Bitcoin mining has recently been scrutinized. To better understand why blockchain is receiving a poor rap, we spoke with a crypto expert.
If you’ve even casually followed Bitcoin news lately, you may have seen headlines such as these:
“Bill Gates Sounds Alarm On Bitcoin’s Energy Consumption”
“Bitcoin’s wild ride renews worries about its massive carbon footprint“
“Why does Bitcoin need more energy than whole countries?”
These captions are intended to generate clicks and possibly sow doubt in the public’s mind regarding popular cryptocurrencies. Is crypto trading, however, the energy vampire that the media portrays it to be?
To gain a more balanced perspective on this topic, we chatted with podcast producer and blockchain specialist Matthew Diemer, a veteran player in the crypto business. Diemer is the host of The Decrypt Daily podcast, which covers a wide range of crypto-related news and information.
Popular digital currencies
Let’s take a brief look back at some basic cryptocurrency information before we get started. Hundreds of virtual currencies, also known as tokens, are already accessible for purchase and trading. However, Bitcoin, which has been operating for nearly a decade, is by far the most well-known money.
Ethereum, dogecoin, and Litecoin are some of the other crypto stars on the rise. NFTs, or “non-fungible tokens,” are a form of virtual product that lives primarily within the Ethereum blockchain, and a surge of interest in them has recently fueled public demand.
To comprehend how energy use and blockchain (the technology that allows cryptocurrencies to exist) are connected, one must first understand how cryptocurrencies are created and traded.
Proof of Work makes crypto function
Proof of Work is a means of tracking every single transaction in blockchain technology (PoW). In essence, PoW is a publicly published record, also known as a ledger, that is maintained by a group of people known as miners. Miners, as expected, mine in order to create new tokens by recording every transaction on the blockchain.
Miners take each “transaction in the data and add it into the decentralized database,” as Diemer says. Once it is entered into the decentralized database, that one person wins and receives the block reward for being the first to do so. In other words, that transaction is now permanently recorded in the blockchain. We call it a blockchain because you can see the path of transactions all the way back to the very first block of Bitcoin, known as the genesis block.”
Miners keep repeating these operations when more cryptocurrency is acquired and traded. Mining consumes a lot of energy since it entails continuously performing incredibly sophisticated algorithms. Let’s dig deeper into the energy and mining relationship at the heart of this debate now that the link between energy use and blockchain has been established.
Energy use and Bitcoin mining
Though Diemer is the first to admit that Bitcoin mining “consumes a lot of energy, roughly 170 Terawatts every block,” he also warns that when it comes to blockchain administration, we need be careful how we frame the concept of energy use.
“I don’t like the word energy usage because I think it’s deceptive,” Diemer says. The term carbon emissions, or CO2 footprint, should be on our minds.” However, we should “be concerned about the CO2 footprint of any sort of energy consumption,” according to Diemer.
To his point, the singular focus on Bitcoin in relation to energy ignores a slew of other considerations. Bitcoin, for example, gets “74 percent of its electricity from renewable sources,” according to Diemer, citing a CoinShares study from 2019.
Based on this information, the concept of crypto energy usage needs to be reframed. To put it another way, according to Diemer, “should we care how much energy is consumed if it’s renewable?” No, since it’s a renewable resource.”
Bitcoin as a business
Crypto miners, according to Diemer, may be more worried than most people about energy management because it affects their bottom line. “Bitcoin mining is a commercial venture. Because mining Bitcoin requires a lot of energy, you want to acquire the cheapest electricity possible. As a result, everything that isn’t the cheapest is a negative for your company.”
“Bitcoin miners set up shop adjacent to renewable energy sources to take advantage of their surplus energy.” To put it another way, Diemer claims that mining saves energy that would otherwise be wasted. According to current studies, up to 72 percent of the energy produced worldwide is lost.
Bitcoin mining unlikely to drive Texas energy prices
According to Statista, the majority of Bitcoin mining takes place outside of the United States, with China accounting for 65% of the total. Despite China’s reliance on coal for energy, astute miners have discovered a way to harvest idle power.
Diemer explained, miners “actively search out the cheapest, most efficient ways to conduct this business. I had somebody on the show that had a Bitcoin mining firm in Sichuan, and that’s exactly what they did. They flew to Sichuan and found one of the many dams that are there and nestled up next to it and started a partnership with them.”
Currently, fewer than 8% of mining takes place in the United States. However, if cryptocurrency becomes more popular, miners in the United States will be looking for the ideal places to develop their operations. Texas is one of the states that is expected to grow in popularity.
Crypto mining in Texas
Texas is a popular destination for aspiring gold miners. The Lone Star State is primed for solar energy production. Texas is currently the second-largest solar producer in the United States, after only California. Texas is also a leader in other forms of renewable energy, such as wind energy, which could be critical to low-cost, efficient mining operations.
But, with Texas experiencing an energy crisis in the first half of 2021, how much more strain can the southern power grid withstand? Will costs soar even higher than they did during the February blizzard, and how much of that expense will be passed on to the consumer?
Texas miners, like their counterparts in China, may make use of energy that would otherwise be wasted. And it’s precisely this kind of symbiotic interaction that could be beneficial to energy production in the United States’ south-central region.
A mining facility already exists in west Texas was able to “sell its contracted power supplies back into the grid for a profit,” according to Bloomberg. So, “when power prices in Texas topped $200 a megawatt-hour, Layer1 reaped returns of more than 700%.”
The good news is that mining might help the Texas power grid retain more renewable energy if other facilities follow suit. It remains to be seen whether the excess energy will result in cost reductions for Texas electrical customers.
Why mining gets blamed for energy consumption
Traditional monetary transactions involving fiat (i.e., government-issued) currency involve significant energy output as well. Consider the number of debit and credit card swipes that take place every second, which totaled over 174 billion transactions globally in 2018, according to the Federal Reserve. With that figure in mind, is the blockchain industry liable for energy gluttony, or are they being scapegoated by the “old guard” in the finance space?
Diemer states, “I think that it’s an easy narrative, and I think that narrative always trumps research and due diligence. It’s easy to run with a narrative instead of actually digging down on the conversation and trying to understand what’s happening.”
But Diemer is confident that the same avant-garde thinkers that facilitated the early days of crypto may be the same innovative minds that come up with our next big energy solution. “The interesting thing about the free market is that sometimes they find solutions to problems…that aren’t thought of by the public or the government.”
Perhaps he sums it up best by saying, “The minds in this space are just brilliant individuals that are thinking literally like Sci-Fi novels. And not only thinking like Sci-Fi novels, but they’re also writing the Sci-Fi novel as we speak and then putting it into everyday action. And if that’s not inspiring to you, then I don’t know what is.”
This is a paraphrased article and it appeared first on ChooseEnergy