Our global economy has been captivated by the rapid adoption of cryptocurrency and other popular Blockchain applications. Despite the fact that cryptocurrencies have fallen in value from their peak, the promise of digital assets and the infrastructure to support them has been transformative.
As with many emerging technologies, policymakers continue to explore the best ways to regulate these new digital assets. It is normal to have questions about consumer security, privacy, and the applicability existing laws. However the environmental impact of these business practices that are energy-intensive has prompted considerable regulatory activity worldwide, including in the United States.
It is important to understand how cryptocurrencies are generated first in order to understand the growing energy demands associated with major cryptocurrency cryptocurrencies such as Bitcoin and Ethereum. Many countries, including China and India, have banned cryptocurrency mining. As the United States became the largest source of cryptocurrency mining activity in the world, Congress began active hearings and investigations into the energy requirements and environmental impacts in January 2022.
This is the proof of what? Why certain cryptocurrencies have high energy requirements
Different cryptocurrencies and different blockchain platforms have different energy needs. Most major cryptocurrency platforms aim to create a distributed, decentralized ledger. This means that there is no single authority that can verify transactions and that assets are not used twice. A trusted mechanism, a consensus system, is required to verify new transactions, add these transactions to the blockchain, and confirm the creation or new tokens. Bitcoin alone is responsible for well over 200k transactions per day.[1]It shouldn’t surprise you that these platforms require a lot of processing power to keep them running.
There are two main ways network participants can lend their processing power. These are the core of modern energy policy debates about cryptocurrency. The first form of proof of work is what Bitcoin and Ethereum 2.0 use. Each block is a collection of transactions that must be verified. All the mining computers race to solve the complex math puzzle. The winner is awarded coins and gets to add the block the chain. The competitive nature and energy demands of institutional cryptocurrency mining operations has resulted in significant increases in computing capacity and increased computing power.
The second form, proof of stake, is used by newer platforms like Cardano or ETH2. It requires significantly less energy to operate. This method allows validators to stake their currency in order to verify new transactions or update the blockchain. This method rewards long term investment in a specific blockchain, and not just computing power. A validator is selected based on how many currencies they have staked and for how long. After the block is verified, validators must accept the data before it can be added to the Blockchain. Everyone who validated the block gets coins.
Although proof of stake consensus systems have become more common, the most important and valuable cryptocurrencies are still created through energy-intensive proofof work systems.
Crypto: China bans mining in its domestic territory. Other countries follow.
China has played a significant role in the current cryptocurrency debate about energy use. China was the global cryptocurrency mining capital for several years. Through early 2021, it provided approximately two-thirds (or more) of the world’s computing power for Bitcoin mining.[2]China banned all domestic cryptocurrency mining operations in June 2021. The country cited concerns about the environmental effects of Bitcoin mining energy requirements.[3]
Many Bitcoin miners fled China to seek refuge in neighboring countries such as Kazakhstan. As a result, the United States became the biggest source of mining activity with an estimated 35.1% of the global mining power.[4]The explosion of Bitcoin mining activity has not been without controversy. Many crypto mining operations in Kazakhstan are powered by coal plants. Rising fuel prices have caused considerable unrest.[5]
Many countries have followed China’s lead and banned cryptocurrency mining operations in some countries. According to the Law Library of Congress’ 2021 report, at least eight other countries have banned cryptocurrency mining operations, including Egypt, Qatar, Oman and Morocco.[6]Many other countries have also impliedly prohibited cryptocurrency or cryptocurrency exchanges.[7]
The U.S. Congress shines the spotlight on cryptocurrency mining’s energy needs.
The United States now hosts more than a third of the world’s computing power for mining bitcoin. It has begun to pay attention to the impact of domestic miners on the environment and local economies.
In June 2021, U.S. policymakers remained primarily focused on the security and consumer protection concerns raised by digital currency. Senator Elizabeth Warren however spoke out to her growing concern about the environmental impacts of proof of work mining, in particular.[8]Senator Warren wrote on December 2, 2021, asking for information regarding the environmental footprint Greenridge Generation, a New York-based Bitcoin miner.[9]The letter noted that [g]Due to the extremely high energy usage and carbon emission associated with Bitcoin mining operations, Greenridge and other facilities raise concerns about their effects on the global ecosystem, local ecosystems, and consumer electricity costs.[10]Senator Warren’s concerns sparked several rounds in Congress oversight and inquiries into the environment impacts of, especially proof of work cryptocurrencies, during the past month.
Committee Hearing on Cleaning-up Cryptocurrency begins oversight of and investigation into the energy effects of blockchains.
The U.S. House of Representatives Committee on Energy and Commerces Subcommittee on Oversight and Investigations hosted a hearing on January 20, 2022. The main topic was the externalities of cryptocurrency mining. As an early indicator of the Subcommittees views, the hearing title was Cleaning up Cryptocurrency – The Energy Impacts Blockchains.[11]
The hearing was focused on the amount of energy required to power proof-of-work cryptocurrency mining. Bitcoin Mining has been widely condemned for the enormous power consumption it uses worldwide, more than 200 terawatt-hours in January 2022. While some operations attempt to use renewable energy, the machines that execute these algorithms consume huge amounts of energy primarily from fossil fuels.
The five industry experts who testified before the House Energy and Commerce Oversight Subcommittee differed in their views on how regulators should address cryptocurrency’s energy consumption. Some experts believed that computational demands were a feature and not a bug.[12]Brian Brooks, Bitfury Group CEO, and Professor Ari Juels (Faculty member at Cornell Tech), debated the technical merits of proof of work and proofs of stake systems.[13]Gregory Zerzan, an attorney at Jordan Ramis P.C., also participated in the discussion. Formerly in high-ranking positions within the United States Government Gregory Zerzan encouraged the Subcommittee to not lose sight of the fact cryptocurrencies are just one aspect of a larger innovation, the blockchain.[14]Although experts had many different opinions, there was one consensus: energy-efficient alternatives should be the guide for the future.
John Belizaire, founder and CEO at Soluna Computing, stated that cryptocurrency mining could accelerate the transition from traditional energy sources to renewable ones.[15]The current problem with renewable energy is the intermittency of one major deficiency. The so-called duck curve is an example of this problem. It shows major differences in the demand for electricity and the availability of renewable energy sources throughout the day. For example, the sun shines for a few more hours than consumers need. However, solar power does not provide enough energy to meet peak demand in the late afternoon or evening.[16]Although lithium battery storage has made significant progress, deployment of these batteries at scale remains prohibitively expensive.
Belizaire said that computing is a better way to store battery power and addressed gaps in storage.[17]He states that computing is an immediate deployable solution that can enable renewables to scale up to their full potential today.[18]Belizaire pointed out that cryptocurrency miners can switch off their systems when they need to, which allows them to absorb excess electricity from an area’s electrical grid instead of straining it. This ability to stop, pause, and start computing processes can increase grid resilience. It can also absorb excess energy from renewable resources that provide greater power than the grid can handle. Brooks had similar hopes that Bitcoin mining could help stabilize electric networks, support the viability and encourage innovation in computing and cooling technology.[19]
Steve Wright, the former Chelan County Public Utilities District general manager in Washington, stated that cryptocurrency operations can be carried to other locations based on unutilized transmission and distribution capacity availability.[20]Wright stated that despite the ambitious goals of expanding transmission and increasing and integrating large amounts carbon-free emitting generation, Wright said that it will take substantial collaboration and coordination to prevent cryptocurrency mining from exacerbating an already difficult problem.[21]
The investigation by the Congressional Democrats continues into domestic mining operations and the response of the Cryptomining Industry.
The Hearing on January 20, 2022 made it clear that policymakers are fully aware of the potential impact that increasing numbers of cryptocurrency mining operations could have on the United States. The Hearing’s commentaries indicated that Democrat members of Congress should prioritize examining the costs and sources of energy used for cryptocurrency mining.
Eight Democratic members of Congress, including Senator Elizabeth Warren, sent letters on January 27th, 2022 to six cryptomining businesses, raising concerns over their extraordinary energy consumption.[22]Senator Warren and her coworkers raised the same concerns in their December 2021 letter addressed to Greenridge. They noted that Bitcoin mining power consumption has more than tripled between 2019-2020, rivaling Washington state’s energy consumption, as well as entire countries such Chile, Argentina, and Denmark.[23]Riot Blockchain and Marathon Digital Holdings, Stronghold Digital Mining and Bitdeer were all asked to provide information regarding their mining operations, energy use, potential impacts on the climate, local environments, and the impact on electricity costs for American customers.[24]Senator Warren and her coworkers requested written responses no later than February 10, 2022. This will ensure that this increased oversight will continue.
Even with greater oversight, current trends of crypto mining and renewables could soon make such questions moot. Miners are becoming more committed to changing the negative image that they have built over the years, especially as these operations move to the United States. This is despite heated debates over cryptocurrency’s environmental impact. Lancium, a Houston-based tech company, announced in November that it had raised $150 million to construct bitcoin mines in Texas. These will be powered by renewable energy.[25]The company plans on launching more than 2,000 megawatts at its multiple locations by 2022.[26]Bitcoin mining company Argo Blockchain was listed on London Stock Exchange. It secured a $25 Million loan to fund its green mining operation.[27]The site, which covers 320 acres, will only use renewable energy. The majority of the hydroelectric power is used.[28]This deal will transform Argos’ mining capacity and is expected be completed in the first quarter of 2022.[29]
Capital Markets seem to be more interested in green crypto mining. Gryphon Digital Mining raised a $14 Million Series A in April 2017 to launch a zero-carbon footprint Bitcoin miner powered solely by renewables.[30]Institutional investors, who were significantly oversubscribed, accounted for more than thirty percent of the raise that closed in less than two weeks.[31]
It is clear that Bitcoin mining will be a major focus as more pressures are placed on Congress, the economy, and social life. We may see announcements such as the ones mentioned above well into 2022 and beyond.
FOOTNOTES
[1]Bitcoin Transactions Per day, YChartshttps://ycharts.com/indicators/bitcoin_transactions_per_day(Last visited Jan. 29, 2002).
[2]Bitcoin Mining Map, Cambridge Centre for Alternative Financehttps://ccaf.io/cbeci/mining_map(Last visited Jan. 29, 2022). [Bitcoin Mining Map].
[3]Samuel Shen & Andrew Galbraith. Chinas ban forces bitcoin miners to flee, while others are forced to sell out, Reuters. June 25, 20, 2021.https://www.reuters.com/technology/chinas-ban-forces-some-bitcoin-miners-flee-overseas-others-sell-out-2021-06-25/(last visited Jan. 29, 2012, 2022).
[4]Check out the Bitcoin Mining Map.
[5]Tom Wilson, Bitcoin network strength slumps as Kazakhstan crackdown strikes crypto miners. Reuters, January 7, 2022.https://www.reuters.com/markets/europe/bitcoin-network-power-slumps-kazakhstan-crackdown-hits-crypto-miners-2022-01-06/(last visited Jan. 29, 2012, 2022).
[6]Regulation of Cryptocurrency in the World: November 2021 Update. Global Legal Research Directorate. The Law Library of Congress.https://tile.loc.gov/storage-services/service/ll/llglrd/2021687419/2021687419.pdf(Last visited Jan. 29, 2012, 2022).
[7]Id.
[8]Press Release, United States Senate Committee on Banking, Housing and Urban Affairs, Warren Delivers Remarks at Hearing on Digital Currencies (June 9, 20,21).https://www.banking.senate.gov/newsroom/majority/at-hearing-warren-delivers-remarks-on-digital-currency(last visited Jan. 29, 2012, 2022).
[9]Elizabeth Warren, Letter from Greenridge Generation on Crypto Dec. 2, 2021. Available athttps://www.warren.senate.gov/imo/media/doc/2021.12.2.%20Letter%20to%20Greenidge%20Generation%20on%20Crypto.pdf(last visited Jan. 29, 2012, 2022).
[10]Id. at p.2.
[11]Hearing Notice, United States House Committee on Energy & Commerce. Hearing on Cleaning Up Cryptocurrency. The Energy Impacts Blockchains (Jan. 20-22).https://energycommerce.house.gov/committee-activity/hearings/hearing-on-cleaning-up-cryptocurrency-the-energy-impacts-of-blockchains(Last visited Jan. 29, 2022). [the January 20 Hearing].
[12]January 20 Hearing Testimony. Also, see Statement of Brian P. Brooks in front of House Committee (Jan. 20-22), available athttps://energycommerce.house.gov/sites/democrats.energycommerce.house.gov/files/documents/Witness%20Testimony_Brooks_OI_2022.01.20_0.pdf(Last visited Jan. 29, 2022). [the Brooks Statement].
[13]See, e.g. Brooks Statement; Statement by Prof. Ari Juels in front of House Committee (Jan. 20, 2020), available athttps://energycommerce.house.gov/sites/democrats.energycommerce.house.gov/files/documents/Witness%20Testimony_Juels_OI_2022.01.20.pdf(Last visited Jan. 29, 2022). [the Juels Statement].
[14]Statement of Gregory Zerzan in front of the House Committee (Jan. 20, 2020), available athttps://energycommerce.house.gov/sites/democrats.energycommerce.house.gov/files/documents/Witness%20Testimony_Zerzan_OI_2022.01.20.pdf(last visited Jan. 29, 2012, 2022).
[15]See, e.g. Statement of John Belisaire before House Committee (Jan. 20-22), available athttps://energycommerce.house.gov/sites/democrats.energycommerce.house.gov/files/documents/Witness%20Testimony_Belizaire_OI_2022.01.20_0.pdf(Last visited Jan. 29, 2022). [the Belizaire Statement].
[16]Office of Energy Efficiency & Renewable Energy: Confronting the Duck Curve – How to Address Over-Generation of Solar Energy. October 12, 2017.
https://www.energy.gov/eere/articles/confronting-duck-curve-how-address-over-generation-solar-energy(last visited Jan. 29, 2012, 2022).
[17]See, e.g., Belizaire Statement, p.4.
[18]Id.
[19]Brooks Statement, pp.8-10.
[20]See, e.g. Statement of Steve Wright before House Committee (January 20, 2022), available athttps://energycommerce.house.gov/sites/democrats.energycommerce.house.gov/files/documents/Witness%20Testimony_Wright_OI_2022.01.20.pdf(Last visited Jan. 29, 2022). [the Wright Statement].
[21]Id. p.9.
[22]Press Release, Office Elizabeth Warren, Warren, Colleagues Press Six Cryptomining Companies on Extraordinarily Large Energy Use and Climate Impacts (Jan. 27,2022), available athttps://www.warren.senate.gov/newsroom/press-releases/warren-colleagues-press-six-cryptomining-companies-on-extraordinarily-high-energy-use-and-climate-impacts(Last visited Jan. 29, 2002).
[23]Id.
[24]Id.
[25]MacKenzie Sigalos: This Houston Tech Company plans to build renewable energy-run Bitcoin mines in Texas CNBC (November 23, 20,21).https://www.cnbc.com/2021/11/23/lancium-raises-150-million-for-renewable-run-bitcoin-mines-in-texas.html(Last visited Jan 31, 2002).
[26]Id.
[27]Namcios Bitcoin Magazine, Argo blockchain buys Hydro data centers to realize Green Bitcoin Mining Vision, (May 13, 2021),https://www.nasdaq.com/articles/argo-blockchain-buys-hydro-data-centers-to-realize-green-bitcoin-mining-vision-2021-05-13(Last visited Jan 31, 2002).
[28]Id.
[29]Id.
[30]GlobeNewswire News Room: Gryphon Digital Mining raises 14 million to launch a bitcoin mining operation with zero carbon footprint (April 13, 2021).https://www.globenewswire.com/newsrelease/2021/04/13/2209346/0/en/Gryphon-Digital-Mining-Raises-14-Million-to-Launch-Bitcoin-Mining-Operation-with-Zero-Carbon-Footprint.html(last visited Jan 31, 2012, 2022).
[31]Id.
Copyright 2022 Nelson Mullins Riley & Scarborough LLPNational Law Review, Volume II, Number 35
