Bitcoin mining: a scapegoat for European energy shortages?

Bitcoin

In October, the European Commission announced that it was developing an energy-efficiency label for blockchains and cryptocurrency mining, intended on curbing the high energy consumption levels of the industry in the face of disrupted gas supplies. However, with fears of increasing energy prices, blackouts, and shortages, the EU has also warned that it may shut down Bitcoin miners to steer more energy to households and factories. 

According to Bloomberg News, the Commission will work with international partners to come up with a grading measure that will encourage more environmentally friendly crypto systems. 

Joshua D. Rhodes, research scientist at Webber Energy Group/Energy Institute, University of Texas, says that energy is a particular concern in the EU, with natural gas providing the second most amount of electricity behind nuclear. 

“Given the competition between power plants and space heating, I can see why the EU is looking to save as many terawatt hours (TWh), and by extension gigajoules (GJ) of natural gas for essential services in the current energy climate. At the end of the day, there is only a finite amount of energy to go around, at least in the short-term before more different types of plants can get built. 

“On the environmental side, unless the mining operations have contracted with renewable or zero-carbon energy sources, quickly increasing loads could increase the use of fossil fuels in the short-run, which might make it harder to meet certain environmental goals.” 

The fact that the Bitcoin mining industry consumes large amounts of energy is a fact that is not disputed – the Cambridge Bitcoin Electricity Consumption Index, for example, documents Bitcoin network power demand, and, at time of writing, estimates the annualised energy consumption at 98.18 terawatt hours for the current year. That is a higher rate of energy consumption than the Philippines, Finland, and Belgium. 

Despite this, figures within the industry assert that Bitcoin – and crypto mining in general – is being unfairly made a scapegoat for energy shortages in Europe. Brad James, crypto expert and founder of The Mining Conference, says that he believes crypto mining is being targeted because government’s struggle to contend with the fact that Bitcoin is decentralised and independent from typical global financial institutions, and therefore the authorities have no way of controlling it. 

“Look at what has happened in China, for example. They tried to control it by outlawing it and eventually banning mining earlier this year. But we know for a fact that mining is still happening in China, and there are still plenty of transactions happening in Bitcoin. So, what that has shown the world is that, if one of the most policed states in the world cannot control it, then other nation states have very little chance of doing it either. And that is scary to those politicians who are enthralled by central banks, because they will lose out on tax revenue for every transaction using Bitcoin. That, I think, is the root of the current discussion about Bitcoin.” 

Energy supply and Bitcoin sustainability 

James asserts that banning Bitcoin mining would have very little effect on European energy supply.  

“Europe has already made catastrophic decisions on energy supply – they have been cutting energy production resources for years, including their capacity for nuclear energy. They chose to lessen energy production, in a world where energy consumption has continuously gone up year after year. That does not make any sense.” 

Figures show that, in the case of nuclear, the EU’s consumption of energy from this source has trended downwards since 2011 – from 7.99 exajoules to a low of 6.2 exajoules in 2020, before rebounding slightly to 6.62 exajoules in 2021. However, the share of renewable energy consumption has drastically increased over a similar time period. Between 2012 and 2020, figures rose from 14.2 per cent in 2012, to a peak of 21.1 per cent in 2020.  

The increase in renewables is one of the reasons why James says banning mining would be a detriment to the continent. While Bitcoin is energy intensive, he argues that it can create grid stability by utilising energy created at off-peak hours which would otherwise go to waste. 

“Why not leverage things like Bitcoin mining, which actually create a positive asset that can be used to generate economic value? I think people are looking at this the wrong way, because we are now at the point where we can measure the energy used by specific machines, and come up with efficiencies. For example, energy that is not used is cranked out heat. Can we leverage that heat for heating homes, or for agricultural applications? How do we leverage the vibration of these machines to generate residual energy? So, I think we are coming at this from a completely different angle to the authorities.” 

In a recent post, Marieke Flament, CEO at NEAR Foundation, also highlights ways in which blockchain and crypto are cleaning up their operations. 

One of the biggest advances, according to Flament, is a fundamental shift in the way the industry generates crypto tokens. A major environmental win for us happened this year when Ethereum – the world’s second biggest blockchain – decided to follow in the footsteps of NEAR, Cardano, and others, and move to the aforementioned ‘Proof-of-Stake’ mechanism to process transactions on the network. 

Proof of Stake does not require mining. Instead, users can either become validators or delegators. Validators must stake their tokens to become a validator. Once they become part of the validator group, they are nominated at random by the network to verify transactions. Delegators, meanwhile, lend their tokens to validators and receive a reward in return. It is a decentralised, community first approach to keeping a network secure. On NEAR, this is all achieved by being carbon neutral. 

While new cryptocurrencies are developing eco-friendly tokens, reducing intensive mining practices and enabling digital payments, the old world of finance is still mining copper, zinc and nickel to mint physical coins. According to the American Council on Science and Health, mining and transporting pennies alone has produced 48,000 tonnes of carbon dioxide emission in America – a very high number when you consider that one gallon of diesel fuel produces 23.8 pounds of carbon dioxide fuel when burned. 

Measuring outcomes 

Although concern for energy consumption during the coming winter is understandable, James argues that businesses should be measured on their outcomes, rather than inputs. 

“The argument for Bitcoin mining – and Bitcoin in general in terms of this decentralised blockchain network – is that it creates true economic freedom, and the ability for people to build wealth, own their own money, and learn financial literacy. That can help people avoid relying on social services and social welfare, and build communities which are great places to live in the long-term. If that is stymied for arbitrary, short-term objectives, you just create headaches which will have to be addressed further down the line anyway. So, I caution the regulators, and I caution the people setting policy to really look long-term – not just 12 months, but 10-years, 30-years down the line.” 

And if mining is banned? According to James, companies will most likely migrate to the United States. 

“That would be a big win for hosting sites based in the US, and we have been helping build a lot of what we call ‘micro minories’, which are facilities which are between one and 10 megawatts in size – very small, decentralised facilities that can help stabilise the grid,” explains James. “The flip side is that, in Europe, the vast infrastructure that has already been built to host crypto mines sit empty, generating no capital while costing the taxpayer millions in upkeep.  

“There are a lot of technical hubs also popping up in Europe because of Bitcoin, and Bitcoin mining. Without that, you remove that potential draw for these technical experts to move to those economic centres. It just does not make any sense to me.” 

While there is obviously more to do in terms efficiency and environmental concerns – as there is in all commercial and industrial settings – maybe it is time to shake off public misgivings about cryptocurrency as well.  

“For me, it is about taking accountability for your choices,” concludes James. “I think that throwing the blame onto Bitcoin mining for their own failures in addressing an obvious potential flashpoint in power demand should there be any kind of disruption is European politicians attempting to avoid being held responsible for their actions.” 

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