Crypto mining and energy: Can crypto become a green industry?

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  Crypto mining and energy
• December 12, 2022

Insight summary

A new kind of crypto entrepreneur is rising—clean energy producers who offer their electricity to crypto miners and firms. These businesses are tapping into the power-hungry nature of the crypto industry to address its glaring problems—high carbon emissions and energy consumption. The long-term implications of green energy for crypto mining could include renewable energy firms collaborating with crypto businesses and stricter sustainability standards for crypto firms.

Crypto mining and energy context

Cryptocurrency mining is the process of creating new digital “coins.” However, acquiring these coins involves a lot of computing power (as of 2022) as the process involves solving complex puzzles, authenticating cryptocurrency transactions on a blockchain platform, and adding them to an open ledger. This process incentivizes the creation of large crypto farms, where groups of people work together (sometimes illegally) to mine coins 24/7, resulting in high electricity consumption. The seven largest cryptocurrency firms expect to expand their computing capacity by more than 230 percent in 2022, using enough energy to power 1.9 million homes. 

These alarming energy consumption figures are facing increased regulatory scrutiny. The Paris Climate Agreement’s push for Net Zero 2050 is causing many industries to examine their processes and carbon footprints closely. In 2021, Columbia University researchers estimated that Bitcoin mining alone consumes more energy than the entire country of Argentina and releases about 65 megatons of carbon into the atmosphere annually. 

Responding to this environmental backlash, many blockchain applications are moving away from energy-intensive proof-of-work consensus methods in favor of proof-of-stake, which still validates entries to the shared ledger but generates far fewer greenhouse gas (GHG) emissions. These efforts are necessary as regulators look closely at crypto’s environmental, social, and governance (ESG) ratings. ESG scores are a useful metric for sustainability-minded investors when deciding whether to fund a specific project or industry based on the investment’s long-term effects on the environment and communities.

Disruptive impact

Major crypto mining firms have an opportunity to salvage their reputation and attract green investments by switching to solar, wind, hydroelectric, and geothermal renewable energy systems to power their operations—a crucial strategy as governments around the world are increasingly restricting how and where crypto mining firms can operate. For example, in 2018, Indonesia’s central bank banned the use of cryptocurrencies, including Bitcoin, as payment. Meanwhile, in 2021, China's Inner Mongolia Development and Reform Commission said that if telecommunications companies and internet firms continue to engage in cryptomining, their business licenses would be revoked.
 
Likewise, in 2022, New York legislators proposed a moratorium to limit cryptocurrency mining that uses proof of work authentication methods to validate blockchain transactions. The restriction would not apply to mining operators using renewable energy. 

One way to make crypto mining more sustainable is by looking at the cradle-to-grave lifecycle assessment of a crypto transaction. This framework, sometimes known as an environmental lifecycle analysis (E-LCA), provides a structure for taking inventory and assessing a product’s ecological footprint. Companies moving toward lifecycle analysis can use the data generated to create ESG statements, including crypto firms.

Additionally, renewable energy investments have been increasing specifically for crypto mining. In 2021, China-based mining chip manufacturer Bitmain invested around $500 million USD in establishing a 50-megawatt wind-farm-powered facility in Rockdale, Texas. Some researchers suggest that excess energy produced from renewable sources can be used to power crypto processes, resulting in more investments in the sector provided that clear regulations are in place. Meanwhile, in 2021, a generating power plant that recycles coal waste (gob) has switched from selling to electric grids to specifically catering to companies that validate Bitcoin transactions in Pennsylvania. Furthermore, the plant collects Pennsylvania renewable-energy tax credits worth approximately 2 cents per kilowatt hour by safely disposing of gob, the same amount available for hydropower. 

Implications of crypto mining and energy

Wider implications of crypto mining and energy usage may include: 

• More renewable energy companies entering into agreements with crypto companies to power their businesses in exchange for research and development funding.
• More crypto firms investing in green technologies to lower their energy consumption bills, meet regulation guidelines, and receive tax reductions.
• A gradual shift away from proof-of-work energy-intensive authentication methods in most current and future cryptocurrencies.
• Sustainable investors and ethical consumers demanding transparency from crypto firms on their ESG policies and scores.
• Global sustainability standards and frameworks pressuring more governments to regulate or restrict crypto mining and other energy-intensive processes.
• Potential collaboration between crypto firms and energy producers to research the implementation of blockchain applications in space, including using solar-powered satellites.

Questions to consider

• If you participate in crypto mining, how do you conserve electricity?
• How else can clean energy transform how crypto processes are done?