According to CNET.com cryptocurrency mining rigs work 24 hours a day and “a rig with three GPUs can consume 1,000 watts of power or more when it's running, the equivalent of having a medium-size window AC unit turned on.”4
Before we get into why and how crypto mining uses so much energy, let’s first get down the basics of what cryptocurrency is and how it’s stored.
Cryptocurrency is a digital currency that can be exchanged for goods or services. There are more than 10,000 cryptocurrencies currently available through coins or tokens. The biggest draw to cryptocurrency is inflation. Printing money leads to a decrease in value over time as more money is being printed than needed. Bitcoin, one of the most popular cryptocurrencies, “has a fixed limit of 21 million coins that can ever be created.”1 Bitcoin is also reducing the amount of new bitcoin every four years by 50% to combat inflation.
In 2020, “at least one-third of U.S. small and medium-sized businesses accept cryptocurrency as payment for goods and service.”2 A few of these businesses include fast food restaurants, movie theaters, gaming companies, grocery stores, and big corporations like Microsoft, Paypal, and online furniture retailer Overstock.
To validate the exchange of a cryptocurrency transaction, cryptocurrencies will be run through either a proof of work or proof of stake.
Proof of work involves a mathematical problem where computers race against one another to confirm the transaction. Transactions are grouped together and are known as a block. The average block contains roughly 500 transactions. Each computer working on this algorithm to validate the block is known as a miner and is where cryptocurrency mining was developed. The miner has to be the first to discover a hash, or 64 digit hexadecimal number, and the first is awarded with a cryptocurrency payment.
Mining payments of Bitcoin are currently 6.25 bitcoins or roughly $240,000 per block. Every 4 years (or every time 210,000 blocks are mined) this amount (the 6.25 bitcoin payment above) will reduce by half and reducing this amount helps deflate Bitcoin’s inflation rate.
Even with this payment amount, miners require a lot of computer power and electricity and miners “might barely break even with the crypto they receive for validating transactions, after considering the costs of power and computing resources.”3 Not only do the miners themselves consume a substantial amount of energy but they are typically kept in warehouses called mining centers. These centers contain mining rigs, hardware consisting of either CPU, central processing unit, GPU, graphics processing unit, FPGA, field programmable gate array, or ASIC, application-specific integrated circuit, and are specifically designed for crypto mining.
Mining rigs work 24 hours a day and “a rig with three GPUs can consume 1,000 watts of power or more when it's running, the equivalent of having a medium-size window AC unit turned on.”4 Mining centers can contain thousands of mining rigs. A mining center in Kazakhstan can run 50,000 mining rigs.4
In lieu of the amount of power to validate transactions through proof of work, an alternative method is also available that is in use by a few other cryptocurrencies including Ethereum. Proof of stake limits the number of transactions “by the amount of cryptocurrency they’re willing to “stake,” or temporarily lock up in a communal safe, for the chance to participate in the process.”3 Those who invest the most are typically rewarded with the block and become validators. These validators will then validate the block of transactions and are awarded with a cryptocurrency payment. There are also other validators who will confirm the validity of the block who are also rewarded with a cryptocurrency payment.
The major difference between proof of work and proof of stake are energy usage and competition. For proof of work, multiple miners are competing against one another to complete and validate the block as soon as possible. Each miner is using a drastic amount of energy but only one miner is awarded with payment. For proof of stake, validators will put up their own cryptocurrency and be awarded with a block. This takes less energy as only one validator is working on this and not competing with miners. The validator will then be confirmed by other validators but again this is a much less energy usage than mining.
Energy Usage in Cryptocurrency Mining
In March 2021, it was estimated by the Cambridge Center for Alternative Finance that, per year, Bitcoin used roughly 0.55% of global electricity production or the annual energy usage of Sweden.5 Since 2015, it is estimated that bitcoin mining energy consumption grew 66 times.6
One headquarters for crypto miners is in Plattsburgh, New York, a small town in upstate New York that has low electricity prices due to a hydropower dam. The usage following these bitcoin miners created a spike in electricity prices. In 2018, when residents expressed their disagreement with these prices, Plattsburgh implemented a new moratorium for commercial cryptocurrency miners. This did not affect crypto miners already present and was lifted in early 2019. Former Plattsburgh Mayor Colin Read shared his experience with crypto miners and these higher electricity prices also stating that job creation is a huge reason to bring in these miners but, in his experience, that was not seen in Plattsburgh.
In another town in upstate New York off of Seneca Lake, residents are protesting crypto miners as a power plant increased their electricity and use “much of the fossil-fuel energy not to keep the lights on in surrounding towns but for the energy-intensive "mining" of bitcoins.”7 This natural gas-fired power plant does not use coal but these power plants still “generate damaging greenhouse gases.”7 Prior to crypto mining, the power plant had surplus energy and that was how they linked the additional energy to crypto mining. While this plant is in the works to become carbon neutral, last year “operating at only 13 percent capacity, the plant's carbon dioxide equivalent emissions totaled 243,103 tons, up from 28,301 tons in January, according to regulatory documents.”7 Prior to crypto mining, these emissions were 119,304 tons in 2018 and 39,406 tons in 2019.7
With 30 other power plants in New York looking at utilizing crypto mining, the residents of Seneca Lake are demanding regulation of these plants in regards to crypto mining. The Department of Environmental Conservation said they are also monitoring the Greenridge power plant near Seneca Lake.
Tesla previously allowed cryptocurrency transactions as a payment method for their products. CEO Elon Musk is an advocate of cryptocurrency and Tesla has purchased $1.5 billion of bitcoin. In May Tesla paused cryptocurrency payments as a valid form of payment. Musk attributed this to the “rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.”8 Musk stated that until a proven 50% of clean energy is used by miners, cryptocurrency payments will not be accepted.
While we can calculate the energy usage of Bitcoin per year, the carbon emissions from this energy are more difficult. Reports range these carbon neutral numbers from 73% or 39% of Bitcoin’s energy consumption.6 In 2019, a large portion of Bitcoin’s energy came from hydropower from Southwest China and Scandinavia. Prior to Bitcoin, this renewable energy source was stranded in Chinese provinces Sichuan and Yunnan. The wet seasons of these provinces produce large quantities of hydropower that are unable to be utilized by local demand. To transport this hydropower to city hubs nearby would require battery technology that is currently not available. These provinces were responsible for almost “10% of global Bitcoin mining in the dry season and 50% in the wet season.”5
Since data mining can be done almost anywhere Bitcoin is able to access these provinces for data centers. Another carbon neutral resource they are able to utilize because of this is flared natural gas. This energy is seen in remote mines which many are unable to access and therefore unable to use. Companies are able to use this natural gas through “install[ing] a piping system to divert the natural gas away from the flares and into generators. They produce electricity which is then used to power computers directly at the oil site.”9 These computers are used for mining in the cryptocurrency process.
China’s Mining Ban and the Future of Cryptocurrency Mining
In May of 2021, the Chinese government implemented a ban of Bitcoin miners contributing to the reason Beijing was unable to hit their climate target goals. Before the ban, it is estimated that 65% to 75% of the world’s cryptocurrency mining took place in China.10
While no official policies have yet been set, a phased rollout is set to occur and many miners are moving elsewhere. Due to China’s ban, many miners are looking at relocating to Kazakhstan, which hosts about “8% of all crypto mining. It’s home to coal mines that provide a cheap and abundant supply of energy — but also ample carbon dioxide emissions.”11 Miners are also looking to Texas as a potential new home as many are interested in the low energy prices with the deregulated power grid. Texas also brings a much needed renewable energy source with “20% of its power coming from wind as of 2019.”10
With miners on the search for the lowest electricity prices, some US states and cities are adding themselves into the mix to compete with Texas.
Kentucky House Majority Leader Rep. Steven Rudy and Rep. Chris Freeland introduced a bill to the state legislature in January 2021 which would exempt cryptocurrency miners from “paying 6% sales taxes or 6% excise taxes on their rigs' electric bills and mining equipment.”12 Using this in addition to Kentucky’s lower electricity rates provides an additional incentive for commercial cryptocurrency miners.
Following the China crypto mining ban, Miami Mayor Francis Suarez is pushing for cryptocurrency miners to make Florida their new home. With Miami’s cheap nuclear power, Mayor Suarez is working with Florida Power & Light Company for ways to bring the energy prices down even further. Nuclear energy follows hydropower as the second largest low-carbon electricity source.
To help aid in the process of making the cryptocurrency business more carbon neutral, the Crypto Climate Accord was formed. The founders of the Accord are Alliance for Innovative Regulation, a non-profit that promotes green finance; Energy Web, a non-profit featuring a low-carbon, customer-centric electricity system; and RMI, a non-profit working to accelerate the clean energy transition. The Crypto Climate Accord is “a private sector-led initiative for the entire crypto community focused on decarbonizing the cryptocurrency industry in record time.”13 Their goal is to achieve net-zero emissions by 2030. Numerous blockchains in the crypto market are supporters and signatories to help achieve this goal.
While the move of cryptocurrency miners to the US brings in more renewable energy sources for mining there are still many hesitations before miners set up shop. The first being Texas’ power grid after the winter storm in 2021. ERCOT, Electric Reliability Council of Texas, has asked Texans to conserve energy on the grid so with miners moving in and using the energy from the deregulated grid, what will that mean for Texans? Another concern is the time it takes to set up a physical infrastructure to hold the crypto mining rigs. These sometimes take six to nine months to construct. Also, moving the current equipment from China (many miners are outdated and are just shutting down completely) could prove a problem as there is currently a shipping container shortage, lingering from COVID.
While nowhere is currently large enough to encompass all of China’s miners, the future of cryptocurrency miners is one to look forward to. Will some of these miners stay offline as they have no way to relocate? Will they move to the places with tax breaks and incentives in a pro-crypto community? Will the use of renewable energy sources sway a miners decision? Will the decision come down to the lowest energy price?
The future of cryptocurrency miners and energy consumption holds many questions that will unfold in the near future.
7 NBC News