Blockchain Industry On Path Toward Greener Bitcoin Mining
By: Gerelyn Terzo of Sharemoney
Bitcoin has taken the investment scene by storm. This digital asset, which emerged in 2008, has seen its value balloon as high as $64,000 per coin or a market capitalization of $2 trillion in 2021. While the bitcoin price has since come off its all-time highs, the interest in the largest cryptocurrency among retail and institutional investors remains as robust as ever. And despite the enthusiasm surrounding cryptocurrencies, bitcoin also has its critics.
One of the chief critiques involves the energy consumption around bitcoin mining. Bitcoin mining is the process by which new coins are minted and transactions are verified on the blockchain using what’s known as a proof-of-work (PoW) consensus algorithm. There is a limit of 21 million bitcoins that will ever be mined—a cap that is not expected to be reached until the year 2140.
Bitcoin mining depends on machines that are beholden to the sources of power available in a region. Mining, however, is a mobile endeavor, meaning that market participants can pick up shop and relocate on a dime; therefore, they are not locked into any one region, which is a plus for migrating toward more sustainable power sources.
Ever since Tesla CEO Elon Musk took aim at bitcoin mining in May 2021 for its energy consumption, the industry has been on the defense. More recently, Musk has called efforts for greater transparency in the bitcoin mining process “potentially promising.”
Bitcoin Mining Overview
Bitcoin miners are interested in finding the cheapest sources of electricity to make the process more economically viable. They are also interested in crypto-friendly laws and reliable infrastructure as parameters to set up shop. Fortunately, renewable power fits the bill as a low-cost source of energy. Adam Back, CEO of bitcoin and blockchain tech company Blockstream, is quoted by CNBC as explaining,
“Mining is price sensitive, so as to seek out the lowest-cost power and the lowest-cost power tends to be renewable because if you’re burning fossil fuels …it has extraction, refinement and transport costs.”
According to some estimates, bitcoin mining consumes 110 terawatt-hours of power each year. This represents 0.55% of annual global energy production and is equivalent to the energy consumption of small countries such as Norway or Sweden. The Bitcoin Mining Council is quick to point out that bitcoin mining’s energy consumption is only a fraction of the world’s total energy use.
Source: Bitcoin Mining Council
In addition, the Council illustrates that global bitcoin mining’s sustainable energy mix is higher than that of other countries and regions, “making it one of the most sustainable industries globally.”
Source: Bitcoin Mining Council
The amount of bitcoin mining that originates from renewable power sources spans a wide spectrum depending on who you ask. Based on some estimates, nearly three-quarters, or 73% of bitcoin’s energy use was considered “carbon neutral” as of year-end 2019. This was thanks for the most part to the dependence on hydropower among bitcoin mining operations.
A more conservative estimate by the Cambridge Center for Alternative Finance (CCAF) from 2020 suggests that less than 40% of bitcoin mining derives from renewable energy sources. According to the CCAF, as of 2020, the top three most common sources of electricity for bitcoin mining are the following:
- Hydroelectric power
- Natural gas
Besides those, miners tend to rely on oil, nuclear power, and finally renewable sources of energy including wind, solar and geothermal. Ari Paul, the founder of BlockTower Capital, has stated that it won’t be long before “solar and other renewables will be cheaper than fossil fuels in much of the world,” all of which bodes well for bitcoin mining. He predicts that in half a decade, bitcoin mining will be more than 85% “renewable-based” and upward from there.
In a cryptocurrency crackdown, China has banned bitcoin mining after previously accounting for more than three-quarters of bitcoin’s computing power, or hashrate. Considering that China is dependent on dirty coal for as much as 66% of its power, bitcoin mining’s reputation suffered. Due to the country’s crypto crackdown, Beijing-based mining operations have since been forced to relocate to other jurisdictions around the world. While China’s hashrate has been on the decline, the U.S. share of bitcoin mining has been on the rise, as illustrated by the Cambridge Center for Alternative Finance (CCAF).
Source: CCAF and Markets Insider
A trend that has emerged in the United States is the matchup between bitcoin miners and nuclear power producers. The partnerships are working, as the miners seek clean sources of energy while nuclear power producers pursue customers in the face of stiff competition among providers.
It is a solution that has been cheered by the likes of Miami Mayor Francis Suarez where Florida Power & Light has been involved in discussions about the potential for nuclear-powered bitcoin mining facilities. The state of Pennsylvania has already made moves in this direction where construction on a nuclear power facility for zero-carbon bitcoin mining is already underway.
El Salvador’s Volcanos
Central America has been an early mover for integrating bitcoin into the regional economy. El Salvador was a first mover after announcing that it would make bitcoin legal tender in the country, leading merchants to add the leading cryptocurrency as a legitimate payment method. El Salvador President Nayib Bukele has also committed to turning to the country’s volcano-fueled power for bitcoin mining.
El Salvador kept its promise and began to perform bitcoin mining from the energy generated by its volcanos. In particular, the Latin American nation has mined a fraction of a bitcoin worth close to $300 using geothermal power generated by a volcano. It might not sound impressive, but as President Nayib said in a tweet, the progress represents the “first steps” for the initiative.
The tweet includes a video that showcases the country’s bitcoin mining operations, from the shipping containers to the popular ASIC-mining machines and the workers setting them up. The video goes on to show the power facility with a backdrop of a volcano. The facility is run by state-owned LaGeo SA de CV.
The tweet received 2.4 million views and responses such as, “Let the volcano-ing begin!” from one market leader.
The cryptocurrency industry’s commitment to renewable energy has reached a critical juncture. Along those lines, Hong Kong-based Bitmain, which is behind the most popular bitcoin mining machines, has announced a summit planned for November 2021 in Dubai. The event, which is called the World Digital Mining Summit 2021, will bring together the key participants in the digital currency mining market to serve as a networking platform for them as well as renewable energy providers and investors. As the bitcoin mining landscape continues to evolve, countries around the world and market leaders alike are increasingly moving in the direction of renewable energy sources.