Big changes in Bitcoin mining: energy consumption and emissions dispute and de-China computing power

Original title: "Big Changes in Bitcoin Mining: Dual Changes in Energy and Computing Power | Chain Catcher"
Written by: Hu Tao

After experiencing a bull market carnival that lasted for several months, the Bitcoin mining industry has suddenly been caught in a whirlpool of public opinion and a wave of regulation, which has also brought more uncertainties to the crypto market.

In terms of public opinion, the carbon emissions caused by Bitcoin mining have attracted a lot of criticism from outside the industry. Especially after Musk suspended Tesla's Bitcoin payment function, the mining industry began to discuss the energy and environmental issues of mining on a large scale, trying to completely change the outside world's prejudice against the mining industry.

In terms of supervision, China's State Council and several local governments have made clear statements that they will crack down on Bitcoin mining. Some regions have already begun to clear out Bitcoin mines, further accelerating the "de-Sinicization" of Bitcoin's computing power.

Surrounded by these challenges, the Bitcoin mining industry has also entered the most complex period of development in its history, forcing most Bitcoin miners to make various forms of adjustments and responses, such as changes in mining energy types, closures and relocations of mines, etc., which have a fundamental impact on the industry's computing power structure and energy consumption emissions.

Carbon Neutrality and Bitcoin Mining

As we all know, the process of Bitcoin mining is the process of calculating difficult mathematical problems, which requires running specialized hardware and consumes a lot of energy. The more miners there are and the more intense the accounting competition, the higher the energy consumption and carbon emissions.

Because of this, Bitcoin mining has long been criticized by the outside world for its large energy consumption, and is considered to waste energy and have a significant negative impact on climate change. As the carbon neutrality strategy has an increasingly high status in the world, these criticisms have become more intense.

Carbon neutrality means that a specific country, enterprise or institution calculates that within a certain period of time, it can offset its direct or indirect carbon dioxide emissions through energy conservation and emission reduction, thus achieving "zero carbon dioxide emissions". In simple terms, it means that the carbon dioxide emissions "balance".

In recent years, global climate change caused by carbon dioxide emissions has become increasingly significant and is still under effective control. The United Nations Environment Programme stated in its latest "Emissions Gap Report" released in 2020 that although the new crown pneumonia epidemic has caused a brief decline in carbon dioxide emissions, the world is still heading towards a temperature rise of more than 3°C by the end of this century, far exceeding the level stipulated in the Paris Agreement to "limit global warming to 2°C and strive to achieve the 1.5°C temperature control target."

At the same time, the international community has significantly increased discussions on carbon neutrality strategies since last year. France and many other countries have proposed clear carbon neutrality timetables. On his first day in office as US President, Biden announced his return to the Paris Agreement and planned to achieve carbon neutrality by 2050. To this end, he will invest $2 trillion to promote the research and development and use of clean energy.

In this context, the Bitcoin mining industry, which is highly dependent on fossil fuels, has become the first target of criticism from many environmentalists. According to previous research by the Cambridge Center for Alternative Finance (CCAF), the total energy consumption of the Bitcoin network ranges from 40 to 445 terawatt hours (TWh), with a central value estimated at about 130 TWh, which is equivalent to the electricity consumption of the entire country of Argentina. At the same time, about two-thirds of Bitcoin miners around the world use fossil fuels for mining.

For a long time, the crypto industry has refuted the outside world's criticism of Bitcoin's excessive energy consumption. For example, Galaxy Digital released a quantitative research report pointing out that the energy consumed by the traditional banking system is more than twice that of Bitcoin; Coinbase published an article arguing that whether the use of energy is reasonable depends largely on the value obtained from the use of resources, and Bitcoin is much more efficient in the use of resources than many industries; crypto researcher Gianmarco Guazzo also wrote an article pointing out that the energy consumed by Bitcoin is necessary in order to protect cryptocurrencies from network attacks and tampering with data within the protocol.

However, most of these views are based on the recognition of the value of the Bitcoin network, which is difficult to sustain for researchers who originally had doubts about the value of Bitcoin. As a result, the industry and the outside world have long debated this issue but have found it difficult to reach a consensus. However, with Musk turning against Bitcoin as the flag bearer of Bitcoin and criticizing Bitcoin's energy consumption, the Bitcoin mining industry and even the crypto market have begun to re-examine this topic.

At present, the response of the crypto industry can be explained from two aspects. On the one hand, the mining companies and miners who directly carry out mining activities, because changing the mining energy will directly increase the mining cost, coupled with the recent continuous fluctuations in the price of Bitcoin and the need for time to adopt clean energy, most mining companies have not made direct statements.

Among them, Mike Colyer, the founder of Grayscale's mining company Foundry, explicitly held a negative view: "We haven't found anyone who is really willing to pay a premium for clean energy Bitcoin. So, in my opinion, it's more of a marketing tool. There is no point in using clean energy to mine Bitcoin."

However, under the organization of Musk and Michael Saylor, several major North American Bitcoin mining companies such as Hive Blockchain, Hut 8 Mining, Marathon Digital and Riot Blockchain formed a Bitcoin Mining Committee and agreed to increase transparency in energy use and accelerate sustainable development plans globally.

At the same time, many mining companies have been trying to use renewable energy such as hydropower, solar energy, wind energy, and natural gas for mining in the past. The well-known mining company Argo Blockchain announced in March this year the launch of the pure clean energy-driven Bitcoin mining pool Terra Pool. Neptune Digital Assets and Link Global also announced in the same month that they would launch a Bitcoin mining pool powered by solar energy, wind energy, and natural gas in Canada.

On the other hand, many businesses that use the Bitcoin network have said they will purchase carbon credits or donate to carbon offset organizations to offset the carbon emissions generated by their business operations.

On May 20, the two major exchanges, FTX and BitMEX, announced their commitment to carbon neutrality. FTX said it would donate $1 million to offset the blockchain resources it used, and BitMEX promised to donate $0.0026 for every $1 in blockchain fees to offset its carbon footprint.

In addition, companies such as OSL, Greenidge, and GSR announced the purchase of carbon credits, which are mainly supported by specific energy improvement projects, and the funds paid for the purchase will be used for environmental protection projects. Take the carbon credit products purchased by OSL as an example. They are issued by Verra, an organization that develops and manages certified carbon standards, and are generated by the Ghani renewable solar project in India to replace electricity generated by power plants using petroleum energy, thereby avoiding the emission of carbon dioxide.

Although Musk's suspension of Tesla's acceptance of Bitcoin payments had a devastating impact on the crypto market at the time and he himself was criticized for it, it must be acknowledged that Musk's Twitter once again pushed environmental issues to the forefront of the crypto industry. Since then, many mines and companies have responded with plans to adopt more environmentally friendly mining methods, which has played a certain role in promoting the sustainable development of Bitcoin mining and its recognition by mainstream society.

Bitcoin hashrate moves toward decentralization

Unlike other countries in the world that mainly criticize Bitcoin mining through public opinion, China has directly launched a severe crackdown on Bitcoin mining. Since April, provinces such as Xinjiang, Inner Mongolia, and Yunnan have issued clear policies to shut down Bitcoin mines, reflecting the Chinese government's special attention to the issue of Bitcoin mining, and the pressure of the carbon neutrality strategy behind it.

In late September 2020, China announced to the world for the first time that it would strive to achieve carbon peak before 2030 and carbon neutrality before 2060. Subsequently, the Central Economic Work Conference held in December 2020 and the government work report at this year's two sessions both listed carbon peak and carbon neutrality as key tasks this year.

On March 15 this year, General Secretary Xi Jinping also emphasized at the ninth meeting of the Central Financial and Economic Affairs Commission: "Achieving carbon peak and carbon neutrality is a broad and profound systemic change in the economic and social system. We must incorporate carbon peak and carbon neutrality into the overall layout of ecological civilization construction, and work hard to achieve the goals of carbon peak before 2030 and carbon neutrality before 2060 as scheduled."

Under this goal, the Bitcoin mining industry is one of the main obstacles. Since China is the main location of Bitcoin mining activities in the world, and most mining activities in Xinjiang and Inner Mongolia use fossil fuels, China can be said to be the country with the highest carbon emissions from Bitcoin mining.

In early April this year, scholars from the University of the Chinese Academy of Sciences, Tsinghua University and other universities published a paper in a Nature magazine sub-journal stating that China's energy consumption and carbon emissions related to Bitcoin mining are growing rapidly. Based on a simulated carbon emission model, if not controlled, China's Bitcoin mining energy consumption is expected to reach a peak of about 297 trillion watt-hours in 2024 and will produce about 130 million metric tons of carbon emissions. This value exceeds the annual greenhouse gas emissions of all medium-sized European countries (such as Italy or the Czech Republic).

Therefore, governments in many parts of China have changed their ambiguous attitude towards Bitcoin mines in the past and have issued documents one after another to shut down Bitcoin mines. The earliest was Inner Mongolia, which announced in February this year the "Several Guarantee Measures for Ensuring the Completion of the 14th Five-Year Plan Energy Consumption Dual Control Target Tasks (Draft for Comments)" and stated that it intends to comprehensively clean up and shut down virtual currency mining projects and withdraw all of them by the end of April 2021. Since then, Xinjiang, Qinghai, Yunnan and other places have issued documents to explicitly shut down Bitcoin mines, but Sichuan Province, which relies mainly on hydropower energy, has not yet made a clear statement.

Under such a policy background, Bitcoin mines in the above-mentioned regions are facing a severe survival crisis. A large number of miners said that the mines where their mining machines are located have been closed and they plan to sell their mining machines. Some miners also said that they plan to transport their mining machines overseas to continue mining. Affected by this, the average daily hash rate of the Bitcoin network fell to 114 EH/s on June 10, which has fallen by about 42% from the high point in May.

On the one hand, Huobi, Renren Mine, Bohe Mining and many other companies announced that they would stop providing Bitcoin computing power or mining machine hosting services; on the other hand, many Chinese mining companies have recently announced overseas mining investment plans. On May 26, Shenzhen mining company Bit Mining invested $9.33 million to build a mining farm in Kazakhstan. On June 5, The 9 announced the acquisition of Canadian mining farm Montcrypto and investment in another mining farm Skychain.

It is foreseeable that under the crackdown by local governments, the number of Bitcoin mines and miners in China will continue to shrink, and its share of global computing power will continue to decline. In the eyes of many Chinese miners, China is once again losing its dominance in Bitcoin computing power after losing its Bitcoin pricing power.

However, this still has special significance for the Bitcoin network. Due to its low electricity costs, China has long been the main gathering place for Bitcoin mining activities. More than 60% of the computing power of the Bitcoin network is located in China, which is considered to have a negative impact on the decentralization of the Bitcoin network.

With China's further crackdown on Bitcoin mining farms and the rise of the miners' overseas migration movement, the share of Bitcoin computing power located in China is bound to further decrease. In addition, as many US mining companies are increasing their investment, the complete decentralization of Bitcoin computing power is likely to be indirectly achieved.

In this process, the interests of some Chinese Bitcoin miners are sacrificed, but the narrative integrity and even fundamentals of the entire Bitcoin network may benefit from it.

From today's perspective, the Bitcoin mining industry is likely to enter a long period of pain, and pressure from public opinion and supervision will continue to exist. However, for mainstream society, after these adjustments, the Bitcoin mining industry can basically make up for the shortcomings of the past, and even remove some obstacles for cryptocurrencies represented by Bitcoin to be accepted by more people.