US raises red flag on crypto mining, concerns over carbon emissions
The United States said the carbon footprint of the cryptocurrency industry is inconsistent with the country’s goal of decarbonizing the economy, suggesting it may limit the operations of crypto miners, according to a report released Thursday by the White House Office of Science and Technology.
Cryptocurrency has long attracted controversy for the large amounts of electricity consumed by computers used to verify transactions on proof-of-work (PoW) blockchains such as Bitcoin, with critics saying this encourages increased burning of fossil fuels and further carbon emissions .
The White House report, which is the result of an order signed in March by President Joe Biden titled “Ensuring Responsible Development of Digital Assets,” adds an additional official voice to this debate.
The report says miners must consult with the Environmental Protection Agency and other bodies about how to reduce emissions. It adds that the government will promote the use of more “environmentally responsible crypto-asset technologies” and will collect more data on the industry’s power needs.
“Should these measures prove ineffective in mitigating the impacts, the administration should examine executive action and Congress may consider legislation to limit or eliminate the use of high-energy-intensive consensus mechanisms for mining cryptoassets,” the report said.
While this suggests tougher rules and standards could be coming for crypto miners in the United States — which include Marathon Digital Holdings Inc. and Riot Blockchain Inc. — Jeremy Britton, CFO of crypto fund Boston Trading Co., said he sees something “political” window covering” takes place.
“Biden wants to show a few wins because there’s been some criticism of him,” including a lack of progress on environmental initiatives, Britton said Discard in an interview. “So they want to look like they’re actually doing something about the environment, and crypto is an easy target.”
The numbers
The report estimates the annual global electricity use of the Bitcoin blockchain to be between 90 and 145 billion kilowatt hours (kWh), with the middle range of this estimate in line with the consumption of Argentina.
In another measure, the report said the total energy use for all home refrigerators in the United States comes to 85 billion kWh. A kilowatt-hour is an energy unit that corresponds to one kilowatt of electricity for one hour.
“[It’s] not a fair comparison because Bitcoin is in every country, it’s a worldwide system,” Britton said. “So, to compare apples to apples, they have to actually say, ‘let’s compare how much electricity Bitcoin uses compared to the World Wide Web or compared to Visa [payment] system.'”
The report stated that the US accounts for 38% of the global Bitcoin mining hash rate, up from just 3.5% in 2020 before China imposed a ban on crypto mining and trading.
A report by cryptocurrency firm Galaxy Digital released in May 2021 during the crypto market said that the estimated annual energy consumption of the global banking system, including credit card payment systems, reached 263.72 billion kWh a year.
The findings for Bitcoin were roughly similar to that of the White House report.
Another report from data aggregation website Statista this year said that 1 Bitcoin transaction required 2,188.59 kWh of energy in April 2022, while 100,000 Visa transactions required only 148.63 kWh.
Texas or Kazakhstan?
Where power is obtained is also important for calculating global emissions.
A report by CoinShares Research found that as of January 2022, 59% of the energy required to mine Bitcoin was created through coal and gas, 11% was nuclear and the majority of the rest used renewable sources such as wind and solar.
This gives rise to a concern that moving these operations out of the US could force them to move to other jurisdictions where a higher percentage of power is generated using fossil fuels, such as Kazakhstan.
“While we can estimate and compare the size of different industries’ energy use, the question is still fundamentally a value judgment,” said the Galaxy Digital report on the question “is the Bitcoin network’s power consumption an acceptable use of energy?”
“One’s answer depends on their belief in the utility of Bitcoin,” it added.
The extra strain on the energy grid is already causing problems for the world’s largest economy.
Many crypto miners in the state of Texas, one of the largest crypto mining hubs in the country, chose to shut down their operations amid a crippling heat wave in June to reduce the strain on the state’s power grid.
The miners included Nasdaq-listed Core Scientific and London-headquartered Argo Blockchain, while Marathon Digital also suspended 75% of mining operations in the state of Montana due to power outages caused by a storm.
Merge timing
The White House report comes just days before Ethereum’s “Merge” next week, which will see the world’s number two network transition from a PoW network to proof-of-stake.
Once completed, Ethereum’s carbon footprint is expected to decrease by as much as 99% as transactions are confirmed by users putting Ether back into the system, as opposed to energy-intensive mining with PoW.
Britton is skeptical that the US will ban crypto mining outright, given the size of the industry and the impact on the jobs of those working in the sector.
“Is Bali going to ban tourism? No, because they want it, he said. “[If] The US banned Bitcoin, all these Bitcoin miners would move to another country and there would be a massive amount of tax that they would actually lose. So I don’t think they can or will ban it; it makes no economic sense.”
