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The hidden cost of mining Bitcoins

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Today in Norilsk, the world’s most northerly city, the weather is minus 36 degrees Celsius, about average for the region where conditions can reach 50 below.

The Russian city within the Arctic Circle is known for its heavily polluting nickel mines, and acid rain and smog are common. But now, a new kind of mining is in town. Bitcluster, a Russian cryptocurrency start-up, has erected a giant scrap metal B - for Bitcoin - above a set of warehouses packed full of 5000 digital coin mining rigs.

As Bitcoin becomes more mainstream, the environmental cost of mining new coins is becoming a concern. Credit:Bloomberg

The benefit of being this far north, according to Bitcluster, is energy is cheap, around 0.03 cents per kilowatt hour since the city has its own power supply. It is also deathly cold, which cuts the cost of ventilating and cooling its mining kit as it heats up. “We delved into the study of electricity tariffs in this Arctic region and decided to do it,” says Sergey Arestov, co-founder of Bitcluster. “We devoted the entire year 2020 to the active construction of the data centre, and despite the pandemic, we managed.”

While it may seem like an extreme way to ensure cost-efficient cryptocurrency, it also exposes the vast energy demands needed to mint new Bitcoin - and the growing environmental cost.

Bitcoin miners use increasingly powerful, specially designed computer equipment, or rigs, to verify Bitcoin transactions in a process that produces newly minted Bitcoins.

“If you are using Bitcoin you do not see the environmental cost,” says Alex de Vires, founder of Digiconomist, which tracks Bitcoin emissions. “There are 319 kilograms of carbon emissions per transaction, equivalent to watching over 50,000 hours of YouTube. It is an insane amount.” Cryptocurrency mining is the hidden process that powers the transactions that keep accounts on cryptocurrency apps such as Coinbase ticking along. The process is built into the very fabric of digital currencies.

In its simplest terms, Bitcoin transactions are verified by a huge network of independent computers. They perform complex calculations in a process called Bitcoin mining. Once the calculation is complete, the network is rewarded by new Bitcoin.

“You can compare it to a lottery. Every 10 minutes a ticket is drawn, and lucky miners will have the winning ticket,” says Michel Rauchs, of the Cambridge Centre for Alternative Finance.

At first, mining was easy. It could be done in a bedroom with a graphics-processing computer. There were almost no Bitcoin miners out there, so early miners were able to mint thousands of coins. Now, there are thousands of miners and very few Bitcoins left. This makes the calculations vastly more difficult. The more difficult the transaction, the more computing power is needed, with factories filled with graphics processors and “Antminer” rigs crunching numbers and burning power.

According to Digiconomist, around 77 terawatt hours of electricity annually are needed by the Bitcoin network, roughly the electricity used by Chile, emitting 37 megatons of carbon, the same as New Zealand.

Miners have turned to wind or geothermal energy power to avoid traditional power costs.

There is a growing environmental cost to mint new bitcoins..Credit:AP

Peter Wall, of London-listed miner Argo Blockchain, says its own operations rely on hydroelectric power in Canada and the US. He says: “The sector is still maturing and I expect we will see a lot of miners follow our lead.”

In Iceland, meanwhile, Genesis Mining, led by Marco Streng, has been harnessing the northern nation’s geothermal energy to power its data centres.

However, most of Bitcoin’s mining power is believed to come from fossil fuel sources. China-based Bitcoin miners control more than 60 per cent of all Bitcoin processing power, and coal accounts for half of Chinese energy consumption. Bitcoin mining has even been blamed for blackouts in Iran.

While Bitcoin’s carbon emissions may be troubling now, they are likely to get worse, says De Vires.

Every time the price of Bitcoin spikes - it hit $US42,000 ($55,000) in January - demand for mining goes up. The most popular Bitcoin processors, Antminers made by China’s Bitmain, are expected to be out of stock until August due to demand and are selling for more than $US3700 each, having doubled in price.

Cambridge’s Rauchs adds that as more traditional funds invest in Bitcoin they are going to have trouble explaining its environmental problems to investors. He adds: “On the one hand, proponents of Bitcoin say it could save the world, but on the other there are those who say it has no utility and is contributing to climate change. The truth is somewhere in the middle.”

Streng says he believes mining can be used for energy innovations, since mining kit can easily be moved close to renewable plants. Genesis, for instance, has been working on a renewables project in Sweden that can recycle waste data centre energy to warm greenhouses for crops.

De Vires, meanwhile, believes that although the problem with dirty Bitcoin production is mounting, there could be alternative technology developed.

For now, however, such change is unlikely. De Vires conservatively estimates the energy demands of Bitcoin could double in 2021. As the cryptocurrency provokes more mainstream interest, its miners are going to be digging deeper.

https://www.smh.com.au/business/markets/dirty-factories-the-hidden-cost-of-mining-bitcoins-20210201-p56yag.html