Bitcoin’s rising energy demand is causing regulatory challenges

The energy footprint of Bitcoin mining is off the charts. The already huge energy consumption of the process of minting new coins of the cryptocurrency has more than doubled over the course of 2023 based on strong prices. The United States, one of the world’s biggest hubs for cryptocurrency mining, is in the eye of an increasing storm over the prevailing problematic energy consumption and associated emissions of the cryptocurrency, but regulating it will not be easy.

By the end of last year, global energy consumption from bitcoin mining had grown by 101% since January 1, reaching a whopping 141.2 TWh, according to data from Digiconomist. All this amounts to a carbon footprint of 78.7 million metric tons of CO2 per year. To put this in perspective, Bitcoin mining now consumes as much energy in a year as Australia and more than Egypt, which boasts a population of 110 million people, and emits more carbon dioxide than Oman.

Bitcoin’s large energy and carbon footprints come as a result of the cryptocurrency’s unique mining process. Bitcoin relies on a public ledger powered by the blockchain to keep transactions anonymous, secure and verifiable. To achieve this, each new entry in the ledger requires complex computational problem solving known as “proof of work” that relies on trial and error – plugging in random solutions and seeing if they match. The “miner” who solves each unique puzzle the fastest receives a newly minted Bitcoin. This means that miners using high-powered supercomputers capable of doing such work faster have an important advantage. This is where the massive amount of energy consumption factors into play.

As Bitcoin prices inflate, more and more miners compete to solve these puzzles in real time. But if more miners led to the creation of more and more bitcoins more often, the market would flood and currency prices would tumble. To prevent this, the proof-of-work solution gets harder and harder with each puzzle, to the effect that mining one Bitcoin should always take 10 minutes.

The result is the same amount of Bitcoin produced as ever, but with an ever-increasing energy footprint. In 2009 you could mine Bitcoin with just a few seconds of household electricity, whereas in recent years you would have had to use about 9 years worth. As a result, many miners have entire warehouses of supercomputers working away 24/7.

And certain countries and regions of the world bear the burden of that energy consumption more than others. China used to be a powerhouse for Bitcoin mining operations, but Beijing banned Bitcoin and other cryptocurrencies in 2021. As a result, many Bitcoin miners have moved their operations to the United States, following abundant energy resources and relatively lax legal restrictions .

In just a few years, the United States’ share of global crypto mining has risen from 3.5 percent to 38 percent, making the US the single largest crypto mining market. In the process, the Bitcoin boom has “stressed local grids, raised electricity bills for nearby residents and kept once-defunct fossil fuel plants running,” according to recent reporting from Grist. But exact figures on who is mining and where, and exactly how much energy each operation uses, are extremely difficult to pin down.

Now the United States is trying to deal with the situation. Step one: try to understand how much energy Bitcoin miners consume on US soil. Last week, the US Energy Information Administration announced that it would begin collecting energy usage data from more than 130 “identified commercial cryptocurrency miners” operating in the US.

“As cryptocurrency mining has increased in the United States, concerns have grown about the energy-intensive nature of the business and its effects on the U.S. electric power industry,” the EIA said in a new report that provided the basis for the survey. which started this week. “Concerns expressed to the EIA include stress on the electricity network during periods of peak demand, the potential for higher electricity prices, as well as effects on energy-related carbon dioxide emissions.”

But beyond accounting for the energy footprints of commercial-scale mining operations in the United States, actually changing those numbers will be an uphill battle. Previous attempts to regulate the industry have been laughable, mostly stemming from recommendations and pleas for miners to get their energy from more clean and sustainable sources. Such guidance will almost certainly fall on deaf ears, as much of the crypto world’s appeal is a complete lack of governance and oversight. “If anything represents free-market capitalism in its most naked form, it’s Bitcoin,” the BBC noted in 2021, calling efforts to promote voluntary sustainability standards “a tad bizarre.”

Henceforth, measures to govern in Bitcoin will have to be much stricter. And more than that, they will have to be enforceable. Getting real numbers through the EIA’s current survey is a critical first step, but it is unclear how the government will effectively follow this up with meaningful policy measures.

By Haley Zaremba for Oilprice.com

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