Can Crypto Mining Ever Go Green?

Can Crypto Mining Ever Go Green?

This piece is part of our Stu­dent Blog Series, fea­tur­ing posts on cli­mate, clean ener­gy, and envi­ron­men­tal issues from the State Impact Center’s legal interns and oth­er stu­dents work­ing with the Center.

Both cham­bers of New York’s leg­is­la­ture have passed a land­mark mora­to­ri­um on fos­sil-fuel based cryp­tocur­ren­cy min­ing. Gov­er­nor Hochul has not indi­cat­ed when she will act on the mea­sure, call­ing it a lot to con­sid­er.” The NY Senate’s web­site track­er offers a way to keep up to date on recent­ly signed legislation.

While NYC May­or Adams has been cit­ed pro­mot­ing mak­ing the city a hub for cryp­to, advo­cates have been con­cerned with the industry’s envi­ron­men­tal impacts. Recent­ly, the NYC Bar Asso­ci­a­tion pub­lished a let­ter cit­ing crypto’s cli­mate impact and urg­ing Gov­er­nor Hochul to sign the mora­to­ri­um into law.

NY’s clos­er inspec­tion of the indus­try comes as droves of cryp­to min­ers flock to the Unit­ed States from Chi­na after their cryp­to ban last year. The Unit­ed States now hous­es the largest share of min­ing oper­a­tions glob­al­ly at near­ly 37%. Unfet­tered by the con­straints of oth­er phys­i­cal indus­tries, cryp­to min­ers are able to migrate when­ev­er con­di­tions become inhos­pitable, often flee­ing to friend­lier ter­ri­to­ries with cheap, abun­dant ener­gy. Even as the cryp­to mar­ket fluc­tu­ates dra­mat­i­cal­ly, los­ing about 65% of its total val­ue since last fall, it seems the indus­try is here to stay. This begs the ques­tion: now what?

To start, it’s worth under­stand­ing how the cryp­to sys­tem works and why it exists. 

The How:

In a tra­di­tion­al cur­ren­cy sys­tem, trans­ac­tions are ver­i­fied through third par­ty inter­me­di­aries like banks which pro­vide col­lec­tive trust that trans­ac­tions and val­ue are legit­i­mate. The founder of Bit­coin sought to elim­i­nate these third par­ties and pro­mot­ed Bit­coin as a trust­less” sys­tem where trans­ac­tions are ver­i­fied through a decen­tral­ized net­work of anony­mous mod­er­a­tors. Each trans­ac­tion is cryp­to­graph­i­cal­ly encod­ed into a ledger sep­a­rat­ed into pack­ets, or blocks,” which make up the blockchain. Once a block in the ledger is cre­at­ed, it is dis­trib­uted to a net­work of com­put­ers that must work to solve com­plex math­e­mat­i­cal prob­lems to decode the block and, once all nodes ver­i­fy the block is iden­ti­cal, the trans­ac­tion is approved and processed.

The Why:

Crypto’s decen­tral­ized ver­i­fi­ca­tion sys­tem process­es dig­i­tal trans­ac­tions with­out the need for a bank or government’s authen­ti­ca­tion. Sup­port­ers of the plat­form, like finan­cial jour­nal­ist Mar­tin Rivers writ­ing for Forbes, laud crypto’s abil­i­ty to pro­mote pri­va­cy and self-deter­mi­na­tion, while down­play­ing its envi­ron­men­tal impact as neg­li­gi­ble. But decod­ing blocks requires mas­sive amounts of com­put­ing pow­er. Those decod­ing blocks, or min­ers,” receive pay­ment in the cur­ren­cy if their com­put­er is the first in the net­work to decode the block. The the­o­ry is that this sys­tem, called Proof of Work,” incen­tivizes min­ers to main­tain the integri­ty of the cur­ren­cy and mints new units of cur­ren­cy into circulation.

The Catch:

Cryp­tocur­ren­cies are decen­tral­ized and large­ly unreg­u­lat­ed mak­ing it dif­fi­cult to cal­cu­late their true impacts on the envi­ron­ment and econ­o­my. But study after study demon­strates the industry’s unde­ni­able envi­ron­men­tal impact and secu­ri­ty concerns. 

Cur­rent­ly, the Uni­ver­si­ty of Cam­bridge is track­ing the ener­gy needs of Bit­coin through an Elec­tric­i­ty Con­sump­tion Index. Before China’s cryp­to ban, a major­i­ty of the world’s min­ers uti­lized the country’s cheap and avail­able hydro pow­er. Now, the esti­mat­ed ener­gy mix of cryp­to-min­ing has been report­ed as shift­ing more towards oil and gas, and away from renew­ables as min­ers relo­cate. Based on US emis­sions and its share of the cryp­to mar­ket, US min­ers pro­duced near­ly 40 bil­lion pounds of car­bon diox­ide in 2020. The uptick of US min­ers has also affect­ed grid sta­bil­i­ty and increased rates for res­i­den­tial ener­gy con­sumers.

The cur­rent com­pet­i­tive mod­el of cryp­tocur­ren­cy is on track to become more waste­ful and ener­gy inten­sive over time. Plat­forms like Bit­coin are designed with scarci­ty built in: doc­u­ments show only 21 mil­lion bit­coins will ever exist, and about 19 mil­lion have already been mined. To keep the ver­i­fi­ca­tion sys­tem run­ning, the num­ber of coins award­ed for decod­ing one block is halved every four years: in 2020 the reward was cut from 12.5 coins to 6.25 for decod­ing one block. This means the ener­gy required and emis­sions cre­at­ed to mint one bit­coin will con­tin­ue to dou­ble as time goes on.

Ques­tions about fraud and secu­ri­ty threats also present issues for con­sumers. The FTC recent­ly report­ed over $1 bil­lion lost in cryp­to scams. Some states have tried to crack down on these threats like NY Attor­ney Gen­er­al Leti­tia James who announced the inves­ti­ga­tion and shut down of two cryp­to plat­forms last fall over fraud claims. 

The Path For­ward:

There are oppor­tu­ni­ties to reg­u­late the cryp­to indus­try in the US

The first method for reg­u­lat­ing cryp­to min­ing would be address­ing the way that plat­forms ver­i­fy their cur­ren­cy. Most plat­forms uti­lize Proof of Work (PoW). Tran­si­tion­ing to a method like Proof of Stake (PoS) — where min­ers set aside an amount of their own cur­ren­cy and are cho­sen ran­dom­ly to val­i­date trans­ac­tions — would dras­ti­cal­ly reduce the com­pu­ta­tion­al effort need­ed to ver­i­fy trans­ac­tions and, thus, low­er emis­sions caused by redun­dant ver­i­fi­ca­tion. While com­pa­nies like Ethereum have made pledges to tran­si­tion to proof of stake in an effort to reduce emis­sions, reg­u­lat­ing plat­forms in this way would like­ly require vol­un­tary com­pli­ance and not com­plete­ly elim­i­nate proof of work. 

The sec­ond method is to reg­u­late the indus­try state by state. If states begin to pass stricter reg­u­la­tions on how and where cryp­to min­ing can occur, like bans on fos­sil-based min­ing or zon­ing restric­tions, it is pos­si­ble oth­er states may fol­low suit. The cryp­to indus­try is high­ly mobile and indi­vid­ual state bans may prompt a race to the bot­tom” where some states have already dereg­u­lat­ed cryp­to in response to direct lob­by­ing from the indus­try.

The third path is to tar­get cryp­to min­ers direct­ly through fed­er­al lev­el tax­es and reg­u­la­tions. By giv­ing agen­cies like EPA or DOE juris­dic­tion over cryp­to min­ing, facil­i­ties would have to com­ply with the same air and ener­gy per­mit­ting require­ments as the oil and gas indus­try. Since announc­ing his exec­u­tive order in March, Pres­i­dent Biden has tak­en steps to assess reg­u­la­to­ry options, direct­ing the admin­is­tra­tion to con­duct a review of the cryp­to industry’s finan­cial secu­ri­ty and cli­mate impact. Advo­cates from envi­ron­men­tal orga­ni­za­tions like the Car­bon Tax Cen­ter, have also pushed for the indus­try to be sub­ject to car­bon tax­es to incen­tivize the indus­try to move away from fos­sil fuels and toward renewables. 

Final­ly, any effort to reg­u­late cryp­to will be affect­ed by pub­lic opin­ion, mak­ing PR cam­paigns crit­i­cal to inform­ing pub­lic knowl­edge of crypto’s envi­ron­men­tal impact. This spring, Green­peace and cryp­to bil­lion­aire Chris Larsen launched an advo­ca­cy cam­paign, Change the Code, Not the Cli­mate,” for Bit­coin to shift its code from proof of work to proof of stake in an effort to make the cur­ren­cy green­er. The cam­paign, along with oth­er groups like the Envi­ron­men­tal Work­ing Group and Earth­jus­tice, recent­ly urged the Biden Admin­is­tra­tion through a let­ter to sub­ject the indus­try to air per­mit­ting, envi­ron­men­tal reviews, ener­gy report­ing, and ener­gy effi­cien­cy stan­dards. Pub­li­ciz­ing this issue and edu­cat­ing the pub­lic may be crit­i­cal to spurring leg­isla­tive action like the recent push from demo­c­rat law­mak­ers, led by Sen. Eliz­a­beth War­ren, demand­ing ener­gy use dis­clo­sures and cli­mate impact over­sight from cryp­to com­pa­nies.

Cryp­to began as an effort to move away from the struc­ture and rigid­i­ty of finan­cial insti­tu­tions and inno­vate a cur­ren­cy for the future. Now, with our cli­mate in cri­sis and that future at risk, cryp­to-bil­lion­aires and cli­mate activists alike need to find com­mon ground in sus­tain­able, renew­able-fueled crypto.