China cracked down on cryptocurrency mining, and that has helped Bitcoin mining to become friendlier to the environment.
Just like a YouTuber or an Instagram influencer, cryptocurrency miner is one of the jobs that was given to us by the 21st century. Crypto mining means gaining cryptocurrencies by solving cryptographic equations via the use of computers. This process involves validating data blocks and adding transaction records to a public record (ledger) known as a blockchain. Crypto mining is not legal everywhere, and it depends on where you live and whether you mine crypto via legal means. But mining does come at an environmental cost.
The Impact On Environment
Recently, there have been several discussions about the impact of fossil fuels and single use plastics on the environment. Everyone, especially millennials and Generation Z, are keen on talking about measures that will reduce pollution and save our planet. Activists such as Greta Thunberg have had a huge impact on young people’s minds. Apart from the usual suspects like fossil fuels, crypto mining also attracted quite a lot of attention because of its adverse effects on the environment.
Let’s take Bitcoin mining for example, as it is one of the oldest cryptocurrencies, and one of the most traded ones. A report by BofA Securities said that increasing Bitcoin prices over the past two years has caused emissions to rise by over 40 million tonnes. This emission is equal to 8.9 million cars being added to the road. The report also said that Bitcoin produces more carbon emissions than one of the largest airlines in the world, American Airlines. Bitcoin’s emissions are also comparable to those of the U.S. federal government. Also, Bitcoin’s annual energy consumption is more than the energy consumed by the Czech Republic, Chile, Greece.
Energy research journal Joule, said in its March 2020 study, that Bitcoin accounted for around 80% of the market capitalisation of “proof of work” coins, of which an estimated 500 exist, and about two-thirds of the energy. The study said that, “Understudied currencies add nearly 50 per cent on top of bitcoin’s energy hunger, which already alone may cause considerable environmental damage.”
Musk’s Stance
It has been established that bitcoin mining is bad for the environment as it consumes a lot of energy. This even convinced Elon Musk, the CEO of Tesla, to go back on his own words. In March, Musk announced that Tesla will accept Bitcoin as a form of payment in the U.S. When this announcement was made on Twitter, Twitteratis pointed out the environmental cost of mining bitcoin, as it contradicts with Tesla’s eco-friendly ethos. But in May, Musk made a U-turn and said that Tesla will be suspending vehicle purchases using Bitcoin because of the “rapidly increasing use of fossil fuels for bitcoin mining.”
The whole world closely watches Musk’s actions, as his tweets can make Bitcoin either rally or plunge. So, it came as a surprise after he said that Tesla is “most likely” to start accepting it as payment again. This announcement was made by Musk yesterday. So, what led to this change of heart? Musk said, “I wanted a little bit more due diligence to confirm that the percentage of renewable energy usage is most likely at or above 50%, and that there is a trend towards increasing that number, and if so Tesla would resume accepting Bitcoin.”
Musk could be saying this to manipulate Bitcoin prices, just like how he reportedly manipulated the prices of Dogecoin. But right now, there is new data which suggest that Bitcoin mining might not be that bad for the environment.
Not So Bad Any More
New data from Cambridge University showed that the geography of mining has drastically changed over the last six months, and experts told CNBC that this has made crypto mining now environmentally friendlier. But what happened in the last six months? Well, China has been going hard on cryptocurrencies.
China has been cracking down heavily on crypto mining for a while now. Earlier in May, the Chinese government began issuing warnings about trading and mining cryptocurrencies. It also told the country’s financial companies that they would have to stop dealing in cryptocurrencies. But what does this have to do with crypto mining becoming environment friendly? Well, the University of Cambridge estimated in April 2020 that China provided 65% of Bitcoin’s hashrate. Also, three main provinces made up a major portion of that computing power.
The below graph shows the bitcoin electricity consumption from February 1, 2020 and February 28, 2021. The graph shows a steady increase in the electricity consumption.
Source: Cambridge Bitcoin Electricity Consumption Index by the University of Cambridge
But this changed after those three regions seemed to be following the government’s example by working to control crypto. According to The Global Times, one Chinese blockchain company CEO said, “More than 90 percent of Bitcoin mining capacity, or one-third of the global crypto network’s processing power, will be suspended in the short term.” So, fewer people mining for crypto means less power being consumed. Hence, Bitcoin’s environmental impact has been reduced.
The below graph shows the bitcoin electricity consumption from March 1, 2021 to July 21, 2021. (China banned cryptocurrency mining in Inner Mongolia in March). The graph clearly shows how the consumption of electricity for bitcoin has declined.
Source: Cambridge Bitcoin Electricity Consumption Index by the University of Cambridge
The other thing that we have to know is that cryptocurrency mining is very expensive because it requires a lot of computational power. So now, miners are moving to the cheapest sources of energy, and renewable energy is the cheapest out there. Mike Colyer, CEO of digital currency company Foundry, told CNBC, “…Net-net this will be a big win for bitcoin’s carbon footprint.”
In The End
Bitcoin miners choosing renewable energy is a move that should be welcomed as it will help the planet. Also, companies that have accepted cryptocurrencies are looking into its climate footprint. Square, an American financial services and digital payments company, put $10 million in “Bitcoin Clean Energy Investment Initiative” to support green-minded Bitcoin companies.
We have to get more companies on board, as cryptocurrencies might not go away anytime soon. As long as cryptocurrencies are here, so will be crypto mining and the industry is expected to become bigger. According to PRNewswire, the global cryptocurrency mining hardware market is anticipated to grow by $2.80 billion, at a CAGR of over 7% during 2020–2024. Governments could also bring measures to make sure that cryptocurrency mining is done using renewable energy, as it will push miners and other companies to choose planet-friendly energy sources. Because the time is now, and it is time to make a change.
