Can Bitcoin mining become greener?
Bitcoin mining is the process by which new bitcoins are entered into circulation, but it is also a critical component of the maintenance and development of the blockchain ledger. It is performed using very sophisticated computers that solve extremely complex computational math problems. While there are many Bitcoin and crypto mining ‘farms’ around the world that maximize this process, the biggest concern around this practice has been its use of energy, which has led to calls for Bitcoin and crypto in general to be abandoned. The question therefore is whether Bitcoin mining can become more environmentally-friendly, or whether it is destined to be a problem that will have to be managed if Bitcoin is to be the currency of the future.
China cracking down on bitcoin mining and Elon Musk suspending Tesla’s acceptance of bitcoin due to the large amounts of energy it takes to mine have both contributed to the cryptocurrency losing almost half its value from its high of over $64,000 in April. Bitcoin mining is how new bitcoin are released into circulation. Miners verify transactions on Bitcoin’s blockchain to help avoid fraud and, as a reward, they are given new bitcoin. To verify transactions miners must solve extremely complex math problems, essentially by trial and error, which requires complex computer systems and a large amount of computational power. That much computing power uses a lot of electricity. According to estimates, Bitcoin mining globally uses as much electricity as the Netherlands on an annual basis, and this number is only increasing with time. The higher the price of bitcoin goes, the more energy it takes for miners to get bitcoin. Another issue is the large scale and frequent machinery replacement for supporting high-intensive mining activities. Production and disposal of those electronic machineries are emission intensive as well.
The problem with using so much electricity is that energy generated by burning fossil fuel releases greenhouse gasses into the atmosphere, which then causes climate change. So while transitioning bitcoin mining to use renewable energy may not reduce the overall energy consumption, it could reduce the use of fossil fuels. It is unclear, however, exactly what amount of greenhouse gas emissions would be conserved if bitcoin mining transitioned to renewable energy 100%, because no one knows how much mining is already done with renewable energy sources. Most estimates are that 20% to 50% of all Bitcoin mining is done using renewable energy sources, but these are best on self-reported data, which is not reliable. Bitcoin miners in China for instance, are known to use both fossil fuel and hydroelectric energy. However, with the Chinese government’s crackdown on bitcoin mining, many miners are moving to Texas, which could make this problem worse, since Texas has the highest proportion of fossil fuel usage for electricity generation of all the states in the US.
For progress to be made, there first has to be an accurate understanding of how much power is being used and what percentage is renewable. The Crypto Climate Accord, a group working to make the cryptocurrency industry powered by 100% renewable energy, is building software that would allow miners to anonymously report the amount and kind of power they are using, says Morris.
Another way to motivate miners to move to greener alternatives is a carbon tax. A carbon tax would make mining bitcoin less attractive, which would logically reduce the price of bitcoin. This, in turn, reduces the amount of money earned by miners and how much they spend on energy-hungry machines. However, as mentioned earlier, there first needs to be an independent standard for tracking emissions associated with cryptocurrencies. The cryptocurrency industry could use some iteration of the Greenhouse Gas Protocol, which is an international cooperatively designed accounting standard for tracking greenhouse gas emissions in the public and private sectors. Even with this standard, it would be difficult to implement a carbon tax, since miners could simply move operations to areas where there is no carbon tax being levied.
One of the most promising solutions is to change the way Bitcoin works itself, from proof-of-work to proof-of-stake. With proof of work, the system selects the first miner who solves an energy-intensive computation for the Bitcoin reward, so the more work, or computational power, a miner puts in, the more chance of getting bitcoin. However, proof of stake organizes the cryptocurrency based on how much of the currency a user owns, not based on which miner solved a problem. Thus, with proof of stake, there is no computation, so it requires far less energy. Potentially, Bitcoin’s energy consumption could be reduced by 99.95% if it moved to a proof of stake algorithm.