Bitcoin and its copycat cryptocurrencies took a hit from the People’s Republic of China during mid-November. The global Bitcoin fell almost 8%, but recovered somewhat later in the trading day.
Probably feeling the pressure of world opinion as the globe’s biggest greenhouse gas spewer, China decided to clamp down on crypto-mining. That’s crypto mining, not coal mining. China’s energy runs on 58% coal power and its coal consumption will likely reach a record high in 2021—accounting for over 10% of global greenhouse gases.
Crypto mining isn’t actual mining in the sense of digging holes in the earth. It’s how Bitcoins are created, exchanged, and valued on the internet. The process is complicated (and a bit baffling), but it is unfettered capitalism and immune from hacking and theft. And Bitcoins, which aren’t actually physical currency, do have value.
It’s probably the capitalism part that bothers the rulers of the world’s most populous country. Rather than freezing out its energy-hungry billions of people, China has opted to crackdown on the hot free market of cryptocurrencies. China’s state-owned enterprises must withdraw from cryptocurrency mining. China intends to impose “punitive measures” in higher power costs on companies that continue to defy the government’s ban.
In an astonishingly obtuse and insincere statement, China’s regulators said that crypto mining “causes large energy consumption and carbon emissions. It has no active impact to lead industry development or scientific progress.”
Also, CNBC quoted an NDRC spokesperson who gave the government’s reason for clamping down on cryptocurrency: “Regulating cryptocurrency mining activities (will improve) our industrial structure, saving energy and cutting emission, achieving carbon emission and neutrality goals.”
Hypocritical Chinese rhetoric notwithstanding, Bitcoin mining is done on powerful computers that generate huge amounts of “hashes” per second does require large amounts of electricity. According to ETF trends, the Bitcoin network eats up about 116 trillion watts of electricity per year—more electricity consumed by some countries.
Fortunately, say some crypto advocates, much of the energy Bitcoin mining consumes is renewable. On the other hand, the Cambridge Center for Alternative Finance reported that as of September 2020, less than 40% of crypto mining is powered by renewable energy.
As China declares independence from a crypto-capitalist process their control-freak bureaucracy hates, there seems to be a new Bitcoin mining diaspora afoot. Miners are relocating to Kazakhstan and to the United States. In fact, according to the Cambridge Bitcoin Electricity Consumption Index, the U.S. has overtaken China and Kazakhstan and is now the world leader in Bitcoin mining with a 35% share of the world’s Bitcoin market.
The most attractive states to Bitcoin miners fleeing from regulation and searching for cheap electricity, according to one Motley Fool online article are:
- Texas, which produces and consumes the most electricity in the country and has crypto-friendly laws. Not well known is the fact that Texas produces almost a third of the nation’s wind energy.
- Kentucky, which still produces tons of coal and has offered tax breaks to attract Bitcoin miners.
- Georgia, where natural gas and nuclear power account for almost three-quarters of the state’s power consumption.
- New York, which generates a third of its power from nuclear sources. New York is also the country’s third-largest producer of hydroelectric power.
As a side benefit of the power demands of Bitcoin miners, some older fossil fuel factories have been reopened. For example, Montana’s Marathon Digital brought a struggling coal-fired power plant back on line. Also, a Pennsylvania crypto mining company recently bought a power plant that uses waste coal.
So, Bitcoin mining has a carbon consumption impact. In fact, Elon Musk, who previously accepted Bitcoin for his Tesla automobiles and invested $1.5 billion in Bitcoin, said he would stop taking Bitcoin because of environmental concerns.
Environmental concerns surrounding cryptocurrency, argue Bitcoin supporters, need to be put into context. Bitcoin, they argue, could transform the way money and its vast network of banks and financial organizations work. It could actually reduce energy consumption.
On the other hand, Bitcoin still hasn’t, and may never, replace gold and banking. Both are still thriving. High energy consumption, critics argue, is built into the DNA of Bitcoin. For Bitcoin to work and remain viable, it must use a complex mining model and powerful computers that require increasing amounts of energy.