Why Crypto Going Green is Easier Said Than Done?

Why crypto going green is easier said than done? Typically, crypto mining involves thousands of computers, called the mining rigs, competing with each other and around the clock to create new units of a crypto coin.

They compete with miners spread all over the world to find a solution to a complex mathematical puzzle fast and first to get rewarded for their efforts with a new coin.

These miners ensure the security of the network and the authenticity of a transaction by a consensus protocol called Proof of Work or PoW.

It is used by most of the crypto coins including Bitcoin.

With the growing number of miners trying to authenticate a transaction on a blockchain network before it is added to the chain, the difficulty level rises.

This calls for more computational power and consumption of a higher amount of electricity.

This amount of electricity can be as much as the amount of energy consumed by a small country.

Governments all over the world are concerned about this extensive use of electricity and countries like China have even gone a step ahead to ban cryptocurrency mining outright.

However, with the growing popularity of crypto mining and along with it the growing concern of the environmental impact it is creating has forced several major crypto mining companies to go green.

However, going green in crypto mining is easier said than done, and there are several reasons to say so.

This is an article that will tell you about the reasons so that, if you are also planning to ‘go green’ you know exactly what you are getting into.

Therefore, read on.

Why the Crypto Going Green is Easier Said Than Done?

Why Crypto Going Green is Easier Said Than Done

Whether the crypto mining companies move to colder regions to reduce the cooling costs and thermal issues with their mining rigs or to regions where electricity is cheap, the growing concerns of impacts on the climate has been and will always be there.

Typically, in the traditional crypto mining process, electricity from the local grid is used.

As a result, the crypto miners are the most profitable assets to the local electricity grids.

When the consumption of electricity by the general public is low, it is the crypto miners who ensure a steady source of cash flow to the local electricity grids.

However, this mutually beneficial relationship between the crypto miners and the local electricity grids has some serious consequences on the environment.

Most people think, and it includes the media, the politicians, the governments as well as the most vociferous critics of the crypto industry that crypto mining is really cooking the Earth.

Even the crypto miners know that they are gobbling up the precious energy of the globe and contributing to the ever depleting fossil fuel and rise in greenhouse gases and carbon emissions.

However, they cannot do without quenching the seemingly unquenchable thirst of the mining rigs.

Considering the figures at a global scale, the amount of energy consumed by Bitcoin alone during mining is 136 terawatt-hours per year, according to an estimate by the Cambridge University Center for Alternative Finance.

This amount is the same as the amount of electricity consumed by small countries like Sweden, United Arab Emirates and Argentina.

The lawmakers of the United States and Europe are also concerned about the environmental impacts caused by crypto mining.

In fact, a lot of them voted against PoW mining, typically used by Bitcoin and several other crypto blockchain networks.

Others voted down and therefore the PoW mining escaped its termination.

The lawmakers however suggested that a suitable alternative must be found so that the impacts on the environment can be reduced, if not eliminated.

Therefore, the crypto miners look for cheap power in the form of renewable energy such as solar and wind power.

Apart from the crypto miners, the crypto projects also look for alternatives that will reduce the use of energy during the mining process.

For example, the transition from PoW consensus to PoS or Proof of State consensus protocol of Ethereum.

With all these criticisms and concerns, the crypto mining industry had no other alternative but to move toward renewable sources of energy dramatically to meet their energy needs.

According to the September 2021 estimate of The New York Times, as of now, Bitcoin mining in particular is powered by renewable energy to the range of 40% to 75%.

The December 2021 report of the crypto asset management firm CoinShares however tells a different story and a more detailed one at it.

It says that renewable energy sources contributed to about 30% of the total energy used by the Bitcoin network while natural gas contributed to 24% of the total energy consumed and nuclear power contributed to 11% of it.

The CoinShares report also found that, though carbon emissions due to crypto mining have been rising along with the crypto mining industry overall, it has decreased in comparison to the terahashes of computer power and megawatt hours of energy used.

Therefore, the cleaning up act of crypto mining is restricted to the process of decarbonization only, as of now.

However, even then the crypto industry has helped the energy producers in building a more renewable energy that can be used by the rest of the society.

And, as for the crypto miners, they have also been benefited by the renewable energy sources significantly.

Since renewable energy is cheaper than fossil fuels, it has helped the crypto miners to preserve their margin of profits making it economically sensible to move towards it.

Also, the price of fossil fuels is vulnerable to external conditions such as war and political disturbances which gives a perfect reason to more and more crypto miners to move towards renewable energy sources.

Another significant incentive for the crypto miners to move towards renewable energy sources is that it allows them to reduce the cost of capital.

This is because they can attract institutional investors towards it that operate under Environmental, Social and Governance or ESG mandates which is a criterion of investing looking at the social goals in addition to financial gains.

Still, it is not easy to make such a transition to renewable energy in crypto mining.

One of the most significant reasons is that solar energy production is not constant.

It cannot be generated at night and when the sky is overcast.

As for wind power, there can be a sudden surge in the production of energy due to a storm or fall when there is no wind blowing at all.

Moreover, crypto miners still choose to buy carbon offsets.

This is a very easy solution in which they get transferable credits for lowering emissions which they can sell on the market.

Therefore, the miners should be incentivized to join the green crypto mining process. Now the question is who is going to do that.

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Another issue is that crypto miners also look for behind the meter solutions to use renewable energy to power their mining rigs.

This is a process in which the electric energy producer connects the crypto mining rigs near to the energy asset.

This ensures that the power goes directly to the rigs without passing through the grid and its meters.

A huge amount of renewable energy in the world is curtailed or stranded.

This means that there is no demand for it in the locality and there is also no good way to transmit this energy to regions where there is a high demand.

Therefore, if no suitable way is found to transmit this energy over long distances the producers may limit their production or turn it off completely.

If there is any crypto mining facility set up in those regions, it will be in jeopardy and may have to shut down their operations.

Moreover, a lot of energy is lost in transit over a long distance.

This eventually does not make it sensible economically to move it to other regions.

Therefore, users want to consume it close to where it is produced.

Finally, the industry itself makes it more difficult by delaying grid transition to renewable energy.

Though the actual reason behind such moves is not very clear, as a result the oil and gas industries are making more profits.

Moving to Renewable Energy

Typically, a standard crypto mining facility can be bigger than a soccer pitch.

When such a facility wants to use renewable energy instead of fossil-fuel generated electricity, it will have to look for sources that have an adequate supply of it after the local households consume their required energy.

Now, that will mean a lot of renewable energy production.

Environmentalists are worried about such extensive usage of renewable energy.

They think that if the crypto mining industry moves towards it, it may jeopardize the climate goals of a country.

According to them, the focus of a country should be more on developing electric vehicles, fossil-free steel, batteries and more rather than allowing crypto mining.

This also hinders mass movement of the crypto miners to renewable energy sources.

However, the environmentalists suggest that crypto mining can be easily shifted from PoW consensus to PoS consensus and continue its journey and in the process use less energy and cause less pollution.

Decarbonization Needs

Green crypto mining can decarbonize crypto and simply due to that reason the mining industry can push the energy producers to create more renewable energy sources.

However, the question is whether decarbonization of crypto is enough or not.

Most major crypto industries aim to achieve their net-zero emissions goal by the end of 2030.

However, there are lots of trials going on at this moment on that.

Companies are even working on building software that will be able to verify whether the energy sources used by a crypto miner are renewable or not.

If all these works turn out to be successful, then it will surely clean up the entire industry, hopefully.

However, a few activists believe that simply decarbonizing crypto and its production is certainly not enough.

It is required by the crypto community to move from the more energy-intensive PoW protocol to a much less energy-intensive PoS protocol.

This will also reduce the cost of computing while verifying a new crypto transaction.

However, this is once again easier said than done because there seems to be no way of doing away with PoW where not one single person has the control over the system.

All are Not Onboard

Therefore, whether it is moving from PoW to PoS or from costly electricity to less costly renewable energy, not everyone seems to be onboard as of now.

And, there is less likelihood that it will happen sometime soon.

A few of the crypto miners are intentionally using gas for their crypto mining needs which would have been flared otherwise.

This may have mitigated the need to burn up the gas but has certainly not helped with the carbon emission aspect.

Everyone hoped that when China banned crypto mining in September 2021 citing energy issues, crypto will become greener.

What happened is just the opposite. The miners moved from there and flocked to other regions of the world such as Kazakhstan and Texas that depend mostly on coal and other fossil fuels for energy.

Energy Flexibility

Energy flexibility is another aspect that does not make going green easier for crypto.

The crypto miners typically use electricity, a lot of it, which would have been useful for other industries if it was made available.

As said earlier, the amount of energy utilized by the crypto mining sector can serve different industries for developing fossil-free steel, manufacturing of batteries on a large scale, electrification of the transportation sector and more.

A few activists believe that even if the crypto miners use electricity in those regions where there is an abundance of it, they would still be challenging other industries also looking for cheap renewable energy sources.

Given all these facts, the transition of crypto mining from traditional form to green mining would need reorganizing several sectors.

Though this process has started already, it is quite slow.

It will take some time to accelerate and happen on a large scale.

This is because the energy-intensive mining industry looking for clean energy will flock to those regions where it is available in abundance, clogging up those areas which will slow down the process.

It is the unique energy consumption ability of the miners which absorb curtailed energy that makes it difficult for other industries to participate.

Moreover, the clean energy stations are mostly located in remote places and have difficulty in transmitting the energy over long distances.

As a result, industries need to set up closer to these stations.

The crypto miners seem to have this required mobility which makes them fit for the profile.

They do not need internet connections with high latency which is not available in the remote areas of the world where the renewable energy stations are located.

Also, they do not need running all the time as it is essentially required for other kinds of consumer data centers.

The unique characteristics of the crypto miners however prove to be advantageous for the energy producers.

It enables them to balance the loads on their grids as well as use a host of different solutions to maximize their profits.

It is the flexible electricity use that helps the power grids to maintain stable frequency in it.

In this case the use of energy is divided into a number of small machine units that can be shut off one by one or even all at a time in order to balance the local grid.

This is not possible in a steel factory, for example, because it needs to maintain a definite temperature level and an assembly line but the crypto industry can do that and even automate the process.

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For example, the Bitcoin miners can curtail their mining operations for roughly 100 hours a year when the value of curtailing or giving the power to the grid is more profitable than using it for mining new crypto coins.

Most importantly, the crypto miners can expedite the rate of return on their investment by using surplus renewable energy locally and by attracting more investors looking for clean energy.

Problems with Batteries

There are also some significant caveats that are associated with storing the excess electricity produced in a battery backup.

In some regions, the energy producers do not get adequately paid by selling electricity to the grid.

Therefore, they need to store that surplus energy for later release.

But, storing this excess energy in a battery is quite expensive because it contains lithium, which is the key component of a battery and is quite expensive.

Moreover, the battery technology has also been static for the past couple of years.

Also, when you use batteries, after some time it will expire and will therefore create a lot of waste.

The use of batteries has different purposes for different users.

For example, for the energy producers these batteries are required to make profits from the difference in value.

They charge them up when the price of electricity is low and discharge them when the price is high thereby making profits from the spread between them.

On the contrary, for the crypto miners who want a constant supply of low power for their mining process all day and all night long, the use of a battery will be simply to maintain a supply of power around the clock.

This, in a way, is much better than batteries because they use the load instantly in order to convert it into a crypto coin, which is a different asset.

However, the battery functions by absorbing the electrons, storing them, and when needed it re-outputs those electrons to the same point it is connected to.

This can be done only during certain periods and these periods do not necessarily need to conflict with the need of the grid.

Therefore, the idea that Bitcoin will act like a battery and the crypto miners can be the buyer of last resort in order to convert the stored electricity into ‘financial energy’ is absolutely untrue.

Working on It

It is also quite difficult to work on the transition from traditional crypto mining to green crypto mining.

This is because the incentives are aligned between the crypto miners and the energy producers in such a way that it will soon be pretty difficult to draw a line between them.

And, given the fact that more and more renewable energy producers are getting involved in crypto mining, things become all the more difficult.

If the energy producers do not get involved in crypto mining they will inevitably be leaving a lot of money on the table.

This is because crypto mining is much more profitable, resulting in 10 times more cash flow, in comparison to selling energy to the grids.

The energy prices have also increased over time, and more recently due to the Ukraine war.

This means that in a matter of 5 to 10 years all major crypto miners will generate their own energy in order to maintain the cost effectiveness of their mining operations.

However, while the crypto miners are amassing their required energy supply, it is difficult to determine the amount of flexibility required to them.

As the crypto mining industry scales up, this approach will be more significant because those who do not may be priced out eventually.

The vertical integration of the crypto industry and renewable energy sources will offer significant strategic advantage.

Therefore, the major crypto companies are already working on it.

Even the materials used to build crypto mining machines contribute to the carbon footprint of the industry.

Therefore, several crypto miners have already started auditing their carbon footprint and finding ways out to reduce it.

With a focus on energy consumption due to operations, these companies are looking for ways to save energy.

Some of these useful ways are:

  • Creating better data center designs
  • Using better software systems and
  • Creating better financial and contractual structuring.

Simply decarbonizing the network will not help them to meet their needs because a crypto mining network, like that of Bitcoin, which is fully powered by renewable energy is not acceptable in terms of carbon footprint.

This is because it works on the Proof of Work consensus protocol which is basically a proof of waste since it uses a lot of energy, which is unnecessary, analysts think.

The analysts also feel that the crypto mining community should come together and negate PoW mining to add to the social benefits that Bitcoin or crypto mining is supposed to offer.

From the point of view of the regulators, the energy used for crypto mining could be used elsewhere in a much better way.

However, the crypto community and the researchers are working on the conflict of interest and put the purely theoretical concept of greener crypto into practice so that it has much greater relevance and practicality.

Ethical Energy Impasse

Then there is the ethical energy dilemma of cryptocurrency that comes into play.

It is true that crypto mining does not leave any leftover energy but even the most credible efforts with the best of intentions face this ethical conundrum – whether or not crypto is truly the best use of natural resources and capital when the entire world is focused on decarbonization.

If the wait time is too long, the grid will happen to be greener, but in the period in between, Bitcoin will bring in a lot of disarticulation.

This means that the renewable clean energy will be used for mining crypto coins which otherwise could have been utilized for cleaning up the grid.

Analysts say that there can be more solutions available within the code itself including more energy efficient methods of digital transactions.

However, the PoW system seems to be very bad and harmful for the environment because it results in an increased competition to use, or overuse, energy simply to be the winner.

This, however, is the issue entirely related to the working process of the crypto coin and not to cryptocurrency on the whole, they add.

However, to make a change in the fundamentals of a digital currency, for example changing to a blockchain approach that is less computationally demanding would need an accord within the mining society.

There is also the risk of initiating a complete collapse in the value of the currency.

Ethereum, the rival of Bitcoin, is planning such a change though the date is undetermined.

Then, the crypto platforms are also focusing on their carbon footprint of late and on the need for best practices and better operational standards to measure these emissions and address them thoughtfully.

As a result, they have started to support companies that mine crypto coins in a greener way.

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However, when more and more computers are engaged in crypto mining it will surely increase the carbon footprint along with the rise in price of the crypto coins mined.

Even if the price of the coins falls, such demand for energy will be locked.

If this is not done in a greener way, things will become ‘hot’ and then the governments may have to intervene and pull the plug.

The governments may also levy new taxes on the use of electricity on the companies engaged with crypto mining or manufacturing crypto mining hardware.

Therefore, the key here is to make the crypto community understand the adverse effects of crypto mining on the environment and the need to do something immediately to address the issue.

Counting the Cost beyond Electricity

Crypto mining is a process that follows the PoW consensus protocol which is supposed to be the major factor for the environmental impact because it consumes a lot of energy and results in a lot of carbon emissions.

There are more than a couple of millions of computers spread all over the world that are involved in this process working on guessing the right number by making more than a hundred quintillion guesses every second, nonstop.

The new crypto coins launched in the past couple of years typically do not use the out of date PoW technology simply to reduce the use of energy during the mining process.

This is a good approach in order to reduce the tax on the environment, which basically results in man-made climate change.

Green energy, if not used, will typically go to waste.

Batteries can store it to use when the conditions for generating power are unfavorable but as of now it seems that it does not have a large-scale use case.

Therefore, the metaphor of Bitcoin as a battery does not make any real sense.

However, zero carbon-emission Bitcoin mining can help the energy from going to waste.

As it is, Bitcoin mining uses a lot of energy and if that energy is the one that would have been wasted otherwise then it is not really a problem.

This makes things quite sustainable, considering the cost aspect.

And when counting things by looking beyond the cost and electricity, e-waste generated in huge amounts every year is another serious concern.

The ASIC machines are typically designed to last for a relatively short term with more improved ones replacing them.

These obsolete machines end up in landfill generating a huge amount of toxic waste at a rapid rate.

Such types of pollution cannot be fixed by renewable energy, irrespective of its amount.

Therefore, when it comes to the environmental cost of crypto mining, there are two types of regulations that are likely.

  • One, more transparency is required regarding the carbon costs of operating a crypto mining business and
  • Two, imposing some kind of carbon tax on it.

At the end of the day, the businesses that run on fossil fuels will have higher costs in comparison to those that don’t.

Environmental analysts as well as the economic justice organizations are constantly demanding for such types of regulations to be imposed on the crypto mining industry from the Congress to bring it under a new set of rules.

This, they say, will not only ensure that the risks of climatic changes are reduced but at the same time will offer financial stability and investor protection.

However, sadly, the wheels of the governments, as usual, turn extremely slowly but crypto continues to develop at a rapid pace.

Therefore, it is entirely up to the crypto mining industry to balance innovation and sustainability by counting the cost of environmental impacts over and above the use of electricity and its reduction.

Sustainability

Whether or not moving towards renewable energy will be more sustainable is another significant concern that pulls the crypto miners back.

The crypto developers are trying hard to make the crypto blockchain and the ecosystem more sustainable, either by moving towards renewable energy or otherwise.

However, there are several factors that influence the sustainability factors just like these do for the environmental impact of a crypto coin.

Energy usage is one major factor but the other significant one is the combination of sources that this energy comes from.

In addition to that, the number of mining operations powered by these renewable energy sources, the validation system used, the amount of physical equipment needed to mine new crypto coins, are other important factors that will influence the sustainability aspect as well.

Renewable Energy or Repurposed Power

The crypto miners seem to be also quite confused about renewable energy and repurposed power and they do not know which one to use for their crypto mining needs.

A few crypto mining facilities repurpose unused excess gas or traditional power plants to generate power to run their mining operations.

However, this does not eliminate the harmful carbon emissions, as the critics point out.

It simply transfers the unused power from one industry to another where it is incentivized for further drilling, perhaps.

And, as for using solar or wind power to mine crypto coins, it may be quite an appreciable approach but it is all in theory, critics say.

It is not economically sensible and possible to build a renewable plant simply to power the mining rigs to mine a coin that may plummet in value unexpectedly due to their extremely volatile nature.

In order to address these shortcomings, it is therefore needed by the makers of new crypto coins and blockchain networks to focus on more energy-efficient designs such as PoS rather than shifting to renewable energy sources for mining new crypto coins.

Therefore, use of renewable energy sources may be good for crypto miners, the crypto mining industry, and the environment on the whole.

However, there still is the issue of the huge amount of e-waste generated every year from legacy mining operations.

However, a move of crypto coins needed from PoW to PoS consensus protocol will not only reduce the energy usage significantly, it will also drive down the necessity to produce larger mining rigs that will reduce the waste in future.

Until that time, a large-scale shift from traditional crypto mining to green crypto mining will not happen.

Conclusion

As this article points out, improvements in consensus mechanisms and using renewable energy sources may reduce environmental cost and carbon emissions of crypto mining overall.

However, other issues make it ‘easier said than done’ and prevent large scale adoption.