Could Bitcoin’s Latest Halving Usher in a Greener Future for Mining?

Among people who own and trade Bitcoin, the halving event is generally viewed through the lens of market dynamics — speculation about how the reduction in the block reward will affect the cryptocurrency’s price. Yet the true meaning of this event may lie elsewhere.

This year’s halving could be a pivotal shift towards environmentally sustainable practices within the Bitcoin mining community, which has previously received much flak for its high energy needs fueled by dirty fossil fuels.

Bitcoin halvings and cycle highs

In April, the Bitcoin network performed its fourth ever “halving,” reducing the rewards given to miners from 6.25 to 3.125 Bitcoins. Historically, halvings tend to be followed by significant price increases. After the 2012, 2016, and 2020 halvings, the price at which people could buy Bitcoin increased by approximately 93, 30, and 8 times, respectively. This pattern has left many investors hopeful for future gains.

Bitcoin halving is an event that occurs approximately every four years, where the reward Bitcoin miners receive for verifying and adding new transactions to the blockchain is cut in half. This is a built-in feature of the Bitcoin protocol to control inflation and expand the distribution of new bitcoins over time. Originally, miners received 50 bitcoins per block; however, after each halving, this reward reduces by 50%, which ensures that the total supply of bitcoins caps at 21 million. Halving affects the Bitcoin economy by potentially increasing scarcity as the reward for mining decreases, which some believe could lead to an increase in Bitcoin’s price, assuming demand remains steady or increases.

However, the reduction in mining rewards poses a significant challenge to mining operations.

“All else being equal, the halving will cut operating revenue in half, triggering a wave of consolidation and business closures, while (hopefully) rationalizing network hash rates and industry capital, which is ultimately good for the remaining operators,” JPMorgan analyst Reginald Smith said. said in a recent note to investors.

The shift to renewable energy

The latest Bitcoin halving puts a lot of financial pressure on miners, driving efficiency to maintain profitability. But what’s bad for crypto miners could be a boon for the environment. This is because pressure is promoting a significant shift to renewable energy sources among miners, which are generally cheaper in most countries. Despite the continued use of fossil fuels, a growing number of mining operations are turning to alternatives such as solar, wind and geothermal energy.

Keeping Bitcoin running currently consumes as much energy as Argentina, a country of 45 million people. If it were a country, Bitcoin mining would be 27th in energy consumption worldwide.

Crypto mining is the process where a network of computers execute code to ensure that transactions are legitimate and correctly added to the blockchain. Mining is also how crypto is entered into circulation. Computers compete to be the first to validate a series of transactions called a block and add them to the blockchain. This process is highly energy intensive.

Overall, Bitcoin consumed about 173 terawatt-hours of electricity in 2020 and 2021, about 60% more than the energy used in 2018 and 2019. To make matters worse, much of this mining takes place in countries that have abundant, cheap fossil fuel resources. Bitcoin mining has released about 86 megatons of carbon due to the use of fossil fuels in Bitcoin mining lands.

A Green Opportunity

Renewable energy not only mitigates the environmental impact, but also aligns with the economic imperatives of mining. The high initial cost of renewable energy is offset by the low ongoing expenses, as natural forces such as sunlight and wind carry little operating costs, apart from maintenance work.

Last year, researchers released a paper indicating that Bitcoin mining could be profitable for renewable energy initiatives under certain conditions. The research specifically highlighted scenarios where mining uses excess renewable energy from new solar and wind projects pending grid connection.

Despite the promising shift to renewable energy, challenges remain. The intermittent nature of sources such as solar and wind can cause problems with grid balancing. However, in regions rich in renewable resources, Bitcoin mining is proving to be a surprisingly flexible solution.

As the industry advances, the environmental and economic benefits of renewable energy are becoming increasingly clear. With continued progress and increasing adoption of renewable energy, the future of Bitcoin mining may make a U-turn towards sustainability.

However, it all depends on the price of Bitcoin. The current price today is around $70,000. If it continues to rise, miners may be incentivized to mine Bitcoin with little regard for energy costs, meaning they are also using fossil fuel energy.

So while the price of Bitcoin often gets the most attention during halving events, the real story may be the transformative shift to sustainable mining practices. We can only hope this is the case.