Bitcoin is a virtual currency with a very physical footprint in the form of the big, power-hungry facilities that have sprouted up to mine it. The size of this footprint and its impact on the environment have become a hotly contested issue: The network’s power consumption this year will likely be a whopping 91 terawatt-hours, roughly equivalent to Pakistan’s, according to BloombergNEF. Microsoft Corp. co-founder Bill Gates and Tesla Inc. Chief Executive Officer Elon Musk have criticized the industry for its addiction to cheap power, which is often derived from fossil fuels. Not exactly in tune with our net-zero times.
The pushback from cryptocurrency miners is that they’re increasingly shifting to renewable energy sources and moving out of coal-heavy countries like China — which has introduced a blanket crypto ban. They also say they will do the world a favor by encouraging new solar and wind farms centered around Bitcoin.
That’s all well and good in theory, but in practice there’s a far more urgent problem crypto miners have to face: a worldwide energy crisis as nations fight over limited natural gas supplies to fuel the post-pandemic recovery and refill depleted stocks ahead of winter. At a time when countries are pointing the finger at each other and panicking over heating bills, who wants a Bitcoin mine in their town?
The problem isn’t just Bitcoin’s global impact but also how it’s felt locally. Its network represents an estimated 0.5% of worldwide energy consumption, meaning crypto-fans can always point to bigger drains on the system. Yet at the level of a local power grid, at a time when supply is low and demand is high, having an outsized buyer can raise costs for everyone else. Media reports suggest that is what’s happening in Kyrgyzstan. The Central Asian nation is raising electricity tariffs for crypto miners — and other sectors like gold mining — to account for “energy intensity.”
The estimated burden for the community of a crypto miner coming to upstate New York was recently the subject of an academic study co-authored by Matteo Benetton of the Berkeley Haas School of Business. He says the estimated benefits of more taxes and jobs paled in comparison to extra power costs, adding up to an estimated $165 million for small businesses and $79 million for individuals annually. The study used surges in Bitcoin prices and electricity demand curves to estimate implied extra costs. Scaled up nationally for the US, they reach $1 billion.
It may well be that the US dodges the worst of the gas shortage seen elsewhere. But the crypto diaspora shouldn’t rest easy given the frustration already on display. Colin Read, the former mayor of Plattsburgh, New York, told CNBC in July that welcoming Bitcoin miners during his tenure had generated “a handful” of jobs — versus a heap of uproar from residents over spiking electricity prices. The city was diverting 10% to 15% of its supply to miners, putting pressure on the grid and everyone else. In 2018, the city passed a moratorium on new crypto mining for one year.
Texas is one state that has touted the economic opportunity of attracting crypto mining firms, which in turn are keen to take advantage of the state’s cheap power. But we’ve already seen the impact that last year’s winter crisis had on its fragile grid, pushing costs up and triggering outages. This knocked out many crypto mining facilities. It’s not clear whether the state is ready to cater for a new influx of ex-China miners — or if the trend of renewable crypto farms selling energy back to the grid will be sustainable.
Nobody’s suggesting that Bitcoin is the cause of the current global supply crisis, any more than hedge funds trading commodities are to blame for gas shortages.
But with one Bitcoin trading for over $50,000, and miners in some cases reporting a margin of 67.5% and $7.5 million in quarterly profit, they will have little incentive to slow down even if they find themselves exposed to rising power prices. Elsewhere, the pain is on display: European industrial giants are shutting plants or curtailing output, UK energy suppliers are going bust and Americans are being warned of a heating “sticker shock.” It will be a cold winter for the mining lobbyists at this rate.
Bloomberg
