A toll of the impact of Bitcoin mining on the environment has hurt the price of cryptocurrency in recent days, but the attention it is receiving is overdue and could ultimately be positive.
Mining is the kind of ‘risk factor’ that has hung over Bitcoin for years – removing that overhang should help the industry, although getting there could be complicated.
For most people interested in cryptocurrencies, mining has never been a major issue. Miners – or the computers that calculate and secure Bitcoin transactions – are the gatekeepers of the crypto ecosystem, keeping records and creating new coins, but mostly staying under the radar.
This has changed rapidly over the past week and a half. First of all, Elon Musk said that
(ticker: TSLA) would no longer accept Bitcoin for payment because Bitcoin mining is energy intensive and contributes to climate change. Bitcoin mining consumes 0.55% of the world’s electric power, roughly as much as Sweden, according to an estimate by the Cambridge Center for Alternative Finance.
Musk’s tweet was one of the factors that pushed prices down last week – dropping as low as $ 30,200 after hitting record highs of $ 64,000 last month. Most recently, it traded around $ 40,000.
Another factor in the decline is that China started tighter regulation on minors in certain areas. The Inner Mongolia region has banned new mining projects, has worked to shut down current operations, and is now warning telecoms and cloud companies that they should not be involved.
For the most part, attention has been negative for Bitcoin, which was already faltering after
(COIN) direct announcement last month. Musk’s negativity in particular could hurt business adoption of Bitcoin – few executives want to invest in something that will worsen their carbon footprint.
Musk said this week that he has had discussions with North American Bitcoin miners and that they will become more transparent about where they get their power. It is difficult to determine how much of Bitcoin’s mining comes from renewable sources like wind and how much comes from coal and other fossil fuels.
“I want to point out that about 12% of the energy comes from renewables,” said Senator Cynthia Lummis (R-Wyo.), An industry supporter who claimed to own Bitcoin, during the Coindesk Consensus Conference on Digital. active this week. “But in the case of mining for Bitcoin, it’s about 40% renewable energy, so this industry is ahead of the game in terms of using renewable energy.”
Industry experts, however, say it’s nearly impossible to put a figure on how much of Bitcoin mining is backed by renewables. About two-thirds of production was concentrated in China last year, according to the Cambridge Center. Inner Mongolia, which accounts for a significant portion of Bitcoin mining, is known for its abundant coal production, for example. The Cambridge Center says studies have varied widely in their estimates of how much renewable energy produces – from 20% to over 70%. This uncertainty will likely persist unless the industry does a better job of tracking energy use.
Tyler Page, CEO of US-based Cipher Mining, a Bitcoin mining company that is going public through a SPAC, said in an interview that “I think it’s hard to say” how much of the mining mining is powered by coal. . “Much of the market is private that you don’t see much of.”
Page says Cipher doesn’t work directly with coal-fired facilities, but the company buys electricity from utilities that can be coal-fired.
He is in favor of more transparency around where mining companies get their power – a movement that started before Musk but now has added urgency.
“Most of the efforts we have discussed are focused on greater transparency, trying to shed light on the use of renewables in Bitcoin mining,” Page said.
Cipher is a subsidiary of a European crypto company called Bitfury and Bitcoin mines in Texas and Ohio. Page believes China’s crackdown on mining is good for companies like his. The profitability of Bitcoin mining is affected by the number of miners. If the number of miners decreases, each remaining miner should have a better chance of making more money.
China may have become the leader in mining because some areas have low-cost hydropower that becomes particularly cheap during the rainy season, he said. But regulatory changes will likely affect its dominance.
China’s dominance has hurt Bitcoin in other ways. Given the power of the Chinese central government, some Bitcoin investors fear that Chinese miners will be co-opted by the government. If more than 50% of the mining power is controlled by a single player, the Bitcoin software can be manipulated. There is no evidence that this has ever happened, but it does help the industry if mining is more geographically diverse.
“Most estimates are that China has over 50%” of mining capacity, Page said. “However, that seems to be changing very quickly, given the announcements over the weekend.”
“I think the clear trend is that it is increasing in the United States,” he added. “It’s not just Cipher, there are a handful of other US-based companies that are growing rapidly.” He estimates that more than 10% of mining power is now in the United States, and he says the availability of “reasonably priced energy” in the United States now rivals China.
“Elon Musk getting attention through his platform on this issue is a big long term thing for the industry,” Page said. “His tweets can cause overnight moves in the price of Bitcoin, but from a long-term perspective, answering these ESG questions is vital for the next step in Bitcoin adoption.”
Write to [email protected]