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China’s pledge to crack down on mining may actually worsen Bitcoin’s environmental profile

May 25, 2021, 2:20 PM UTC

Critics who fret over Bitcoin’s threat to the environment frequently cite as the primary culprit the vast amounts “mined” using coal in China. What’s mostly overlooked is that a huge portion of the coins produced in the world’s most populous nation are generated by green energy, specifically hydroelectric plants in the southern provinces. Hence, the looming shutdown of Bitcoin production in China threatens to make the lead cryptocurrency even dirtier. “Today, Bitcoin mining creates about the same pollution footprint per unit of energy as natural gas,” says Alex de Vries, who oversees Digiconomist, a site that tracks Bitcoin’s electricity usage. “That’s because hydro in China offsets much of the effect of coal in that nation and other parts of the world.”

By banishing mining, China will eliminate the only major source of green Bitcoin production on the planet, most likely shifting higher a proportion to coal, and worsening the digital coin’s overall impact on global warming. As for Bitcoin going green, forget about it. The miners need to squeeze maximum, 24/7 output from their fast-depreciating computers to mint profits. The numbers don’t work if miners need to shut down at night or when the winds stop blowing. They’re most likely to migrate to cheap coal in Bitcoin hubs such as Kazakstan, to rogue nations like Iran, and to reviving shuttered fossil fuel plants, a trend now taking hold in the U.S.

While Bitcoin’s escalating price captured the headlines earlier this year, the spotlight’s recently shifted to its troubling carbon footprint. On May 12, Elon Musk, who’d famously purchased $1.5 billion in bitcoin for Tesla’s treasury, tweeted that the EV-maker would not longer accept the coins as payment for its vehicles, a shocker that sent its price reeling. Nine days later, Chinese Vice Premier Liu He announced plans to “crack down on Bitcoin mining and trading behavior.” He warned that crypto threatens to disrupt China’s financial markets, adding that the ban was necessary to prevent “illegal securities activities.” The anti-mining campaign also bolsters China’s goal of becoming carbon-neutral by 2060. Large mining concerns immediately started exiting. Btc.top and Hashcow declared that they will cease production in China, and Huobi, a major exchange based in the Seychelles, announced it would stop selling equipment and services to new operators in the nation.

Today, China hosts 65% of all global Bitcoin production, according to an estimate from the University of Cambridge’s Bitcoin Electricity Consumption Index. De Vries believes the figure could be as high as 70%. A recent natural disaster opened a window on the industry’s heavy reliance on the black carbon that’s twice as polluting as natural gas. In mid-April, a coal mine flooded in remote Xinjiang province in northwest China, closing production and shuttering a nearby power plant that it supplies. Within days, one-third of all global bitcoin capacity shut down. “The plant’s closure demonstrated for the first time the vast proportion of world’s mining powered by coal in that one region,” says de Vries.

That dizzying revelation, however, obscures that clean hydro is driving a big portion of China’s Bitcoin output––largely by powering the same computers that operate in Xinjiang. From June to September, the heavy rains in Sichuan and Yunnan provinces yield a rich surplus of electricity produced by their hydroelectric plants. “The miners in Xinjiang literally transport their hardware to those southern provinces to take advantage of four months of super-cheap power,” says de Vries. In the fall, the gear travels back north as far as 3000 miles to Xinjiang, where for the next eight months, miners switch from cascading water to smoky coal.

De Vries estimates that during the rainy months, eighty percent of China’s Bitcoin production flows from the dams of Sichuan and Yunnan. In the rest of the world, hydroelectric powers relatively little Bitcoin output. Norway’s rivers and fjords are the second biggest source, providing just one-half of one percent the global “hashrate,” or computational power. Overall, de Vries estimates that hydro plants in Sichuan and Yunnan generate no less than 30% of the worldwide energy used each year in generating Bitcoin.

By halting Bitcoin production, Beijing will be eliminating most of the renewable energy used to mint coins. It’s unlikely that other green sources will come close to filling the gap.

For de Vries, wind and solar are such a poor match for Bitcoin that they’ll never gain much traction, for a basic reason: Their output is just too intermittent for a business whose profitability depends on packing maximum computational power into each minute of the day. The specialized, high-powered ASIC computers deployed by miners go obsolete in just eighteen months, he says. That’s because new machines that generate codes that win Bitcoin at ever-faster rates using the same or less electricity, are constantly emerging. “As a result, as the computers get older, they mine less and less Bitcoin for the amounts of energy they’re using as more efficient computers come online to compete,” notes de Vries.

The upshot: Only by running their machines around the clock, to achieve the maximum possible hashrate for their machinery’s brief life-cycle, can miners make money. Of course, the Scandinavian nations and Canada are big hydro producers, as are such U.S. regions as rural Washington state. The problem is that unlike Sichuan and Yunnan, they’re not generating lots of excess energy, and need it all to power their own data centers, industries, and homes.

Meanwhile, Bitcoin’s energy footprint is destined to keep growing, so long as prices don’t collapse. Since February, its moonshot has made the game so lucrative that miners upped their consumption 55% to 121 terawatts per year. That already matches what de Vries’ native Netherlands uses to power its plants and heat its homes. De Vries forecasts that if prices remain around their current level of $35,000, miners will be devouring half-again as much power within a year.

Where will the producers fleeing China, plus the new prospectors and entrenched players bent on expansion, find the energy to keep their ever-more-powerful ASICs machines humming? Blocked from exporting its oil by international sanctions, Iran found an outlet by luring Bitcoin miners. According to its government sources, Iran is now devoting 2.3 gigawatts a year to producing Bitcoin. That number’s equivalent to 16% of the worldwide total estimated by de Vries. Shifting more output to Iran could prove a catastrophe. The nation recently suffered a severe power shortage that forced its plants to burn super-polluting fuel oil in place of natural gas, a crisis that for days shrouded its cities in thick smog.

Shuttered plants

De Vries posits that miners will rush to restore zombie fossil fuel stations. “Bitcoin is a terrible match for wind and solar, but a great match for shuttered natural gas and coal plants,” he says. Marathon Digital Holdings, a publicly traded miner, recently partnered with a coal-fired facility in Montana. Private equity firm Atlas Holdings converted an old coal plant to natural gas that’s feeding a data center for Bitcoin production. In Alberta, Canada, Silver Energy of Texas is running a crypto mining rig by flaring natural gas. The state of Kentucky is offering subsidies to miners that restore fossil fuel plants, bringing jobs to communities that in the proponents’ words, are “ravaged by a manufacturing exodus…but [that] retain an abundance of cheap energy.”

If its addiction to fossil fuels ravages Bitcoin, the big beneficiary could be ether. Today, ether is also mined using codes generated by electricity, so that the amount producers earn depends strictly on how much energy they consume. But by year end 2021, ether aims to convert to a “proof of stake model.” Under that protocol, mining would cease, and “stakers” would win new allocations according to their “wealth,” defined as the amount of ether that they already own. “Ether’s energy use would fall by 99.95%,” says de Vries. The solution’s still being tested. For the new ether ecosystem to succeed, users would need to make major upgrades to their software. So far, it’s not a given that will happen.

Elon Musk’s conundrum dramatizes Bitcoin’s problem. The folks like Musk who find the shiny object so glamorous and world-altering are also among the most ardent proponents of a green future. Bitcoin’s future is all about fossil fuels. The greens don’t think fossil fuels deserve much of a future. They may soon decide that for the good of the planet, it’s better to bury both.

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