Here we go again. Kosovo is axing Bitcoin miners. It’s just the most recent in a long list of nations that are banishing the industry.
China’s crackdown on Bitcoin mining last year, culminating in a full ban in September, unleashed a diaspora of producers seeking new homes. Many flocked to green sources in the Nordic nations, while others tapped coal and natural gas in Kazakhstan, Iran, Kosovo, and tiny Abkhazia; by last fall, more than one-quarter of all of the signature currency’s coins were being minted in Kazakstan and Iran alone.
But in the past few months, those formally welcoming venues have been booting miners en masse. The newcomers are hoarding gigantic volumes of electricity, creating shortfalls that are spreading blackouts from Tehran to Almaty. The trend is especially bad news for enthusiasts who predict that the Bitcoin industry will soon solve its pollution problem by running mainly on renewable energy. In a new twist, Scandinavian nations are claiming that they can’t meet clean energy goals if crypto is hogging such a huge and growing share of their wind, energy, and geothermal resources.
It’s also a warning for the places where the refugees are now landing, often after being expelled from China then alighting in Kazakhstan or Iran, only to be cast out again. A prime example is Texas, probably the single biggest magnet for the displaced as well as new entrants. “The idea in Texas is that you can fix the vulnerable grid by adding new demand,” says Alex de Vries, a Dutch economist whose website Digiconomist tracks Bitcoin’s energy use. “It’s the most absurd thing I’ve heard. When demand peaks in the winter and summer, and Bitcoin mining’s making supplies even shorter than before, the outcome won’t be pretty.”
What happened in the growing roster of countries that soured on Bitcoin mining is a warning to Texas, New York, and Kentucky, as well as to European nations such as Germany and Ireland that are still welcoming the industry. Let’s review the list of nations that recently turned against the world’s leading cryptocurrency––starting with Kosovo, the grinch that struck on New Year’s Eve.
The crunch in Kosovo
In recent years, the cheap electricity produced by Kosovo’s coal-fired plants has attracted a flood of miners. The industry is especially strong in the Balkan nation of 1.8 million’s northern tier. There, Bitcoin is all the rage among young Serbs. The Serbs are rebels who don’t recognize Kosovo as a state and refuse to pay for electricity. In recent months, outages at coal plants have forced the government to import large quantities of expensive natural gas from its European neighbors. Today, around 40% of Kosovo’s energy comes from abroad. The nation has imposed a 60-day state of emergency during which it plans to impose energy cuts on homes and businesses. A ban on Bitcoin mining is a centerpiece in its campaign to weather this energy crisis.
On Dec. 31, the government announced “a prohibition of production of cryptocurrencies throughout the territory.” Hopefully, freeing up power used by miners will help get Kosovo through the frigid winter months. But the message is clear: Energy is getting scarcer across the globe, and more and more countries are questioning whether it makes sense to allocate a big share to a currency with few or any practical uses.
Iran cracks down––again!
In May, the cities of Iran suffered rolling blackouts. To ease the strain on power plants and reserve more electricity for households, the government imposed a four-month moratorium on Bitcoin mining. But after briefly lifting the shutdown, Tehran imposed a second closure on Dec. 28, three days before Kosovo made its move. By official estimates, Bitcoin mining was draining 3% to 4% of all the juice carried over the nation’s grid. The ban will last until mid-March. By that time, the government could reinstate mining, which is producing sorely needed foreign currency for its regime. The rub: Well over 60% of all Bitcoin production is generated illegally in kitchens and even industrial-size operations that manage to skirt the law. Former President Hassan Rouhani acknowledged that unlicensed mining is tough to restrict and could continue to divert large amounts of power from homes and businesses. Iran is clearly turning negative on Bitcoin. Hence, the future of mining even after the ban ends is extremely questionable.
Kazakhstan is pulling the welcome mat
Along with the U.S., Kazakhstan has been a golden destination for the displaced Chinese. Last fall, Cambridge University found that the central Asian nation was hosting an incredible 22% of all global production. An estimated 90,000 rigs that run 24/7, generating the “hashes” or random codes that win Bitcoin, moved from China to Kazakhstan in just a few months. In Almaty, its largest city, mining doubled from May to mid-November. In a typical year, the country’s electricity consumption would rise by 1% to 2%. But in 2021, the influx from China, as well as new entrants seeking huge profits as Bitcoin’s price soared, lifted usage by 8%.
Kazakhstan harbors huge oil reserves, and at the start of last year boasted lots of extra capacity for electricity. But within months, the Bitcoin bonanza took the nation from plenty to penury. In mid-July, blackouts were sweeping the nation. In response, the government in September imposed a regime that rations power to 50 registered miners. Two months later, it enacted legislation that restricts power for each new mine and caps the amount available for all entrants combine at an extremely low levels. Kazakhstan’s Bitcoin boom is fizzling fast.
Iceland says no to newcomers
Iceland benefits from a famous abundance of cheap geothermal energy. That has made it a magnet for miners in recent years. Producers Genesis and Bitfury of Hong Kong, and Hive of Canada, all have big operations in the island nation. But Iceland is also home to aluminum smelters and data centers that share big appetites for electricity with the miners. Right now, Iceland’s reeling from energy supply bottlenecks. The Bitcoin industry is greatly contributing to the current shortage of electricity. The crisis has forced the government to cut supplies to its bedrock industries. On Dec. 7, its national power company Landsvirkjun announced that it will no longer accept requests for electricity from new cryptocurrency miners.
Sweden wants to nix mining, at home and throughout the EU
On Nov. 12, two top Swedish officials wrote an open letter to their nation’s regulators, and a request to the EU, that could endanger Bitcoin’s hopes of going green––the vision for such fans as Elon Musk and Jack Dorsey. The head of Sweden’s EPA and chief of its financial supervisory authority called for the nation’s leaders to stop all Bitcoin mining. They also advocated that the entire 27-state EU issue a blanket ban on the industry. The reason was a new one. Their immediate concern wasn’t Bitcoin’s notorious carbon footprint, but its heavy use of renewable energy sorely needed to take traditional industries green. Sweden gets well over 50% of its electricity from wind, solar, and hydro, one of the world’s highest green shares, and its juice is a bargain that’s attracted sundry Chinese miners. The authors cited that from April to August, the energy flowing to Bitcoin jumped several hundred percent.
Sweden will need the electricity Bitcoin now devours to provide for such projects as charging stations for EVs. “If we were to allow mining of crypto-assets in Sweden, there is a risk that the renewable energy available to us would be insufficient to require the required climate transition we need to make,” including getting to fossil-free steel and battery manufacturing, write the officials. In their view, dumping Bitcoin is essential to meeting the Paris climate accord’s stringent goals. They have uncorked some telling examples, claiming that mining within Sweden’s borders uses as much electricity as 200,000 households, and that “it’s currently possible to drive a midsize electric car 1.8 million kilometers using the same energy it takes to mine one Bitcoin.” Their conclusion is a blunt one: Bitcoin “is not a reasonable use of our renewable energy.”
As Sweden goes, Norway may go, too
Days after Swedish officials presented their manifesto, a top Norwegian appeared to join their cause. “Looking at the solutions proposed by the Swedish regulators, Norway is currently considering policy measures to address the challenges related to crypto mining,” said Bjorn Arild Gram, minister of local government and regional development. Gram went on to say that it’s difficult to justify powering Bitcoin with renewable energy. Like Sweden, Norway faces a severe challenge to generate enough green energy to wean its aluminum and steel industries totally from fossil fuels. Aluminum prices are soaring, and so is the sector’s appetite for power. Norway has also recently built cables that will enable it to export its renewable power across Europe, generating big revenues but reducing production to just enough for its home uses––Bitcoin not included. We don’t know if Norway will follow Sweden, but the topic of whether Europe can both power Bitcoin and meet its super-aggressive climate goals is now a hot one.
Don’t forget tiny Abkhazia
This splinter of land on the Black Sea that broke from Georgia in the mid-1990s experienced Bitcoin’s downside before the likes of Iran and Kazakhstan. In 2020, some 625 mining farms popped up across the nation of 250,000, many in kitchens and bedrooms. In 2020, the Bitcoin invasion raised electricity consumption some 20%, and by mid-November of that year, houses and factories across Abkhazia were going dark. The government officially banned the industry at year-end. It then cracked down by raiding homes and businesses, busting down doors and cutting cables. A reign of terror descended on Bitcoin.
The more nations slam the door to Bitcoin, the fewer welcoming venues remain. And the greater the pressure on their grids. That’s the challenge that places like Texas, Kentucky, and Alberta province, some of the favorites among the narrowing choice of destinations, will soon face. You hear a lot of talk about how miners will form partnerships with utilities that will increase overall power capacity, and that the miners will shut down in peak periods, providing even more electricity for homes and businesses.
Perhaps the CEO of Iceland’s national power company summed up the situation best: “Nobody would build a power plant for Bitcoin. There’s a lot of uncertainty about its future.” As de Vries points out, Bitcoin miners make the most money when they run their expensive machines 24/7. “They have absolutely no incentive to shut down in peak periods, or at all,” he says.
Bitcoin’s problem is that it raises demand for power when the world simply doesn’t have enough.
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