Bitcoin mining may not be the great evil we’ve been led to believe, says Daniel Latte.
Since China’s ban, the Bitcoin Mining Council reports a significant increase in the use of renewable energy. In some circles, they have been questioned due to the fact that it relies on self-reported data.
To avoid this criticism, I decided to do an independent analysis based on publicly available information, statistics and news reports to confirm the impact on the quantity of the Bitcoin network using renewable energy.
When uncertain, I assumed a worst-case scenario (ie: I assumed in the direction of greater use of fossil fuels). This means that finding a 10.9% increase in renewable energy use across the Bitcoin network is a minimal increase.
Bitcoin Mining: Erroneous Reports
Before digging into the weeds, how did the reports that it had turned less green (reported widely in the NY Times among others) get so wrong?
In summary: they relied on a single study, which had serious flaws, the main ones being
1. Incorrect analysis of both the net change in hash power and the renewable energy mix before and after the ban in China
2. Failure to account for 47x reduction in mining in Iran (98% non-renewable grid) combined with 4x growth in mining in Canada (67% renewable grid)
The study also relied heavily on information that was accurate at the time, but has since changed:
3. Migration of minors to Kazakhstan
Bitcoin mining: analysis
1. China’s Mining “Ban” Was Actually a Fossil Fuel Ban
As a nation, China is now the world’s largest contributor to green bitcoin mining.
How do we know this?
First of all:
China’s global hashrate is still above 20% according to 2 separate sources (China’s own cybersecurity Qihoo360 and the University of Cambridge which estimates that 21.1% of mining still occurs in China as of January 2022.
A source who wished to remain anonymous, owner of a China-based bitcoin mining operation, confirmed:
“Bitcoin mining in China using hydropower and solar power is widespread. But if you try to mine Bitcoin using coal, you will be crushed because of central government emission targets. The ban in China has done is eliminate all coal-based bitcoin mining in China that was happening for 9 months of the year.
Second: 9 months of the year? Yes, it’s true. 9 months.
Many people assume that mining companies in China used hydroelectricity for 6 months of the year and coal for the other 6 months.
However, this is not correct. Cheap hydropower was used by bitcoin mining companies only during the wet summer months: a time when sudden heavy rainfall results in more generating capacity than hydroelectric plants can find customers for. which obliges them to reduce their energy consumption. Bitcoin miners would only use this energy when it would otherwise have been reduced (wasted).
Here are the graphs where we see that in various parts of China, a constant pattern of very heavy rainfall for a period of about 3 months.
Because China owned almost half of the Bitcoin network by hashpower before the ban, this coal-based power made the entire Bitcoin network >30% more fossil fuel-based.
Moving this massive amount of coal-based bitcoin mining, primarily to the US and Canada, has decarbonized the bitcoin network by a sizable amount.
But didn’t a large part also go to Kazakhstan? Yes at first, but it didn’t stop there. This brings us to our next point.
2. Kazakhstan didn’t end up being the most important factor that most people imagine
It is important to calculate the Kazakh hashrate because 99% of their network is based on fossil fuels. Thus, a permanent massive relocation to Kazakhstan would indeed have had a non-negligible impact on the ecological character of Bitcoin mining.
However, since August 2022, Kazakhstan’s contribution to the global hashrate is rapidly shrinking to the level it was before the ban.
Here’s why:
As of March 21, Kazakhstan accounted for 7.4% of the global hashrate. It briefly rose to 18.1% on August 21.
But had already reduced to 13.4% on January 22.
Since then, I estimate that the Kazakhstan hashrate has fallen another 3.8% minimum.
Here is the logic behind this estimate:
Since January 22, Kazakhstan has suffered power outages, a 1-2.5 c/KWh tax on crypto-mining (enough to make many operations unprofitable), the seizure of 67,000 illegal mining machines and the loss of 202 MW of electricity in a single raid. of 13 mine sites, followed by a second raid on 106 mine sites.
The first raid alone on 13 sites (power of 202 MW) would have reduced the Kazakh hashrate by about 5.4 PE (2.5% of the global hashrate) assuming that 80% of the machines were S19Pros.
Assuming that the second raid of 106 mining companies was in total only half the size of the first 13 mining companies because they targeted the “long tail”, the total hashrate loss in these 2 raids would have been 3, 8%, reducing the current Khazak hash rate to 9.6%, slightly above the level before China’s ban.
3. The explosion of Bitcoin mining in Canada; it’s decimation in Iran
Iran has a grid that is 98% based on fossil fuels. According to the University of Cambridge, almost all mining operations have now ceased. (Falling from 4.7% in March 21 to 0.1% in January 22).
The loss of Bitcoin mining to Iran alone removes 4.5% of the Bitcoin network’s fossil fuel usage.
In contrast, over the same period, Canada has significantly increased its contribution to the global hashrate. From 1.6% in March 21 to 6.5% in January 22.
This is important because Canada uses 67% renewable energy. This increase in Bitcoin mining in Canada alone makes the Bitcoin network 3.3% more renewable.
Net greening due to Iran and Canada hashpower changes: +8.3%
When we factor in these plus migration to the US and recalculate the overall renewable energy mix, taking into account that international grid-based electricity is currently green at a rate of approx. 0.7% per year globally, and the fact that there is more off-grid bitcoin mining based on renewable energy than 18 months ago (Iris, Dame, Green Mining Capital to name a few). to name a few), the global Bitcoin network is at least 10.9% more renewable-based than before China’s mining ban.
Bitcoin Mining: Future Trends
The future looks positive for the continued greening of the network, for three reasons.
1. Individual businesses are starting to commit to becoming 100% carbon neutral
Marathon, which could become the world’s largest Bitcoin mining company by hash rate by mid-2023 based on their current new ASICS purchase agreements, has pledged to move from 70% renewable 100% renewable by the end of 2022. With the volume of PE promised by mid-2023 (23.3 PE/second), this would represent 10% of the network coming from a 100% renewable source, greening network as a whole by an additional 2.7%.
Importantly, Marathon followed through on its commitment by terminating its contract with its main (non-renewable) electricity supplier earlier this year.
2. A significant portion of the new hashrate is carbon negative or renewable
For example, I am currently in contact with 20 new bitcoin mining companies. Of these companies, 90% of them are either carbon negative or 100% renewable (8 are carbon negative, 10 are renewable).
3. Carbon negative mining is increasing exponentially
We have gone from 1 to 12 Bitcoin mining companies mitigating methane since the start of 2021. This is significant because methane heats up 84 times more than CO2 over a 20-year period. Removing methane from our atmosphere is therefore the strongest action we can take to immediately curb climate change.
About the Author
Daniel Batten is a ClimateTech investor, author, ESG analyst and environmental activist who previously founded and ran his own technology company.
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