Bitcoin mining big change: double change of energy and arithmetic landscape

The most twisted and turbulent year in the history of the bitcoin mining industry.

Bitcoin mining big change: double change of energy and arithmetic landscape

After months of bullish frenzy, the bitcoin mining industry has recently been caught up in a maelstrom of public opinion and regulation, and has brought more uncertainty to the crypto market.

On the public opinion side, the issue of carbon emissions from bitcoin mining has drawn a lot of criticism from outside the industry, especially after Musk suspended Tesla’s bitcoin payment function as a result, and the mining industry began a massive discussion on the energy and environmental issues of mining in an attempt to completely change the outside world’s bias towards the mining industry.

On the regulatory front, China’s State Council and several local governments have taken a clear stance on cracking down on bitcoin mining, and some regions are already starting to clear out bitcoin mining farms, thus further accelerating the ‘de-Chineseization’ of bitcoin’s computing power.

The bitcoin mining industry is experiencing one of the most complex periods in its history, forcing most bitcoin miners to make different types of adjustments, such as changing the type of energy used for mining, shutting down and relocating mining sites, and having a fundamental impact on the industry’s arithmetic power and energy consumption.

Carbon Neutrality and Bitcoin Mining
As we all know, bitcoin mining is the process of calculating mathematical puzzles, which requires specialized hardware and consumes a lot of energy to run.

Because of this, Bitcoin mining has long been heavily criticized for causing significant energy consumption, and is seen as a waste of energy while having a significant negative impact on climate change. These criticisms have intensified as carbon-neutral strategies have gained more and more prominence globally.

Carbon neutrality means that a given country or company or institution is expected to offset its own direct or indirect carbon dioxide emissions over a certain period of time, such as through energy conservation and emission reduction, to achieve “zero” carbon dioxide emissions. To put it simply, this means that carbon dioxide emissions will “break even”.

In recent years, global climate change caused by CO2 emissions has become more and more significant and is still under effective control. In its latest Emissions Gap Report for 2020, the United Nations Environment Programme (UNEP) said that despite a brief decline in CO2 emissions due to the Newcastle pneumonia epidemic, the world is still moving toward a warming of more than 3°C by the end of this century, far exceeding the Paris Agreement’s target of “limiting global warming to 2°C. The world is still headed for more than 3°C of warming by the end of the century, far exceeding the level set by the Paris Agreement to “limit global warming to 2°C and work toward a 1.5°C temperature control goal.

At the same time, the international community has significantly increased the discussion of carbon neutral strategies since last year, with several countries such as France proposing clear timelines for carbon neutrality, and Biden announcing his return to the Paris Agreement on his first day in office as U.S. president, and his plan to achieve carbon neutrality by 2050, for which he will also invest $2 trillion to promote the research, development and use of clean energy.

In this context, the Bitcoin mining industry, which relies heavily on fossil fuels, has been the first to be criticized by many environmentalists. According to a previous study by the Cambridge Centre for Alternative Finance (CCAF), the total energy consumption of the Bitcoin network ranges between 40 and 445 terawatt hours (TWh), with the central value estimated to be around 130 TWh, which is comparable to the electricity consumption of the entire country of Argentina. Meanwhile, about two-thirds of the world’s bitcoin miners are using fossil fuels for mining.

Criticisms of Bitcoin’s excessive energy consumption have long been refuted from within the crypto industry, with Galaxy Digital, for example, publishing a quantitative study stating that traditional banking systems consume more than twice as much energy as Bitcoin does, and Coinbase posting that whether energy use is justified depends heavily on the value obtained from the use of the resource. Bitcoin uses resources much more efficiently than many industries; crypto researcher Gianmarco Guazzo also wrote that the energy consumed by Bitcoin is necessary to keep cryptocurrencies safe from cyber attacks and tampering with data within the protocol.

However, most of these arguments are based on the recognition of the value of the Bitcoin network, which is difficult to establish for these researchers who originally questioned the value of Bitcoin, so it has long been debated but difficult to reach agreement within and outside the industry, but with Musk falling back on his role as Bitcoin’s flag bearer and criticizing Bitcoin’s energy consumption, the Bitcoin mining industry and even the crypto market has only revisited the topic.

Currently, the crypto industry’s response can be articulated in two ways. On the one hand, there are the mining companies and miners who directly conduct mining activities. Since changing the mining energy will directly increase the cost of mining, coupled with the recent bitcoin price shocks and the time needed to adopt clean energy, most of the mining companies have not taken a direct stance at the moment.

Among them, Mike Colyer, founder of Foundry, a mining company owned by Grayscale, has a clear negative view: “We haven’t found anyone who is really willing to pay a premium for clean energy bitcoin. So, to me, it looks more like a marketing tool. It makes no sense to use clean energy to mine bitcoin.

However, a number of major North American bitcoin miners, including Hive Blockchain, Hut 8 Mining, Marathon Digital and Riot Blockchain, have formed a bitcoin mining committee, organized by Musk and Michael Saylor, and have agreed to increase transparency in energy use and accelerate sustainability initiatives globally.

Meanwhile, many mining companies have already experimented with renewable energy sources such as hydro, solar, wind, and natural gas in the past, with well-known miner Argo Blockchain announcing the launch of Terra Pool, a purely clean energy-powered bitcoin mining pool, in March of this year, and Neptune Digital Assets and Link Global announcing the same month that they will launch bitcoin mining pools powered by solar, wind, and natural gas in Canada.

On the other hand, many companies using the Bitcoin network have said they will buy carbon credits or donate to carbon offset organizations to offset the carbon emissions generated by their business operations.

On May 20, two exchanges, FTX and BitMEX, announced their commitment to carbon neutrality, with FTX saying it would donate $1 million to offset the blockchain resources it uses, and BitMEX pledging to donate $0.0026 for every $1 of blockchain fees it generates to offset its carbon footprint.

In addition, OSL, Greenidge, and GSR have announced the purchase of carbon credits, which are products that are primarily backed by specific energy improvement projects, with the funds paid for the purchase going to environmental projects. Take, for example, the carbon credit product purchased by OSL, which was issued by Verra, a certified carbon standard development and management organization, and generated by the Ghani Renewable Solar Project in India to replace electricity generated by power plants using petroleum-based energy sources, thereby avoiding CO2 emissions.

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 received much criticism as a result, it is nevertheless important to acknowledge that Musk’s tweet re-promoted the environmental issue as a major issue in the crypto industry, and many mines and companies have since responded by planning to adopt a more environmentally friendly approach to mining, which has contributed to a certain degree to the sustainability of the Bitcoin mining industry and its acceptance by mainstream society.

Bitcoin’s Arithmetic Moves Toward Decentralization
Unlike other countries around the world where public opinion is primarily critical, China has taken direct and severe action against bitcoin mining, with clear policies to shut down bitcoin mines in Xinjiang, Inner Mongolia, Yunnan and other provinces since April, reflecting the extra importance the Chinese government places on the issue of bitcoin mining, and the pressure behind a carbon neutral strategy.

In late September 2020, China announced for the first time to the world that it would strive to achieve carbon peaking by 2030 and carbon neutrality by 2060, followed by the Central Economic Work Conference in December 2020 and the government work reports of this year’s two sessions, both of which listed carbon peaking and carbon neutrality as key tasks this year.

On March 15 this year, General Secretary Xi also stressed at the ninth meeting of the Central Finance and Economics Commission: “Achieving peak carbon and carbon neutrality is a broad and profound economic and social systemic change, and we should incorporate peak carbon and carbon neutrality into the overall layout of ecological civilization construction, and take out the vigor to grasp the iron to achieve the goal of achieving peak carbon by 2030 and carbon neutrality by 2060 as scheduled.

And under this goal, the bitcoin mining industry is one of the main obstacles. With China being the main location for global bitcoin mining activities, as well as the use of fossil fuels for most mining activities in Xinjiang, Inner Mongolia, and other regions, China is arguably the country with the highest carbon emissions from bitcoin mining.

Earlier this year in April, several scholars from the University of Chinese Academy of Sciences, Tsinghua University, and other universities published a paper in a subjournal of the journal Nature stating that China’s energy consumption and carbon emissions associated with bitcoin mining are growing rapidly, and based on a simulated carbon emission model, if left unchecked, China’s bitcoin mining energy consumption is expected to peak at about 297 trillion watt-hours in 2024 and will generate 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).

As a result, many governments in China have changed their ambiguous attitude towards bitcoin mining in the past and have issued a series of documents calling for the shutdown of bitcoin mining sites, the earliest being Inner Mongolia’s “Several Safeguard Measures on Ensuring the Completion of the “14th Five-Year Plan” Energy Consumption Double Control Targets (Draft for Comments)” published in February this year, which stated that it intends to fully clean up and shut down virtual currency mining projects and withdraw them all by the end of April 2021. Since then Xinjiang, Qinghai, Yunnan and other places have issued a clear shutdown of bitcoin mining, only to hydroelectric energy-based Sichuan Province has not yet made a clear statement.

With such a policy in mind, bitcoin mines in these areas are facing a severe survival crisis, with a large number of miners saying that the mines where their machines are located have been shut down and planning to sell their machines, and some miners saying they plan to ship their machines overseas to continue mining. As a result, the average daily hash rate of the Bitcoin network fell to 114 EH/s on June 10, already down about 42% from its May high.

On the one hand, many companies such as Firecoin, Renmin Mining, and Mint Mining announced that they have stopped providing Bitcoin arithmetic or mining hosting related services; on the other hand, several Chinese mining companies have recently announced intensive overseas mining investment plans. on May 26, Shenzhen-based mining company Bit Mining invested $9.33 million to build a mining farm in Kazakhstan, and on June 5, Ninth City announced the acquisition of Canadian mining farm Montcrypto and invested in another mine, Skychain.

It is foreseeable that the number of bitcoin mines and miners in China will continue to shrink and their share of global computing power will continue to fall under the crackdown by governments around the world. In the eyes of many Chinese miners, China is losing its bitcoin arithmetic dominance, following the loss of bitcoin pricing power.

For the Bitcoin network, however, this still has its own special significance. China has long been a major hub for bitcoin mining activity due to low electricity costs, with over 60% of the bitcoin network’s computing power located in China, which is seen as negatively impacting the decentralization of the bitcoin network.

With China’s further crackdown on bitcoin mining and the rise of the miners’ offshore movement, the share of bitcoin computing power located in China is bound to decrease further, and with several U.S. mining companies increasing their investment, the complete decentralization of bitcoin computing power is likely to be achieved indirectly.

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 this.

Today, the bitcoin mining industry will likely enter a longer period of pain, with both public opinion pressure and regulatory pressure persisting, but for mainstream society, the bitcoin mining industry could largely make up for its past shortcomings after these adjustments, and could even remove some of the obstacles for cryptocurrencies represented by bitcoin to be more widely accepted.

Author | Hu Tao

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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