US, WASHINGTON (ORDO NEWS) — One bitcoin consumes as much electricity as a mid-sized European country, experts worry. Bitcoin is wasting “huge energy resources” on taxpayer-subsidized electricity. But Bitcoin is separate from the global financial system – and this is its most attractive feature.
On the shores of Lake Seneca in upstate New York, a private investment company purchased a decommissioned coal-fired power plant and converted it to burn natural gas. Then she again began to exploit it, turning it into a so-called “hybrid power plant designed for cryptocurrency mining.”
The power plant is owned by Greenidge Generation Holdings, which plans to go public later this year, announcing its plans to become “the only publicly traded bitcoin mining company in the United States with its own power source.”
The investor presentation said that due to direct ties to the Empire Pipeline gas system, the company will be able to produce bitcoins for as little as $ 3,000 apiece – a huge margin considering that even after the recent sharp drop in the exchange rate occurred due to the possibility of introducing harsh measures from Chinese regulators, this cryptocurrency was sold for about 40 thousand dollars.
Greenidge Generation Holdings says it is proud of its no coal. The company would like to buy more power plants and significantly expand its activities. However, climate advocates are horrified that fossil fuels are being burned for cryptocurrency mining; and they are already pushing regulators to curb this and other similar projects in order to prevent a sharp increase in greenhouse gas emissions.
But so far, none of the climate advocates has had such a strong impact on spreading information about how bitcoins affect carbon emissions, as did Tesla CEO Elon Musk, who loved bitcoins so much that he added cryptocurrency to his corporate hoards $ 1.5 billion.
However, Musk suddenly announced last week that he had changed his mind and canceled plans (originally announced back in February) to accept Bitcoin as payment for his cars. “Cryptocurrency is a good idea in many ways, and we believe it has a promising future. However, cryptocurrency shouldn’t be too expensive for the environment,” Musk said.
This announcement has sparked a backlash from bitcoin proponents, some of whom have made huge profits by betting on this asset class, and believe that the future of money is bitcoin. Supporters of the cryptocurrency accused Elon Musk of ignorance of mining methods, and at the same time in an effort to protect some hidden interests of the federal government. There is even a new cryptocurrency coin with a crude name that hints at Musk – “FuckElon”.
However, to scientists who have been studying the energy intensity of bitcoins for many years, Elon Musk, in his characteristic eccentric manner, simply reminded of the immutable truth. This is an issue that is still largely ignored by governments, large environmental charities, and banks and exchanges that are fueling the development of the vast cryptocurrency industry.
“One bitcoin uses as much electricity as a mid-sized European country,” says Professor Brian Lucey of Trinity College Dublin. – This is, after all, a huge amount of electricity. This is a dirty business. It’s dirty currency.”
And the departments responsible for the economy are beginning to pay attention to this fact. for example, on Wednesday the European Central Bank (ECB) said that the “excessive carbon footprint” of crypto assets is already “cause for concern.” And the central bank of Italy, in a document published earlier this month, reported that in 2019, the volume of carbon dioxide emissions from the Eurozone payment system “Tips” compared to bitcoins decreased 40 thousand times.
Measuring how dirty bitcoin is in itself is done on the knee. According to the latest data from the University of Cambridge Electricity Consumption Index for Bitcoin, mining (or mining) bitcoins consumes 133.68 terawatt hours of electricity per year (this is a rough figure and has been growing steadily over the past five years). This index is slightly higher than the electricity consumption in Sweden in 2020 (131.8 terawatt-hours – TWh) and slightly below the electricity consumption in Malaysia (147.21 TWh.).
The exact value of electricity consumption for bitcoin production can actually turn out to be much higher. Thus, experts at the University of Cambridge considered the worst-case scenario (in this scenario, it was assumed that miners use the least energy efficient computers on the market, although the mining process remains profitable); As a result, it turned out that in the worst-case scenario, starting in November last year, when the price of bitcoins increased sharply, the calculated value began to differ sharply from the average value.
The rational explanation for this fact is as follows: the increase in the price of bitcoins attracts more and more new miners; and it also means that mining using older and less productive equipment is still financially efficient.
The higher price of cryptocurrency also means that the computers that produce bitcoins are forced to solve more and more complex tasks to mine them. The upper limit for electricity consumption for bitcoins will be around 500 TWh per year. The UK consumes 300 TWh. About 65 percent of cryptocurrency mining falls on China, and note that coal accounts for about 60 percent in the structure of energy consumption in China.
Naturally, there are reasons to treat these statistical data differently, while all studies of this issue partly allow for some uncertainty. “As the saying goes, there are many shades of gray,” says researcher Michel Rauchs, who is working on the Cambridge Index.
Raux notes that some of China’s mining is powered by clean hydropower, including the use of computers, which are transported by truck from north to south every year during the rainy season. Hydropower is not necessarily diverted from elsewhere in the country; some of these power plants were once purpose-built to power factories that no longer exist, says Michel Roux. In cases like this, as Raux noted, “I don’t see any potential problems here.” As the Cambridge study found, about 75 percent of miners use some kind of renewable electricity, but such sources of electricity still account for less than 40 percent of total electricity consumed. Note that
All of the above nuances are important. Nevertheless, according to Raux, the possibility of global government intervention to reduce energy consumption in this area is “a real threat.”
Computers are running at full capacity
Excess electricity consumption is a feature, not a defect in Bitcoin; Recall that this digital currency appeared 12 years ago, thanks to a person under the pseudonym Satoshi Nakamoto. Bitcoin is separated from the global financial and government system – and this is still the most attractive feature of Bitcoin for those who seek anonymity or want to stay away from central banks. This fact means that it is necessary to re-establish trust in Bitcoin, making it safe.
This goal can be achieved by giving miners a reward in the form of coins for intensively and successfully solving puzzling problems on the blockchain; thus, the coin reward represents the “proof of work” of the miner [“proof of work” (POW, PoW) – the principle of protecting network systems from abuse of services – approx. ed.] . And the tasks to be solved are rather complicated; it is this complexity that prevents hackers and other attackers from taking control of the network. And the faster miners can report random numbers to the bitcoin algorithm, the more chances they have of getting coins. These tasks require high-performance computers running at full capacity.
Luckily for those who mine bitcoin and have access to cheap electricity and powerful computers, bitcoin is generally well worth it. The bitcoin price has dropped by about $ 30,000 per share since it peaked last month, but has risen more than 200 percent since late 2020 and more than 1,000 percent since 2019.
Bitcoin is not the only energy-intensive cryptocurrency, but it is by far the most significant of them all. Others include cryptocurrencies such as litecoin, ether, and the reckless but rapidly growing dogecoin. Dogecoin was initially considered an internet meme that included a picture of a Shiba Inu dog.
According to a March 2020 study by energy research magazine Joule, it was found that bitcoins (out of a total of 500 digital currencies) account for about 80 percent of the market capitalization of Proof of Execution coins. work ”, and about 2/3 of the electricity consumption. “Little-known currencies account for another 50% [of energy use] in addition to the energy hunger caused by bitcoin. And this situation in itself is capable of causing significant damage to the environment,” the study says.
Some cryptocurrencies are looking to move towards a less power-hungry “proof of work” model, where the system distributes coins to verifiers like miners who put up coins as collateral. In the event of fraud, verifiers risk losing their share. A cryptocurrency called Ethereum, a sister to the Ethereum blockchain network, has been adopting this model for over two years now, but the project is facing technical difficulties. Elon Musk also suggested that he could support other coins without spending too much electricity on their generation.
A greener version of bitcoin is theoretically possible. Bitcoin code could switch to a less power-hungry consensus mechanism whereby the new blockchain registry key underlying this cryptocurrency will follow different rules. However, every miner will also have to switch to a new way of working. According to informed sources in the field of cryptocurrency transactions, it is difficult to imagine that this plan will be supported by the entire bitcoin community, which is constantly experiencing disagreements.
Other methods, such as marking individual bitcoins as “clean” or “dirty” (depending on how much electricity went into mining them) will also be difficult to verify; in this case, you end up with a two-tier bitcoin system, which probably won’t get support.
“Bitcoin may be the first example of how an innovative technology creates an ineffective product,” said Dr. Larisa Yarovaya, a professor at the University of Southampton. – For the good of our entire planet, he must die; it should be replaced with a new model. It consumes more electricity than a single state. All the rest are details. ”
Larisa Yarovaya is a former Russian Paralympic athlete and swimmer. She often criticizes the argumentation of Bitcoin proponents. However, this does not scare her. “You have to listen to common sense,” she says. – [Electricity consumption] is not justified by the high price of bitcoins. It is a speculative asset. He does not create a significant number of jobs. It is not widely used for transactions.”
However, such concerns have not prompted any high-profile and high-profile campaigns from environmental groups. Environmental group Friends of the Earth says it is still trying to tackle the [high energy consumption of bitcoin] just like Greenpeace, whose US division began accepting bitcoin donations back in 2014. … After a request from the Financial Times, Greenpeace representatives said that the organization will now abandon this cryptocurrency, which, moreover, is not heavily used. “As we become more and more aware of how large the amount of electricity that will have to be used to generate Bitcoin, this strategy is no longer acceptable to us,” says Greenpeace.
Concern for the environment has also not prevented a group of investment banks from entering the cryptocurrency sector, despite their public assurances that they will strive to achieve sustainable development goals. For example, Citigroup recently announced that it is studying what role Citigroup could play in crypto services; Goldman Sachs Resumes Bitcoin Derivatives Trading; and Morgan Stanley plans to offer clients access to bitcoin funds. But none of these banks were willing to comment on the issue of energy consumption.
According to Yarovaya, public cryptocurrency companies have helped “bolster” this asset class by inflating prices and thereby indirectly increasing electricity consumption. “Let them comment on their actions,” says Yarovaya, adding that cryptocurrency buyers should also be responsible for all this.
Nigel Topping, appointed by the UK government to coordinate with the business sector on climate ahead of talks at the 26th UN Climate Change Conference (or COP26 for short), scheduled for later this year in Glasgow, said Bitcoin is unlikely to be on the agenda in intergovernmental climate debates, but bitcoin is turning into a real problem in broader political debate. “He [bitcoin – approx. ed.] becomes one of the climate villains, – says Topping. “All those who care about climate issues are a little alarmed. This is just a stupid idea. The so-called POW principle is evidence that large quantities of [fossil fuels] are still being burned. All this is contrary to our intentions.”
According to Nigel Topping, the UN is trying to find ways to prevent the growth of the number of cryptocurrencies, so that they do not nullify all efforts to combat climate change; in addition, the UN is also supporting the “Crypto Climate Accord” initiative led by the Rocky Mountain Institute (RMI). This is not at all about the desire to slow down innovative activity in the field of digital finance; on the contrary, the goal is to provide assurance that future blockchain projects will consume less electricity.
According to Max Boonen, a former banker and founder of the B2C2 cryptocurrency trading platform, the cryptocurrency sector is “damaging” the environment, although this deficiency is partially made up for by the advantages that bitcoins bring with them – “protection from outside interference”.
Are the participants of the crypto market concerned about such a question as excessive power consumption when generating cryptocurrencies? “Not in the least,” says Bunen. “Anyone in this market is pretty calm about environmental costs. If someone is concerned about an environmental problem, then let them not participate. ” At the same time, Bunen, in his own words, considers himself an environmentalist. He partly justifies the carbon pollution caused by cryptocurrencies by “effective altruism,” such as charity.
Bitcoin advocates remain convinced that the benefits in this area outweigh the costs; they argue that cryptocurrencies are laying the foundation for the financial system of the future. Some of these proponents, such as Jack Dorsey’s Square and Cathie Wood’s Ark Investment, have argued in their white papers that the Bitcoin network is actually quite capable of spurring the accelerated development of renewables. electricity. “Increasing capacity to mine Bitcoin could allow energy companies to ‘optimize’ solar energy without wasting electricity,” the document says.
In an effort to meet customer demand for crypto services, banks and asset managers have taken to considering how exactly they could offset their carbon emissions. This problem can only be solved if there is a stronger emphasis on the use of renewable energy sources. But still, there was a place for critics here, since in this case, clean electricity will not go to other parts of society. Following protests from residents and green NGOs, the Greenidge project in New York State announced its intention to make its bitcoin issuance carbon neutral through the purchase of so-called carbon credits. The company says it “is committed to exploring and investing in renewable energy projects across the country.”
Mandy DeRoche, a spokesman for an organization called Earthjustice, which campaigns against such projects and the revival of what she calls “zombies” of fossil fuel power plants, argues that given the amount of waste greenhouse gases, buying carbon credits for Greenidge is “irrelevant”; in addition, the time has come for a serious study of issues related to the prospects for regulation of this area.
“People may be interested, for example, with such questions:“ What is bitcoin and what is it for? ”To be honest, I don’t care about the purpose of bitcoin. However, I’m not indifferent to the fact that bitcoin is very energy-intensive. Perhaps there are some others, more efficient ways of mining bitcoin, rather than that extremely inefficient and extremely energy-intensive process,” says Mandy DeRoche.
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