Bitcoin mining is now not as dangerous to the surroundings because it was
Two technicians work in a Bitcoin mining facility in Quebec.
Lars Hagbarg | AFP | Getty Images
Bitcoin critics have slandered the world’s largest cryptocurrency for years for polluting the planet. However, new data from Cambridge University shows that the geography of mining has changed dramatically in the past six months, and experts tell CNBC that this will improve Bitcoin’s carbon footprint.
China’s crackdown on cryptocurrencies this spring sparked a chain reaction in the mining world.
For one, it took half of the world’s bitcoin miners offline practically overnight. Fewer people in mining have resulted in fewer machines running and less electricity being used overall, which has reduced Bitcoin’s environmental impact.
Beijing’s new crypto rules have also permanently taken many older and more inefficient devices offline.
And most importantly, China, which has closed its doors to crypto mining, has sparked a massive migration. Miners are now going to the cheapest energy sources in the world, most of which are renewable.
“The Bitcoin network ruthlessly strives for the lowest cost,” said Mike Colyer, CEO of digital currency company Foundry. “Miners all over the world are looking for stranded electricity that is renewable. That will always be their lowest cost. Net-net, this will be a big net asset to Bitcoin’s carbon footprint.”
China’s mining exodus
China has long been the Mecca of the crypto mining world and accounts for almost three quarters of all Bitcoin miners at its peak, according to the Cambridge Center for Alternative Finance. But after Beijing decided in May to expel its miners, more than 50% of the hashrate – the collective computing power of miners around the world – fell off the network.
Today, Bitcoin consumes around 70 terawatt hours of energy per year, or 0.33% of global electricity production. That is almost half of the corn and roughly equates to the annual energy needs of countries like Bangladesh and Chile.
The exodus from China also means that many older mining machines that were likely long overdue will never be returned to service.
“It has probably taken off a large number of the most energy-inefficient oil rigs forever,” said Alex Brammer of Luxor Mining, a cryptocurrency pool designed for advanced miners.
Colyer says the entire Bitcoin network will now mainly consist of more efficient rigs that can have about twice the hash power for the same amount of electricity. “This continues to improve the security-to-power ratio of the Bitcoin network,” he said.
But not all miners in China go dark. Many have begun to patriate elsewhere and turn to the cheapest sources of energy in the world.
“The cool thing about Bitcoin, which is underrated by many naysayers, is that it is … like a portable market; you can put it straight to the power source,” said Steve Barbour, founder of Upstream Data, a company that provides portable mining solutions manufactures and supplies for oil and gas plants.
As miners compete on a large scale in a low margin industry where their only variable cost is usually energy, they are encouraged to switch to the cheapest sources of energy in the world.
“You have to keep cutting your electricity bills, which is the biggest cost, to be competitive,” said Ria Bhutoria, former research director of Fidelity Digital Assets.
The data shows that many of these miners are targeting cheaper pastures in the US
The United States has quickly become the new hotspot for the world’s global crypto miners. In the past six months, the country has jumped from fifth to second place and now accounts for nearly 17% of all bitcoin miners worldwide. While China was still solidly number one in April with a 46% share, the US market share is likely much higher now since the Chinese government booted the miners in May.
US-based bitcoin mining operators have seen a huge surge in business. Whit Gibbs, CEO and founder of Compass, a bitcoin mining service provider, says retail hardware and hosting sales have increased nearly 300% since mid-June.
Read more about cryptocurrencies from CNBC Pro
Darin Feinstein, founder of Blockcap and Core Scientific, says he has seen a rapid surge in mining operations looking to relocate to North America, mostly the US, and Fred Thiel of Marathon Digital, another major player in the US mining industry, CNBC says that if the 500,000 or so formerly Chinese miner rigs hunted for homes in the US were deployed, it would mean North America would account for nearly 40% of the global hashrate by the end of 2022.
In the long run, this is good news for Bitcoin’s carbon footprint.
Clean energy on the rise in the US
Energy consumption is not synonymous with CO2 emissions. While it is relatively easy to determine the energy consumption of the Bitcoin network, it is much more difficult to determine its carbon footprint.
An accurate reading of Bitcoin’s CO2 emissions would require an accurate knowledge of the energy mix used to generate the electricity used by every Bitcoin mining operation. For example, a hydropower unit does not have the same environmental impact as the equivalent amount of electricity from coal. And China’s bitcoin mining operation was known for both.
But overall, the market is pushing North American energy sources to become more environmentally friendly.
Every year the investment bank Lazard publishes a breakdown of energy costs by source. The 2020 report shows that many of the most popular renewable energy sources are either the same as or less expensive than conventional energy sources such as coal and gas. And the cost of renewable electricity continues to fall.
Thiel says most miners who are new to North America run on renewable energy or gas are offset by renewable energy credits. Gibbs estimates that more than 50% of bitcoin mining in the US is powered by renewable energy.
Miners migrating to North America are also preparing for a future where their energy use will be questioned – and possibly regulated – by suspected investors.
Brammer helps Chinese customers find a new home. Most are aware of the political and normative winds in North America and want to protect themselves against regulatory risks in the future by building new plants at predominantly renewable locations.
“The largest of them are also examining the potential of an IPO or looking for investors to help them grow,” Brammer told CNBC. “They realize that public markets these days have no appetite for proof-of-work mining that is powered by non-renewable energy.” [energy sources]. I haven’t even had a discussion about a coal power deal, which is encouraging to us. “
Bitcoin mining engineer Brandon Arvanaghi tells CNBC that migrating to the US, where innovations around Bitcoin and renewable energy are already underway, will be an overwhelming benefit to Bitcoin’s energy mix in the long run.
“Places like Texas have cheap electricity, largely because of the wind subsidies,” said Arvanaghi.
Miami Mayor Francis Suarez also popularized the idea of Bitcoin mining with nuclear power in Florida.
“And all of this is largely voluntary – the federal and state governments have not even interfered to demand a renewable mix,” continued Arvanaghi.
Then there is Kazakhstan
Not all miners go to renewable goals, however.
Kazakhstan is now just behind the US in terms of its share of the global bitcoin mining market at around 8% of all crypto mining. It is home to coal mines that provide cheap and abundant energy supplies – but also abundant carbon emissions.
However, several mining experts tell CNBC that they think Kazakhstan, which borders China, is just a temporary stop on a lengthy migration west.
Brammer sees big miners there with older generation equipment. “But when older generation machines reach the end of their life, these companies are likely to deploy new machines in more stable, energy-efficient and renewable legal systems,” he said.
Kazakhstan’s popularity is likely to be dampened by a law recently signed by the president that will introduce additional taxes for crypto miners from 2022.
“This will significantly change the incentives for people to deploy capital in Kazakhstan,” said Brammer.