Can Crypto Mining Ever Be Fully Eco-Friendly?
VYSYN Weekly Release #91: As Bitcoin energy concerns persist, miners move towards renewable energy sources
In 2021, the controversial issue of Bitcoin's energy-intensive mining processes dominated headlines for most of the year. As the argument around crypto mining energy consumption continues, the industry's potential appears to be overshadowed by this vulnerability. Amid extreme criticism from governments and environmentalists, the crypto mining industry is rebranding to become environmentally sustainable.
In the latest VYSYN Release, we will analyze this issue and the measures miners are taking to improve the current state of the mining industry. We will also consider whether decentralized solutions can make the world greener.
PoW is the culprit
With the ongoing controversies surrounding cryptocurrencies and the environment, it is very difficult to find a headline that does not refer to the environmental impact of the two biggest blockchain networks, Bitcoin and Ethereum. These two blockchains utilize the Proof-of-Work (PoW) consensus mechanism to verify transactions and keep the network secure.
Since there are no centralized entities in the blockchain ecosystem, networks are maintained by several industry-grade computers from across the globe. Miners compete to solve the PoW puzzle, verify the blocks, and earn block rewards. The PoW consensus mechanism is very popular because it makes altering a blockchain very complicated, as it would require re-mining all the subsequent blocks, which is nearly impossible.
However, the problem with this system is the amount of energy it requires to process transactions. According to data from the Cambridge Bitcoin Electricity Consumption Index (CBECI), bitcoin mining consumes 138 terawatt-hours of electricity per year. This value is more than the energy consumed by Norway and Ukraine per year.
(Source: CBECI)
Bitcoin's energy usage is determined by the number of miners operating on the network at a particular time. However, despite its main purpose being to secure the network, miners are profit-oriented. Hence, although only one miner gets to add a new block every 10 minutes, miners worldwide are expending energy and competing to append this block.
Realizing this massive problem, several blockchain networks are employing more sustainable consensus mechanisms, with the most popular one being Proof-of-Stake (PoS). Avalanche, Polkadot, Polygon, Cardano, and more are all built on the PoS consensus algorithm. Ethereum is currently making plans to transition to its PoS algorithm, which will massively cut the network's energy usage.
Following increased concerns about the environmental impact of PoW projects, a passage in the proposed legislative framework for regulating digital assets by the European Union sought to ban Bitcoin and other PoW projects. The passage mandated that all digital assets must meet minimum environmental sustainability standards, and those that do not follow these standards must be banned. However, the passage was removed from the framework after a majority of legislators voted against it.
Blockchain networks drive sustainable mining
The entire digital asset industry is moving toward energy-efficient mining as critics blasted the industry for its carbon footprint. HIVE Blockchain Technologies is one of the companies driving the transition to sustainable mining. HIVE has several state-of-the-art data centers filled with thousands of specialized computers, all working to verify transactions on various blockchain networks, including Bitcoin, Ethereum, and more.
HIVE's data centers, which are located in Sweden, Canada, and Iceland, are powered by 100% green energy. Its Iceland facilities are powered entirely by geothermal energy and the Swedish facilities are powered entirely by hydropower. The company had a committed Environmental, Social, Governance (ESG) strategy right from when it was launched.
To maintain a mutually beneficial relationship with the local power grid in Sweden, HIVE powers down its operations at certain times. The Swedish national grid operator can call on the HIVE data center in Boden, Sweden, at least once a month to power down its mining operations to balance the local grid. To make this task possible without losing vital data, the HIVE data facility segregates energy use into thousands of small units that can be shut down one at a time. Once the required percentage has been shut down, the energy is diverted to public use.
Employing this method allows miners to maintain their operations without causing major power outages for residents. The local power grid equally benefits from this arrangement since it offers it a stable income supply when public energy consumption levels are low. HIVE was one of the first publicly traded crypto mining companies, trading on several top stock exchanges under the ticker HIVE.
Argo Blockchain is another leader in the cryptocurrency mining industry. Argo is a UK-based crypto miner that utilizes clean energy for all of its mining operations. The company is committed to making Bitcoin more green and changing how the Bitcoin mining community acts toward achieving a climate-conscious future.
Argo's energy-efficient mining facilities, located in Quebec and Texas, mine Bitcoin and the privacy-focused cryptocurrency, Zcash. Its Quebec facilities utilize mainly hydropower while its mining facilities in Texas utilize power from wind and solar infrastructures. Argo’s facilities in North America are currently using 45 MW of electricity to generate over 1.6 exahashes per second (EH/s) of Bitcoin.
As interest in energy-efficient mining grows, the company's stocks saw rising interest from investors. In December 2021, the financial services company, Fidelity Investments revealed that Argo was one of its most actively traded stocks in 2021.
Can decentralized solutions make the world greener?
As the largest cryptocurrency in the market, it will be virtually impossible to automatically make Bitcoin mining operations to be 100% renewable. Millions of dollars have been invested in mining hardware and infrastructure. Therefore, it will be difficult to transition to an energy-efficient system for network security.
The industry is becoming more conscious of the rising energy concerns, and efforts like the Bitcoin Mining Council (BMC) and Crypto Climate Accord have risen to make the industry greener. However, since the industry's carbon footprint has long been a tool used by critics to discredit the industry, it will likely take a while before the public changes its perspective of blockchain technology as an ecological threat. But, with the entire industry unitedly working towards that goal, the digital asset industry can become greener.
Additionally, the rise of green concerns and technology within blockchain and crypto projects poses huge investment opportunities to savvy investors. Whether on or off chain, investors can get in on the ground of a major investment wave that is likely to sustain itself well into the future.
About VYSYN Ventures
VYSYN Ventures is a longstanding venture capital company that specializes in funding and supporting disruptive startups in the blockchain and cryptocurrency industry. We have provided early-stage support to several projects that have grown USD market capitalizations of hundreds of millions and even billions. Our incubation program focuses on providing capital allocation, versatile marketing support, and tech assistance.