As states divide on the benefits of Bitcoin, is there a solution to its climate and power system impacts?

As states divide on the benefits of Bitcoin, is there a solution to its climate and power system impacts?

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Bitcoin advocates insist their energy-intensive digital “mining” is necessary to protect the cryptocurrency despite its power system impacts, which climate activists find unacceptable. But there may be a middle ground.

Many Bitcoin miners are discovering clean energy is a cost-cutting electricity source, cryptocurrency analysts said. And a growing regulatory backlash suggests miners should capitalize on it before potentially costly new regulations are imposed on them by the Biden administration and some state policymakers unconvinced of its economic benefits, environmentalists said.

Mining creates Bitcoins from algorithm-guided energy-intensive computations and digital transactions, the cryptocurrency’s foundational 2008 white paper acknowledged.

The white paper’s algorithm “will require increasing computing and electricity use, and the main variable miners can control is their electricity price,” Bitcoin Policy Institute, or BPI, Fellow Margot Paez said. “Bitcoin mining is being forced by its design toward low-cost renewables” and new strategies “that can reduce their costs and improve system reliability,” she added.

But that cannot be the whole solution, climate activists responded.

Bitcoin miners cannot “take existing renewables and impose dirty generation on others” or “take over new renewables needed for emerging electrification loads,” said Sierra Club Senior Advisor for Strategic Research and Development Jeremy Fisher. And large load tariffs are needed “to protect customers from stranded infrastructure costs when miners relocate for lower-priced power,” he added.

The easy solution is shifting Bitcoin from its computationally complex, energy-intensive transaction validation method to a method that can reduce energy use 99.99%, climate activists like Greenpeace argue. But Bitcoin miners insist they have the right to use their method to ensure transactional security.

There is, however, an emerging vision of Bitcoin mining data centers co-located with clean energy to power operations, support reliability, and protect the planet, some Bitcoin advocates and opponents agreed. But that will require scarce clean energy and transmission to be wisely allocated, others said.

A bit about Bitcoin

Today’s over 20,000 cryptocurrencies, called by some “digital gold,” have reached a combined $1.197 trillion market value, led by Bitcoin’s market capitalization of $512.4 billion and Ethereum’s over $221.5 billion market cap, Infinite Market Cap reported June 7. Real gold remains the world’s primary store of value, with an over $12.9 trillion market cap, Infinite Market Cap reported.

Bitcoin miners compete to create new Bitcoins using data center-scale computational power to solve a puzzle created by the white paper’s algorithm about every 10 minutes, according to vpnMentor. Solutions are validated by the mining community through a rigorous proof-of-work, or PoW, method considered vital to Bitcoin’s integrity and added to the encrypted chain of blocks in a secure online blockchain ledger.

Bitcoin miners reject Ethereum’s proof-of-stake, or PoS, method for solving the puzzles, through which the user who puts the most Ethereum at stake to validate the puzzle solution earns the reward, Wood Mackenzie Global Head of Grid Edge Ben Hertz-Shargel said. If the solution in the blockchain is proven wrong by other users, the stake is forfeited, he added.

Ethereum’s September 2022 transition to PoS was estimated to have reduced its electricity usage “by an astonishing 99.99%,” by almost completely eliminating Bitcoin’s rigorous repetitive computations, Cambridge University’s Judge Business School reported April 26.

But PoS cannot fully protect Bitcoin earnings because it gives the most affluent “stakers” too much leverage over decisions that are made by all participants in PoW, Bitcoin advocates agreed. “The Bitcoin world will never be convinced PoW is a problem compared to problems in the financial world that PoS replicates” by giving the most leverage to the most affluent, BPI’s Paez said. 

Bitcoin mining’s impacts on renewables supply and power system reliability, likely to grow with algorithm-controlled inevitable Bitcoin scarcity, are the divisive questions in need of solutions that both protect cryptocurrency markets and address climate concerns if they are possible, those on both sides of the question said.

Bitcoin's rank
White House. (2022). “Bitcoin and Climate” [jpeg]. Retrieved from White House.

 

Reliability, renewables, polarization

In debates about Bitcoin mining’s power system and environmental impacts, polarized environmental and cryptocurrency advocates often seem to talk past one another.

Some environmental advocates seem convinced that Bitcoin mining “needs to be stopped in order to save the planet,” which “is a bit disingenuous,” a BPI January 2022 opinion piece argued

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