process that essentially requires a fleet of computers to run for long hours. Depending on where these computers are located, the load can be covered by natural gas or coal plants, delaying the transition to renewable energy and generating more climate-warming emissions.

According to a report by the White House Office of Science and Technology Policy, as of August 2022, the total global electricity use for crypto was as high as 240 billion kilowatt hours per year, more than the total electricity used in a year by Argentina.

In the United States — which hosts about a third of the world’s crypto operations — industry accounted for between 0.9 percent to 1.7 percent of the country’s total electricity consumption, higher than all residential lighting, the White House office found.

That kind of energy move prompted New York Gov. Kathy Hochul (D) to sign legislation that imposed a moratorium on new crypto mining in the state last year. Other state and local governments have placed their own restrictions on new crypto mining or imposed requirements that it be run on renewable energy.

Restrictions that go too far could hurt the industry at a time when it is looking to reshape its energy history, said John Olsen, New York state director of the Blockchain Association.

“Other areas of the country have embraced this technology and enabled the kind of out-of-the-box thinking where we don’t just rely on water, wind or sun, but have ways to reduce emissions, capture waste and even contribute to the overall health of the economy, Olsen said. “A moratorium sets us back a few steps.”

For example, he said, some cryptominers have taken root in areas where renewable energy can go to waste, offering a cargo that can support large projects. In Texas, bitcoin companies have shown that shifting demand up and down can help stabilize prices online.

The strategy is not just a regulatory dodge or a good spin, said Joe Burnett, a mining analyst for bitcoin company Blockware Solutions. It’s also good business.

“If bitcoin miners are inefficient and unprofitable, governments should let them fail,” Burnett said. “This industry has the potential to balance energy grids and help with supply. And I think there is a viable future for mining companies.”

The power dilemma

Crypto mining declined through 2022, with website digiconomist.net estimating that the industry’s energy use fell by more than 60 percent between January and December.

It mirrors 2022’s so-called “crypto winter,” when prices crashed as a number of companies failed and investors pulled out of the volatile and still risky market.

The collapse of the cryptocurrency exchange FTX Trading Ltd. in November 2022 after a liquidity crisis and allegations of fraud against CEO Sam Bankman-Fried marked a thump towards the end of the year that drove prices further down and increased regulatory scrutiny.

With little reward, mining naturally declined. But activity was also dampened by rising electricity and natural gas prices, said Joshua Rhodes, a researcher at the University of Texas, Austin, who has consulted for crypto companies.

“The main cost of these systems is electricity. It’s basically a bunch of computers guessing a certain number for trillions of guesses, which takes a lot of energy,” Rhodes said. “So when bitcoin prices went down, electricity prices went up . You are pressured from both sides.”

According to a study by research firm Hashrate Index – backed by mining company Luxor Technologies – 10 of the most popular states for cryptocurrency mining saw electricity prices rise between 2021 and 2022, led by a 43 percent increase in Georgia. This trend, the report says, likely contributed to the bankruptcy of Core Scientific and other cryptomining companies.

The report found that crypto companies in states with abundant hydropower and less natural gas saw the smallest price increases and had more market stability.

“Many miners learned a painful but important lesson in 2022: securing a low, long-term electricity price is critical to the mining business,” Hashrate Index said.

As bitcoin prices have rebounded from a 2022 low, the Hashrate Index found that the computing power behind bitcoin has also risen, reaching an all-time high on January 20.

It has coincided with increased regulatory attention from some states and countries.

Oregon lawmakers have proposed a bill that would require crypto miners and data centers to meet the state’s greenhouse gas reduction goals, including a 100 percent reduction by 2040. In Washington state, a new bill would require large loads served by municipal and public utilities to meet clean energy standards that currently apply to customers of investor-owned utilities.

Both states have seen an influx of crypto companies seeking affordable, reliable hydropower. British Columbia and Manitoba in Canada have also implemented moratoriums on new crypto connections.

Whether renewable requirements make a difference remains to be seen.

Take Missoula County in Montana, which in 2021 passed new zoning rules mandating that crypto miners be powered by new renewable energy, either generated on-site or purchased elsewhere. The rules came after the county saw a power outage and residential complaints from expanded operations by miner HyperBlock Inc., which set up shop there to find Montana’s relatively cheap power prices.

HyperBlock filed for bankruptcy in 2020 during a fall in bitcoin prices.

Since the rules went into effect, no new crypto companies have applied to come to Missoula County, said Jennie Dixon of the county’s Department of Planning, Development and Sustainability.

In a September report, the Office of Science and Technology Policy recommended that any cryptocurrency policy consider its environmental and electricity impacts and called on federal agencies to conduct reliability assessments for cryptomining and explore environmental standards.

The report also said regulators could work with Congress on possible energy conservation standards for the industry.

The Office of Science and Technology Policy and the Department of Energy did not respond to requests for comment from E&E News about future regulations.

Environmental regulations have chased crypto miners around the world. Much of the industry was kept in China until 2021, when the country’s government cracked down on mining and cryptocurrency transactions in part due to environmental concerns.

Many companies moved to coal-heavy Kazakhstan and the United States. A study published in the journal Joule found that global industry overall used less renewable energy after that shift because of the power mix in the new locations.

American University’s Carmel said that as governments crack down on the environmental impact of the industry, “bitcoin miners are drifting from country to country to find an unregulated environment.” Right now, he said, the U.S. offers a balance between unregulated sites and the potential for cheap power.

A way forward

On the other hand, some states are instead encouraging cryptocurrency miners to move in, eager for a new technology to take root there. And the miners say that despite the concerns elsewhere, they can be responsible — and beneficial — online participants.

Lawmakers in Wyoming have considered legislation that would create deregulated power zones for large industrial customers, allowing them to operate outside the regulated grid and get huge amounts of power at low prices. Supporters say it could further enable renewable energy to be built to support those operations, while critics have warned it could undermine the business model of existing utilities.

Texas has been actively recruiting cryptocurrency miners, with at least 30 companies building operations there.

According to data from the Electric Reliability Council of Texas (ERCOT) — the grid operator that covers about 90 percent of the state’s electricity load — cryptocurrency miners consumed about 477 megawatts of continuous consumption per day over a 291-day period in 2022. ERCOT estimates that 1 MW can power 200 homes in times of high demand.

For a grid that saw widespread blackouts in 2021, adding a load of that size has raised questions about reliability.

In December, ERCOT announced a voluntary program that would allow bitcoin miners to reduce power during periods of high demand, based on a pilot launched last summer. It could reduce grid demand during winter storms and heat waves, while offering cryptominers a potential source of income by selling back power when prices are higher.

Rhodes, the Texas researcher, said his research shows that under certain conditions, a flexible cryptocurrency industry could lead to more renewable energy sources being added to the grid because they offer an affordable power source that doesn’t need to run continuously.

But, he added, matching “controllable load with uncontrollable generation” would require companies to “be financially flexible.”

Blockware’s Burnett said similar demand response programs could offer a responsible way forward for the mining industry, soaking up excess power from renewables and selling it during peak periods.

“When you’re in demand response mode, you allow consumers to have electricity without paying these ridiculous prices,” Burnett said. “We’re talking about energy that would already have been wasted under normal times that can be used for extraction.”

On the back, University of Houston energy scholar Ed Hirs wrote in a Barron’s editorial that allowing large users to sell back to the grid constituted “sweethearts” that would drive up prices for other consumers.

Even with demand response, critics say adding significant load to a national grid in the midst of an energy transition is likely to keep fossil fuel plants online longer.

Sustainable Bitcoin Protocol, a new company backed by Goldman Sachs Group Inc. and major bitcoin miners, seeks to put weight behind the environmental pledge by offering transferable assets that represent coins mined with 100 percent renewable power.

“We want to make sure there is no greenwashing in bitcoin,” said Elliot David, Sustainable Bitcoin Protocol’s head of climate strategy and partnerships, referring to the practice of making something appear more environmentally friendly than it is.

The company will use third-party platforms to track the sources of energy going into a mining company, and then offer a separate certificate similar to a renewable energy certificate to that company, which can be sold on the market.

David said the company doesn’t just want to push existing miners to use renewable energy, but ultimately wants to make the entire industry climate positive as it expands.

“Bitcoin converts and monetizes electricity into a globally liquid currency,” he said. “So a place with high energy costs can use that to enable and unleash clean energy development. That’s why we want to maximize green sources.”

But this effort can only be considered successful if you believe that cryptocurrency mining is a necessity, said Carmel, the technology professor.

“On a micro level, crypto mining companies can use alternative energy sources … and can work on a dynamic basis online, which is good. But on a macro level, we have a responsibility to reduce the environmental impact of any industry and of course any pollution,” said Carmel. “It forces you to consider the main question: Is there a higher purpose to crypto, or is this just a Las Vegas casino?”