Elon Musk performed his magic on the price of bitcoin again on May 12, 2021…just not in the way most fans of the cryptocurrency had hoped. A single tweet announcing the Tesla would no longer accept bitcoin at its then current carbon intensity contributed to bitcoin prices crashing by about half.
What does carbon have to do with bitcoin? Bitcoin and many other cryptocurrencies are mined by solving complex mathematical equations that require large amounts of computing power. This in turn requires large amounts of electricity to power the computers.
So much power in fact that studies suggest that the carbon footprint of Bitcoin mining worldwide is as large as some of the world’s biggest cities. One study suggests the Bitcoin network uses more than 121 terawatt-hours annually, ranking it in the top 30 electrical consumers worldwide.
Business and politics are increasingly concerned with measuring and mitigating the environmental impact of their business practices and supply chains. Governments discuss new regulations to reduce our impact on the environment and reduce climate change. Companies have increased their commitment to clean and renewable energy and reduced pollution.
So, it is not surprising that this new interest in sustainability is looking critically at Bitcoin and other cryptocurrency. A question arises: Is Bitcoin “sustainable” from an energy production point of view and if not, can it be made more sustainable?
It’s About Power.
Dirty Power. Critics of the environmental aspects of Bitcoin speak of how Bitcoin miners worldwide predominantly use coal generation, one of the highest carbon fuel sources, not to mention other pollutants. China, which accounts for more than 75% of Bitcoin mining worldwide, generates over half of electrical power from coal. This raises fears that China’s bitcoin mining activities single-handedly could threaten the country’s emission reduction targets.
But use of coal-produced electricity isn’t a concern only in China. In the US, Kentucky is offering a tax break for Bitcoin miners to use the obsolete coalfields, to bring revenue and jobs into struggling communities.
Clean Power. The alternatives to coal include low or zero carbon emitting solar and hydroelectric power.
Hydroelectric. Hydroelectric power is a proven alternative energy source. We are currently helping a client negotiate a joint venture to mine Bitcoin in Norway, where the abundant hydroelectric energy is relatively cheap and renewable. Bitcoin mining operations are carried out in Iceland, where cryptocurrency mining now uses more of the country’s energy than its homes. Further, the generally cool weather year-round means miners don’t have to use energy to air-condition their mining rooms.
Solar power. Solar power is enjoying interest as a power source for bitcoin mining. There are plans for a 300 MW solar project in Montana to power cryptocurrency mining. Twitter’s owner Jack Dorsey’s company Square is set to invest $5 million in an open source solar powered bitcoin mining facility.
And Heat Output.
A byproduct of Bitcoin mining is the heat produced by the computers. If air conditioning is needed to cool the rooms of computers, that further increases the power consumption. Anecdotally, a Bitcoin miner I know speaks of mining bitcoin in his basement and routing the heat produced to heat his house in the cold Minnesota winter. The heat by-product can be less problematic in colder climates (think Norway, Iceland, and Minnesota winters). Innovative miners and their backers can also consider how to use and even sell this excess heat to other commercial and industrial facilities located close to the mining operations.
Council for Sustainable Bitcoin Mining.
In May 2021, Elon Musk announced the creation of a new Bitcoin Mining Council to improve the sustainability of Bitcoin. One goal of this Council is to disclose and promote the use of renewable energy in Bitcoin mining. Twitter’s Jack Dorsey has said that Bitcoin incentivizes renewable energy. A shift to cost competitive renewable energy is good for Bitcoin mining.
Getting it done.
Like many industries, the economics of Bitcoin mining push miners to use the cheapest form of electrical power available to them. In China, that is electricity produced from coal. That may be the same for Kentucky and upstate New York. But there are other places, such as Scandinavia, where hydroelectric may be cheaper. Traditional electricity prices also have not yet accounted for the externality the cost of carbon, which is increasingly being priced into many contracts and supply chains.
More and more, the answer is that cryptocurrency can and will only be accepted in the future if it is sustainable. Solar, hydroelectric, geothermal, renewable natural gas and other sustainable energy technologies can all play an important role in the decarbonization of cryptocurrency.
Avisen Legal has the experience and understanding of the issues involved in developing sustainable energy and business projects. If you are looking for the answers to your own questions, give us a call and let us help.
Todd Taylor focuses on sustainability and impact companies and projects.
