More miners, more problems: Bitcoin’s carbon footprint hits all-time high

The crypto industry is in crisis. Crypto bigwigs worldwide, from United States to South Korea, has been slammed with very public allegations of fraud. After the scandalous downfall of FTX, one of the largest cryptocurrency exchanges in the world, regulators have escalated an attack on digital currency firms, and there are many reports of “crypto contagion“. But while the crypto sector is facing a particularly brutal chapter in its short history, many cryptocurrencies are currently trading at remarkably high price levels. Just a few weeks ago, Bitcoin showed a stunning pullback as it traded above $28,000 for the first time since June. Much of the rise in crypto prices has been attributed to investors “seeing the digital currency as an alternative to the traditional banking system or who believe the Fed may slow the pace of rate hikes,” according to reporting from the Wall Street Journal.

In response to jumps in crypto prices, more and more crypto miners are lured into the industry. As a result, the industry that many had completely written off during the height of the crypto crisis is now on track to have a record year. Record high greenhouse gas emissions, that is. According to the University of Cambridge Bitcoin Electricity Consumption Index, Bitcoin’s estimated network power demand is at an all-time high. Demand currently hovers around 16 gigawatts, or about 138 TWh per year – roughly equivalent to the entire country of Pakistan, a nation of 231.4 million people.

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Bitcoin’s unimaginably large carbon footprint is a result of the cryptocurrency’s mining process. Bitcoin operates with a public ledger powered by the blockchain. For Bitcoin transactions to remain anonymous, secure and authenticated, each entry in the ledger requires complex computational problem solving known as “proof of work”. The “miner” who solves this puzzle first receives a brand new Bitcoin in return. “Proof of work” is a process of pure trial and error – plugging in random solutions and seeing if it fits. This means that high-powered supercomputers that can do more calculations in less time have an advantage.

As these Bitcoins rise in value, more and more people try to solve proof-of-work problems. In theory, more miners would cause more Bitcoin to be minted more often, flooding the market and depressing the currency. To prevent this from happening, Bitcoin is designed to make it harder and harder to find proof of work. Mining one Bitcoin is designed to always take about 10 minutes, regardless of how much computing power you have. As a result, Bitcoin miners must constantly use more and more computing power, often having entire warehouses full of supercomputers working away. The result is the same amount of Bitcoin, but with a much larger energy use and carbon footprint. In 2009 you could mine Bitcoin using just a few seconds of household electricity, whereas in recent years you had to use approx. 9 years worth.

It has been a difficult couple of years for Bitcoin miners, as setting up and running a mining operation is extremely expensive and the price of Bitcoin has been relatively low. But now prices are up around 70% in 2023, and many miners are getting back into the game, or joining for the first time. But they still operate with tight margins. “Miners are not out of the woods yet. Inflated power costs will remain a stubborn thorn in the industry’s side, and could quickly worsen if governments succeed in saddled miners with an additional energy tax,” analysts at crypto-intelligence firm Coin Metrics stated last week.

Yet the industry continues to grow, and so will its accelerating negative impacts on the climate. In response, politicians are looking for ways to discourage energy-intensive crypto mining. Just last month, the Treasury Department released a budget framework with 30% tax on electricity used by crypto miners. “With most miners already squeezed by tight margins, a 30% increase in their primary operating costs would be a devastating blow to US facilities,” said the analysts at Coin Metrics. “The passing of this tax will have an immediate chilling effect on any further investment in mining within US borders.”

In fact, crypto miners have done it in the past established in poorer countries with weaker regulations and subsidized energy, such as Kazakhstan and Kosovo, to the great detriment of these economically unstable nations. Other miners have looked at capturing waste energy by establishing themselves in oil fields from Texas to Siberia, where they can utilize natural gas that would otherwise be vented directly into the atmosphere. While miners are getting creative, the problem remains, and it’s growing fast. Without a major change in the mining process or a complete collapse of the Bitcoin industry, political approaches will be largely unable to stop its increasing contribution to climate change.

By Haley Zaremba for Oilprice.com

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