“The amount of energy that Bitcoin consumes is concerning. Its transactions use more than [entire] countries [consume], and this figure is bound to rise because of the asset’s growing mining difficulty that demands more power to execute,” said Edith Reads, author at TradingPlatforms, in a January article in The National.
Digital currencies, which refer to independent cryptocurrencies and the eventual government-issued versions, aka “govcoins,” have become a global phenomenon. Accordingly, they have raised concerns beyond the realms of finance and economics, including the environmental impact of cryptocurrency mining.
Critics argue that the electricity needed to mine digital currencies often comes from fossil-fuel power plants, making climate change worse. But supporters say the mining process can not only run on green energy, but it also has the potential to be a sustainable alternative energy source.
As much of the world looks to reduce carbon emissions, questions about whether cryptocurrency is ultimately green or unclean will be a crucial determinant in its adoption, proliferation, and standardization by governments worldwide, including Egypt’s.
Egypt is one of the many countries whose annual energy consumption is less than Bitcoin transactions and mining. It has a nonexistent digital currency infrastructure, but it has a growing renewable energy industry and currently a surplus of power. That could be a winning combination if Egypt decides to embrace govcoins or other digital currencies.
Mining heat
Ray Sun, head of finance at Exponential Digital, a subsidiary of one of North America’s largest bitcoin mining firms PrimeBlock, cryptocurrency mining creates new digital currencies. It then adds them to the blockchain, a digital ledger keeping track of all such trades.
To do this, miners use powerful computers to solve complex mathematical equations. When miners solve one of these equations, they’re rewarded with cryptocurrency. That is how “new digital currencies are distributed and how transactions are verified, and the integrity of the immutable transactional database of crypto and its holders is maintained,” said Sun.
At first, digital currency miners could do that independently with rudimentary facilities. However, mining today is an energy-intensive process that requires state-of-the-art hardware and software, as well as massive data centers.
Bitcoin is the most widely circulated and valuable cryptocurrency and also the one that requires the most energy to mine. Bitcoin mining alone uses 195 TWh (terawatt hours) of electricity annually, enough to power Thailand for one year.
Such high energy consumption “means that mining operations have to keep low energy costs a priority,” wrote Marco Streng, CEO of the Bitcoin mining company Genesis Digital Assets, for BitcoinMagazine.com in November. Since physical locations don’t limit mining, many miners seek regions to “build data centers that offer cheap, and ideally renewable, energy sources,” said Streng. “Currently, sustainable energy sources like hydro and wind are not only the cleanest, but the most cost-effective for mining operations to take advantage of, and ones that have excess energy to spare.”
The massive amount of energy needed for mining operations produces large amounts of heat, requiring data centers to have commercial-grade cooling systems. That generated excess heat needs an eventual outlet, which begs the question: Can it be reappropriated for sustainable purposes?
Nordic countries lead the way in using digital currencies to drive green investments. In a BitcoinMagazine article, Mattias Vesterlund, a senior researcher at RISE, said greenhouse farmers could use recycled excess heat from crypto mining to grow food. He explained: “1 MW (megawatt) data center would have the ability to strengthen the local self-sufficiency up to 8% with products that are competitive on the market.”
An initiative by Genesis Digital Assets uses a 600 kW air-cooled data center container to feed heat to a 300-square-meter greenhouse through a duct system. The heat would keep the greenhouse, located in Sweden, at a comfortable 25 degrees Celsius (77 degrees Fahrenheit) year-round, in a region where temperatures can fall to minus 30. Beyond fruits and vegetables that recycled heat can be used for fish, insects, algae farming, etc.
Energy solution?
Different countries are adopting different approaches. In Iran, the Ministry of Industries, Mining and Trade has issued more than 1,000 licenses to crypto mining farms. After temporarily banning the mining of digital currencies to relieve pressure on the power grid, Iran now sees it as a way to help end blackouts by helping the country transition to reliable, sustainable, and cost-effective renewable energy, supported by the higher rates farms pay for electricity.
For developing economies “to grow, they have to expand their electrical infrastructure,” Alex Gladstein, chief strategy officer at the Human Rights Foundation, said in a Forbes article in December. “But when they build power plants to try to capture renewable energy in remote places, that power often has nowhere to go.”
Gladstein believes Bitcoin could be an incentives game-changer. “New power plants, no matter how remote, can generate immediate revenue, even with no transmission lines,” he said. “By directing their energy to [mining operations] and turning sunlight, water or wind into money … any excess energy can be directed to mining until communities around the plant catch up.”
Put another way, Iran can mitigate the financial and logistical hurdles of an energy crisis and the green revolution by “buying mining machines and switching them on whenever its new power plants have energy to spare,” explained Martin Leo Rivers, author of the Forbes piece.
Many governments are beginning to acknowledge that digital currencies have massive potential, other than replacing fiat currencies in online transactions, as a sustainable alternative energy source. However, they are banning unregulated ones until their central banks approve, develop and issue govcoins.
Energy applications for digital currency mining are picking up steam across the developing world in places like East Africa. A lobby group called “Project Mano” encourages Ethiopia’s government to mine Bitcoin with surplus energy from the country’s network of hydroelectric, wind and solar plants. In El Salvador, President Nayib Bukele has expressed support for large-scale Bitcoin mining using geothermal energy from volcanoes.
Streng believes that turning data center heat into sustainable energy “offers a use case for decentralization of energy production.” With more of these projects developing, “it’s forcing mining operations to reassess their role in giving back, as they already have ready ways of providing sustainable energy to the communities around them.”
While greenhouses powered by recycled heat may seem like a small-scale initiative, it sets the stage for large-scale projects that will likely come with governmental backing. Streng said we must not “fault [digital currencies] for their energy usage. Encourage it because it may be the path to a more sustainable future.”
Sustainability key
Digital currency mining is an energy and hardware-intensive process that releases a lot of waste into the environment, according to Reads of TradingPlatforms. A significant proportion of its mining activity uses non-renewable energy sources, like coal. These resources are affordable and attractive to miners but leave a huge carbon footprint on the environment.
But crypto mining’s overall impact within the bigger picture is hotly contested. This year, the cryptocurrency exchange platform Coinbase said the energy wasted by “on-but-inactive” household devices annually in the U.S. could power Bitcoin mining for 18 months.
Lindsay Kelleher, senior policy manager at the Blockchain Association, in an article for BitcoinMagazine.com, wrote: “Many services that society implicitly or explicitly deems worthy of their high energy use, such as modern air travel, big tech and same-day shipping, are not criticized with nearly the same fervor as [digital currencies’] consumption.”
Exponential Digital’s Sun noted in an interview with the Australian website Stockhead, “The traditional banking system actually has a far bigger environmental footprint than digital currencies. Bitcoin, for example, consumes less than one-fifth the electricity of bank branches and ATMs [worldwide].”
Anthony Pompliano, a co-founder of Morgan Creek Digital, told CNBC last month, “There’s a linear relationship between energy consumption and the U.S. dollar system. In order to support more users and more transactions, we need to consume more energy. We need more data centers, more bank branches, more ATMs, et cetera.”
Digital currencies don’t have that same linear relationship. “Regardless of how many transactions fit into a block of transactions, energy consumption is the same,” Pompliano said. “So as it scales, [digital currencies] become more and more efficient because you can pack more economic value into each block, whereas in the legacy system, as you scale, you consume more energy.”
Sun said that sustainable mining is key to the future of all digital currencies: “With mining shifting to more regulated, sustainability-focused countries, I see a future where legitimate mining companies continue to thrive and innovate, with ESG-focused (environmental, social and governance) players being recognized and rewarded by the market.” he said in the Stockhead article. “Mining can be both profitable and sustainable. Publicly listed mining companies will face increasing market discipline from institutional investors and other stakeholders to drive ESG progress.”
Environmental sustainability measures, such as reducing energy consumption, recycling, and using renewable energy whenever possible, will remain crucial for digital currency mining to not only survive but gain traction across the planet. To that end, the Bitcoin Mining Council, led by the CEOs of top North American crypto mining companies, was established to promote energy transparency and improve efficiency. In addition, the Crypto Climate Accord initiative intends to make the entire crypto industry achieve net zero emissions by 2040.
As countries chart their courses in the “Wild West” of digital currencies, Egypt is at risk of lagging behind global benchmarks in its adoption and formalization. Yet, judging by developments in other developing and comparable developing nations, Egypt stands to gain much from investing early in a digital currency infrastructure to meet its economic, energy, environmental, and fiscal needs and ambitions.
