Bitcoin advocates have long predicted the cryptocurrency’s rise would transform the world for the better. Twelve years on from its emergence, critics say the process of creating bitcoin is now doing quite the opposite — namely, endangering the world with its environmental impact.
The issue has come to a head in China, which is home to nearly two-thirds of the world’s bitcoin mining, according to data for last year from the Cambridge Centre for Alternative Finance. In recent weeks, China has become the first major nation to move against cryptocurrency miners, acting partly on concerns that the highly energy-intensive process stands at odds with the nation’s ambitious climate targets.
After China’s Vice Premier Liu He vowed to “crack down on bitcoin mining” in a speech in May, the northern province of Inner Mongolia — where about 8 percent of global bitcoin mining took place last year — followed suit with a raft of anti-mining policies, citing environmental issues. Sichuan, another mining center, has told miners to leave the province after September, according to recent report published in TechNode.
China’s turn against bitcoin mining is the latest sign of its regulators’ suspicion of cryptocurrencies it doesn’t control. China first tried to stamp out cryptocurrency trading in 2019 and last month banned financial institutions from providing services associated with cryptocurrency transactions. Meanwhile, China’s central bank has been rolling out its own state-run digital currency.
Authorities elsewhere are also concerned about cryptocurrencies. A global banking regulator released a report last week that called for stricter rules and the U.S. Treasury has taken steps against crypto recently.
But while China’s previous steps against bitcoin and its ilk were mainly driven by worries over financial risk and online crime, its recent measures are notable because they are, in part, motivated by environmental concerns. In May, Iran also moved to ban mining for the summer months, following repeated blackouts.
“Mining consumes a lot of energy,” says Wayne Zhao, chief operating officer of TokenInsight, a Beijing-based crypto research firm. “And if you use that electricity to mine bitcoin, you aren’t generating anything useful.”
China’s apparent determination to drive out bitcoin mining has already created further instability in the often volatile cryptocurrency world. Its recent moves sent the global bitcoin price into freefall, dropping at one point to nearly $31,000 from a recent high of over $60,000.
Bitcoin mining, a key element of the cryptocurrency’s ecosystem, is based on a system called ‘proof of work’. Miners repeatedly run numbers to solve a mathematical puzzle using specialized devices known as ‘application-specific integrated circuits’ (ASIC). The process results in more bitcoin being added to the system: miners in turn are rewarded with some of the currency.
Solving these computational puzzles requires so much electricity that mining a dollar’s worth of bitcoin is twice as energy intensive as extracting a similar amount of gold or copper, according to a 2018 Nature paper.
And as more mining operations spring up, increasing competition, the energy required to mine one bitcoin has only risen. Before the recent crackdown, bitcoin mining was expected to generate over 130 million metric tons of carbon emissions annually in China by 2024, according to another Nature study. That would exceed the amount of carbon that countries such as the Philippines or the Czech Republic emit each year.
China’s cheap electricity was initially a key draw for bitcoin mining enthusiasts, along with its strong supply chain — Bitmain and MicroBT, the two largest makers of ASIC mining devices, are both Chinese companies. As the popularity of cryptocurrency has surged globally, bigger Chinese companies have piled in.
“There is a new wave of publicly listed companies that are now building out mining even though they had nothing to do with it before,” says Ethan Vera, chief operating officer at Luxor Technologies, a North America-based mining pool. He cites two companies — Urban Tea, a Chinese specialty tea manufacturer listed on Nasdaq, and 500.com, a Chinese lottery company listed on the New York Stock Exchange — which have recently expanded into cryptocurrency mining.
These and other bitcoin miners have taken advantage of China’s seasonal variations to find low-cost electricity sources. In the rainy summer months, they typically move to western provinces like Sichuan and Yunnan to use government-subsidized hydropower. Come winter, they pack up their mining devices and journey northwards to regions such as Xinjiang and Inner Mongolia, where they rely on coal-powered electricity.
Hosting bitcoin mining operations may have once seemed like an economic boon for these remote provinces. Now it is a liability, thanks to the strict energy-use targets the central government has handed down to each province, part of the Chinese government’s effort to reach carbon neutrality by 2060.
“The direct reason for this [the province cracking down on bitcoin mining] is that Inner Mongolia failed to reach its energy targets, and very few provinces didn’t meet the targets,” says Yang Zhou, a China advisor at Agora Energiewende, a Berlin-based think tank.
[Bitcoin] mining is fun at a small scale, in a college dorm. But less so when you are using the equivalent of energy from small nations.
Tim Swanson, head of market intelligence for Clearmatics, a London-based blockchain company
China has tried to stop bitcoin mining before, and some analysts think miners could try to continue operating in secret. But Alex de Vries, a digital currency economist who runs the blog DigiEconomist, says that the huge electricity footprint of the mining operations means the authorities can easily shut them down. “If you have something like that going on your grid, it’s hard not to spot it,” he says.
De Vries expects that many Chinese miners will move to nearby countries with cheap electricity like Kazakhstan. The week after Liu He’s announcement, BIT Mining Limited, a New York Stock Exchange-listed company, announced a $9.3 million deal to construct a mining center in Kazakhstan.
That’s a worry, because mining in a country like Kazakhstan is even more reliant on coal-powered electricity than in China. “Just China banning mining won’t fix the environmental problems,” says de Vries.
One way to solve the environmental challenges posed by bitcoin mining would be to transfer bitcoin to a ‘proof of stake’ system, as Ethereum, another popular cryptocurrency, is currently doing. ‘Proof of stake’ does not require an electricity-intensive mining process; instead, coins are added to the system based on users’ existing holdings of the cryptocurrency.
Many doubt that the bitcoin community will all agree to such a switch, however. To Tim Swanson, head of market intelligence for Clearmatics, a London-based blockchain company, this is disappointing.
“Mining is fun at a small scale, in a college dorm,” he says. “But less so when you are using the equivalent of energy from small nations.”
Katrina Northrop is a journalist based in New York. Her work has been published in The New York Times, The Atlantic, The Providence Journal, and SupChina. @NorthropKatrina