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Bitcoin got 50% less green over the last year, says this influential crypto analyst

October 20, 2021, 12:00 AM UTC

Bitcoin’s top champions are claiming that the world’s leading cryptocurrency is on the cusp of a green destiny. Bitcoin’s carbon footprint––today it equals that of Greece––will soon shrink, they claim, as ESG-conscious miners increasingly embrace renewables. On April 22, the eve of Earth Day, Jack Dorsey, CEO of Square, holder of $500 million in coins, tweeted that Bitcoin “is a key driver of green energy’s future.” Cathie Wood, chief of Ark Invest, a shareholder of crypto exchange Coinbase and Bitcoin investment vehicle Grayscale, stated in mid-July that “Bitcoin mining will proliferate renewables faster than otherwise would be the case,” adding that “Nothing could be better than Bitcoin in terms of ESG.”

Bitcoin bull Elon Musk, however, wants proof that its output is going a lot greener before renewing his commitment to the signature coin. Early this year, Musk bet $1.5 billion of Tesla’s corporate cash on Bitcoin, a stake that’s virtually doubled in value at its price of $62,000 as mid-day on October 18. But in June, Musk shocked believers by declaring that Tesla would cease accepting Bitcoin as payment for its EVs until at least half of all mining is powered by renewables. His stance hasn’t changed since.

The China crunch made Bitcoin a lot less green

Contrary to Musk’s goals and the advocates’ claims, Bitcoin’s carbon footprint has gotten far worse in just over a year. “I reckon that the volume of electricity generated by green energy has dropped by 50% since late 2020,” says Alex de Vries, a Dutch economist whose site Digiconomist tracks Bitcoin’s emissions and energy use. By far the biggest factor pushing Bitcoin in the environmentally-hostile direction is the crackdown in China. Put simply, the vast bulk of the world’s green mining happened in the world’s second largest economy using hydroelectric power, and now that Chinese authorities have famously banned all production within its borders, that huge, carbon-free contribution has disappeared overnight. In its place, the displaced Chinese and a host of newcomers lured by soaring prices are stacking their Bitcoin-winning ASIC computers in venues offering super-cheap electricity powered by fossil fuels in such venues as Kazakhstan, the Russian Federation, and Ireland, as well the coal-rich U.S. states of Kentucky and Nebraska, and natural gas colossus Alberta province in Canada.

Even if Bitcoin’s rampage ends and its price settles at today’s mark, the profits in mining are so gigantic that it’s on track to become an even more gargantuan polluter.

Let’s examine the mining map’s big shift, starting in October of 2020. According to the Cambridge University’s Bitcoin Electricity Consumption Index, China was then spawning 67.5% of the Bitcoin network’s total “hashrate.” That’s the volume of random codes per second that all the world’s miners spin to secure the new awards issued every 10 minutes. The industry’s overall hashrate represents its total “capacity.” The bigger the share of the hashrate a region controls, the more electricity it’s using to unearth Bitcoin, and, for example, if a nation is spawns 20% of the hashes, it’s generally using about one-fifth of the industry’s overall power. In the winter and fall, China’s production centered in the coal-heavy northern provinces of Xinjiang and Inner Mongolia. But from spring to early autumn, miners moved their equipment to Sichuan and Yunnan provinces in the country’s southern tier, where they tapped hydroelectric power from rivers and waterfalls that was even a better bargain than the plentiful coal up north. De Vries estimates that one-half of all Chinese output emerged in the six month sojourns in Sichuan and Yunnan, accounting for roughly one-third of the global hashrate and hence, the network’s consumption of electricity.

That wasn’t all the world’s green output 13 months ago. Hydro in Canada, Norway and Iceland were contributing an estimated 2%, and around a third of the U.S. slice of 6.7%, or 2.0% to 2.5%, came from renewable sources, notably wind power in Texas. All told, de Vries figures, about 40% of all energy used to mine Bitcoin flowed from green sources at the start of October 2020.

Miners are flocking to places that are cheap, not environmentally-friendly

Keep in mind that the Chinese lockdown also eliminated a CO2-heavy mainstay, the one-third of global mining powered in the north by coal. The fossil-fuel-dominated regions where the industry’s migrated en masse, however, way more than offsets that benefit. As of August, the hashrate share––and hence, approximate proportion of electricity––centered in coal-intensive nations mushroomed. Kazakhstan’s portion leapt from 3.6% to 18.1%, Russia from 4.9% to 11.2%, and Ireland, which gets 80% of its electricity from burning natural gas, coal, and peat, from 2.5% to 4.7%. The Emerald Isle is anything but green power-wise. Malaysia, a big oil producer whose electricity production is overwhelmingly dependent on gas and coal, accounted for 4.6%, over twice its portion last fall. Surprisingly, Iran’s role grew in the summer but by August fell just to just 0.3% above its October 2020 weight at 3.1%.

The most popular destination now that China is closed: the U.S. Stateside, the world’s mining share more than quintupled from from 6.7% to 36.4% since last October. So how much of that one-third plus of the global pie is green? Foundry USA, a firm that finances Bitcoin miners compiled a map of the states that hold the largest pieces of the hashrate pie chart. The Big Five, hosting four-fifths of the industry, are New York (19.9%), Kentucky (18.7%), Georgia (17.3%), Texas (14.0%), and Nebraska (10.4%). No official figures are available for the percentages of different energy sources used in Bitcoin mining across the U.S., or for other nations. I made the basic assumption that the portion of electricity the the industry absorbs in each state equates to overall share of renewable energy, including nuclear, versus fossil fuels, that its businesses and households consume.

That may even make the numbers appear too green, since miners in New York, Kentucky, Pennsylvania and elsewhere are reviving shuttered plants to mine with natural gas and or even coal. In the Keystone State, a startup called Stronghold Digital is up-and-running on waste coal, is going public October 20 at a $1 billion valuation, and expects to control 5% of the global hashrate by late 2022. New York, the state least dependent on fossil fuels, still gets 43% of its energy from natural gas. In Nebraska, gas and coal combine to supply 55% of electrical output, while the pair accounts for 62% in Georgia, 72% in Texas, and 92% in Kentucky, which recently enacted rich tax incentives to attract miners. The weighted average fossil fuel share for the five states is 65%. We’ll assume that the rest of the U.S. mining is also about two-thirds driven by fossil fuels. By the way, the greenest states, including California, Washington and Michigan are home to less than 6% of U.S. bitcoin mining.

All told, we’ll estimate that 65% of America’s global share of 36.4% relies on natural gas, coal and other non-green sources. That’s roughly one-quarter of the world total. Add the all or mostly non-green numbers for Kazakhstan, Russia, Ireland, Malaysia, and Iran, and you get an extra 40% or so. A big question is the breakdown in Canada. Quebec province is a giant generator of hydro power. But the amount that flows from its raging rivers to make Bitcoin is severely constrained its government. The lion’s share of the electricity earmarked for the cryptocurrencies is already controlled by the regional champ Bitfarms. Most of the industry’s production appears concentrated in Alberta province, one of the world’s largest regions for natural gas. Hut 8 is a major producer there, and a Las Vegas enterprise called Black Rock Holdings is developing a hub for Chinese miners seeking new homes.

Indeed, Canada’s part of world production has zoomed from less than 2% to 9.6% in the past thirteen months. But it’s doubtful that more than 2% to 3% is generated by hydro or other green sources. So we’ll be conservative, and add 6 points to our fossil fuel total for Canada.

In the past 13 months, the world’s green Bitcoin share has shrunk big time

Once again, as of last fall when hydro in China was still in full force, the world was using green energy to power 40% of Bitcoin production. So what’s the figure today? We’ll recap the components of the world’s total output flowing from fossil fuels. It’s 25% in the U.S., plus another 40%-plus from coal-and-gas intensive nations that are among the new go-to places, including Kazakhstan, Russia and Malaysia. Tack on a six points for Canada, and burning coal, and we’re at over 71%. Add the global average for the rest of the world not designated by Cambridge, and natural gas, and a few unrecorded outliers like waste coal now pump around 80% juice that mints all Bitcoin. That leaves 20% for green sources, half of the two-fifth total as recently as late last year.

De Vries also emphasizes that when the Chinese departed, the total hashrate, and industry’s electrical use, fell sharply. But surging prices have lifted the number back to, by his estimate, the 160 terawatt hours that prevailed before the lockdown. Even so, mining activity remains hobbled by a shortage of computer chips and production bottlenecks squeezing the output of hash-spewing computers. De Vries reckons that at today’s sumptuous prices, when players aching to expand or invade get the equipment they need, the network will be using at least 60% more electricity. “The network’s carbon intensity has hit all time highs, and it will keep growing,” he says.

That’s not a roadmap for the environmental triumph envisaged by Dorsey, Musk and Wood. It’s hard to see how Bitcoin can be both outrageously bad for the environment, and still championed by such ardent advocates of ESG. It’s doubtful that a universe of players all looking for the cheapest energy can fashion a green machine. It’s just as possible that the mad, global scramble for Bitcoin loot that’s landing miners in the cheapest, dirtiest of places could prove its undoing.

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