The power demands and carbon emissions of bitcoin mining could undermine global efforts to combat climate change if stringent regulations are not placed upon the industry, a Chinese study has found. By 2024, mining of the cryptocurrency in China alone could use as much power as the entire nation of Italy uses in a year, with greenhouse gas emissions equalling those of the Czech Republic.
But rather than recommending increased taxation on bitcoin mining to curb emissions, or simply an outright ban on the practice, the paper, published today in the journal Nature, suggests that miners should be encouraged to shift their operations to regions that provide abundant low-carbon electricity.
The research is significant because China carries out at least 65% of the world’s bitcoin operations. Shouyang Wang, one of the report’s authors and chair professor at the Academy of Mathematics and Systems Science at the Chinese Academy of Sciences in Beijing, told Forbes.com: “While everyone has focused on bitcoin’s great profitability, we want people to become more aware of its potential issues and start thinking about these questions: is this industry actually worth the associated environmental impact, and how can we make profitable bitcoin mining operation more sustainable in the future?”
Using simulation-based models, the researchers found that, short of any policy interventions, bitcoin mining in China will peak in 2024 consuming 296.59 terawatt hours of electricity—as much as a medium sized country—and generate 130.50 million metric tons of carbon emissions. The authors further note that this consumption and the resulting emissions could derail China’s efforts to decarbonize its own energy system.
“It is important to note that the adoption of this disruptive and promising technique without [taking into account] environmental concerns may pose a barrier to the worldwide effort on GHG emissions management in the near future,” Wang said, adding that the research team was “surprised by the energy consumption and carbon emission assessment results of bitcoin blockchain operation in China.”
But the solution to the challenge, the authors argue, is “moving away from the current punitive carbon tax policy to a site regulation policy”—in essence, ensuring that mining operations move to areas that guarantee high rates of renewable electricity. Under such a policy, they found, only 20% of bitcoin miners remained in coal-intensive energy regions, resulting in lower carbon emissions per dollar earned, compared to a higher taxation scenario. Under the site regulation model, the researchers found bitcoin operations generated 100.61 million metric tons at peak, as opposed to 105.19 million tons under an additional taxation scenario.
Wang said government regulation of the industry was needed, but that bitcoin miners would likely be amenable to his team’s proposed solution.
“Site regulation should be carried out by the government, placing limitations on bitcoin mining in certain regions that use coal-based heavy energy,” Wang explained. “That being said, we think that there are enough benefits to this policy which will incentivize the miners to move their operation willingly. For example, since energy prices in clean-energy regions of China are lower than that in heavy-energy regions, the miners can effectively lower their individual energy consumption cost, which would increase their profitability.”
That isn’t to say, however, that regulation is the only method by which China should be reducing the emissions impact from bitcoin mining.
“The government should also focus on upgrading the power generation facilities in clean-energy regions to ensure a consistent energy generation,” Wang said. “That way, the miners would definitely have more incentives to move voluntarily.”
Crunching The Numbers
Bitcoin operates by using blockchain technology—publicly recorded peer-to-peer transfers on encrypted computer networks—which eliminates the need for centralized authorities or banks. Bitcoin miners use arrays of processors to determine results to algorithmic puzzles that verify transactions that are added to the blockchain, for which they are in turn rewarded in bitcoins. With the value of a single bitcoin having risen from $1 in April 2011 to around $60,000 in April 2021, and with yesterday’s news that the value of the cryptocurrency market has exceeded $2 trillion for the first time, the financial incentives to mine bitcoin are obvious.
But there is a finite supply of bitcoins: they are limited to 21 million in total. To control the currency’s circulation, the supply of new bitcoins is halved every four years, which also halves the miners’ rewards. This has helped ignite fierce competition, attracting an increasing number of bitcoin miners to get into the race, utilizing ever more powerful processing arrays requiring more electricity.
This, the authors say, means that after 2024, bitcoin mining—at least in China—will no longer be cost-effective; the costs of mining the currency will begin to outweigh the rewards.
“We have predicted through our model that bitcoin mining operations in China would start to decrease in 2025,” Wang said. “Due to over-competitive and the reward-halving mechanism of bitcoin, many miners would leave China and move their operations elsewhere in hope to improve their profitability. The decrease in mining activities would lower the associated carbon emissions generated in China.”
So, in at least one sense, bitcoin is self-regulating. Or as Wang puts it, “this is the industry’s natural built-in way of phasing itself out.”
It has until recently proved difficult to determine the total emissions impact of bitcoin mining. Industry advocates have long claimed that miners tend to rely on low-carbon energy due to its relatively low cost, but those claims have been disputed.
Now, using more advanced modeling techniques, Chinese researchers have been able to more accurately estimate the energy uses of specific industry operations. According to the China Emissions Accounts and Datasets platform (CEAD), for example, bitcoin mining accounts for more than 5.4% of emissions from electricity generation in China.
In response, various policy solutions have been suggested, including heavier taxation of bitcoin mining operations. The new research suggests site regulation could be the preferable option.
But did Wang think this could result in too many miners moving into areas with abundant renewables, gobbling up energy supply?
“There would be an influx of bitcoin miners into clean-energy regions,” he said. “However, we don’t think that this increase in bitcoin mining operations would place burdens on the local energy grid. The energy-generation infrastructures in the clean-energy regions of China are still being improved and developed … we think that increases in energy generation capacity would outpace the increase in bitcoin mining operations in these regions, which would reduce the potential burdens.”
Even so, with a forecast of 100 million tons of carbon emissions at the industry’s peak, would it not simply be better, in environmental terms, to ban the practice outright?
“We think that simply banning bitcoin mining altogether is not ideal,” Wang said. “Even if bitcoin mining is completely banned, its increasing profitability would drive miners to continue their activities through other measures, such as stealing electricity. That is why we are suggesting a push for moving the miners to clean renewable energy regions would be more ideal.”
Asked whether future cryptocurrency operations could potentially result in the same or similar energy demands as bitcoin, Wang offered a note of optimism.
“Cryptocurrency communities have become increasingly aware of the carbon emissions generated through mining activities,” he said. “As a result … we think the development of these new consensus algorithms would improve the energy efficiency of cryptocurrency mining activities, which would be beneficial for China’s sustainability efforts.”