Springtime is coming to the North American cryptocurrency mining industry. With access to robust capital markets, cheap power, a stable political climate and increasing participation of technological innovators, industrial-grade mining operations are burgeoning in the United States and Canada, providing competition to Chinese mining pools that now control more than half of the world\u2019s hashing power.<\/b><\/p>\n
These new ventures are acutely aware of the need to minimize mining\u2019s carbon footprint. In March, when Neptune Digital Assets and Link Global <\/span>announced<\/span><\/a> they would develop a new five-megawatt Bitcoin mining facility in Alberta, Canada, for instance, Neptune CEO Cale Moodie cited the \u201csubstantial global pressure to develop <\/span>sustainable <\/span><\/i>[emphasis added] Bitcoin mining operations around the world\u201d \u2014 adding that the project would be powered by solar, wind and natural gas.<\/span><\/p>\n \u201cA large investment in North America mining infrastructure is currently taking place,\u201d Ethan Vera, co-founder and chief financial officer of Luxor Technologies and of Hashrate Index, tells Magazine, while CoinShares chief strategy officer Meltem Demirors <\/span>writes<\/span><\/a> in a recent blog post: \u201cWe have seen over $200M of capital deployed into building onshore mining capacity in the United States alone.\u201d<\/span><\/p>\n \u201cThere\u2019s an upwards trend in mining companies looking at the U.S. and North America,\u201d Amy Davine Kim, chief policy officer of the Chamber of Digital Commerce, tells Magazine, and there is a growing willingness among some U.S. states to support such crypto mining ventures. Kentucky, for instance, passed two bills in March that give tax breaks to crypto miners, whom the state wants to attract in order to create jobs and energize local economies.<\/span><\/p>\n \u201cNorth American capital has been unleashed,\u201d Vera explains, adding: \u201cPublic and private markets are pouring money into Bitcoin mining,\u201d and it is all setting the stage \u201cfor large-scale North American build-out.\u201d<\/span><\/p>\n Some wonder how and why Western nations allowed China to take such a lead in crypto mining in the first place. China now <\/span>accounts<\/span><\/a> for 65% of global BTC mining, according to the Cambridge Centre for Alternative Finance. This is compared with only 7.24% for the U.S., which is the second-largest hub, though no one really knows the global distribution with certainty.\u00a0<\/span><\/p>\n Some have pegged the Chinese share to be lower. For example, a 2020 study commissioned by Fidelity Investments <\/span>estimates<\/span><\/a> that 50% of global mining power capacity is \u201clikely\u201d in China, with 14% in the United States. Meanwhile, an April 6 paper written by academics from the University of the Chinese Academy of Sciences, Tsinghua University, Cornell University and the University of Surrey in <\/span>Nature Communications, <\/span><\/i>a peer-reviewed journal, <\/span>estimates<\/span><\/a> the Chinese share to be much higher: \u201c<\/span>As of April 2020, China accounts for more than 75% of Bitcoin blockchain operation around the world.<\/span>\u201d<\/span><\/p>\n The paper goes on to explain that some of China\u2019s rural areas are considered an \u201cideal destination for Bitcoin mining\u201d because of cheaper electricity prices and large tracts of undeveloped land for mining pool construction.<\/span><\/p>\n \u201cIn the early days, the Wild-West nature of the mining industry held back major investments,\u201d says Vera, explaining how Bitcoin mining became so geographically skewed. \u201cThe opaqueness of the ASIC supply chain\u201d \u2014 the application-specific integrated circuits that are specifically designed to perform the hashing calculations demanded of miners \u2014 \u201cand mining pool auditability led capital to be sidelined.\u201d\u00a0<\/span><\/p>\n With regard to \u201cauditability,\u201d he further explains that \u201cMost miners didn\u2019t know if they were getting underpaid for their hashrate to mining pools. If mining pools quoted them a fee it was very hard to check that was the actual fee being charged. In many cases miners blamed mining pools for underpayment.\u201d More recently, however, \u201cThere has been a large improvement in the mining supply chain professionalism,\u201d Vera adds.<\/span><\/p>\n China\u2019s dominance is perhaps better explained in macro terms, suggests Yu Xiong, associate dean international at Surrey University and chair of business analytics at Surrey Business School \u2014 and one of the authors of the <\/span>Nature Communications<\/span><\/i> paper. North America is saddled with higher labor costs and energy costs than China, which leads the world with roughly 30% of global hydropower capacity and a 50% share of coal power generation. \u201cThose facilitated the mining industry in China,\u201d Xiong tells Magazine.<\/span><\/p>\n Chase Lochmiller, CEO and co-founder of Crusoe Energy Systems \u2014 a Colorado company that uses waste gas from oil well sites to power Bitcoin mining rigs \u2014 tells Magazine that more miners are now migrating to North America, driven by the increased attention paid to BTC by investors and society in general.<\/span><\/p>\n Any movement to North America could also invite further scrutiny from environmentalists who have attacked Bitcoin\u2019s prodigious consumption of energy \u2014 and its related climate-threatening emissions. The annualized energy consumption of the Bitcoin mining industry in China alone will peak in 2024 at 296.59\u2009terawatt-hours, according to the <\/span>Nature Communications <\/span><\/i>paper, which \u201cexceeds the total energy consumption level of Italy and Saudi Arabia\u201d in 2016.<\/span><\/p>\n In March, Bank of America analysts <\/span>\u201cslammed\u201d Bitcoin mining for its environmental wantonness<\/span><\/a>, noting that \u201cA single Bitcoin purchase at a price of ~$50,000 has a carbon footprint of 270 tons, the equivalent of 60 ICE [internal combustion engine] cars.\u201d<\/span><\/p>\n The <\/span>proof-of-work<\/span><\/a> consensus mechanism used to verify Bitcoin transactions requires would-be miners to compete against each other to solve complicated mathematical puzzles. Computers, such as ASICs, specially built to solve those problems burn through immense amounts of electricity. Miners that solve the puzzle get to form and confirm the next \u201cblock\u201d of transactions, and they receive BTC as a reward for their efforts.<\/span><\/p>\n Still, \u201cThis is a security feature of PoW not a bug,\u201d says Vera. If the puzzles to be solved \u2014 the answers to which are called \u201chashes\u201d \u2014 are too easy to solve, the network invites denial-of-service attacks from hackers.<\/span><\/p>\n Lochmiller says that high energy usage in itself is \u201cnot necessarily a bad thing\u201d if it is done right. Crusoe Energy, for instance, has developed a technology that captures the natural gas that is \u201cflared\u201d into the atmosphere at oil well sites and uses this waste gas \u201cto power modular data centers [mining rigs] deployed directly at the wellsite.\u201d\u00a0<\/span><\/p>\n When co-locating rigs in this manner \u2014 as the company has done in Colorado, Montana, Wyoming and North Dakota \u2014 the result is an overall 71% reduction in CO2 emissions when compared with flaring, Lochmiller tells Magazine. \u201cIt\u2019s a net benefit to the environment, and a net advantage to BTC.\u201d<\/span><\/p>\n The ecological challenges attached to crypto mining \u201care easily addressable,\u201d Clark Swanson, CEO of Blockcap \u2014 one of the largest Bitcoin mining operations in North America \u2014 tells Magazine, adding:<\/span><\/p>\n \u201cThe Bitcoin network is the first use of energy that does not require its source of energy to be co-located near the end user population.\u201d\u00a0<\/span><\/p><\/blockquote>\n Swanson stresses that BTC mining is moving toward making renewables the primary source \u201cand perhaps one day the sole source of energy to the Bitcoin network.\u201d Even today, Blockcap utilizes power that achieves a nearly 50% carbon-neutral output. \u201cWe are continuing to drive our carbon-emission target to neutral.\u201d At present, however, most Bitcoin mining globally <\/span>is not powered by renewable energy sources<\/span><\/a> like solar, wind or hydro. <\/span>According<\/span><\/a> to the Cambridge Centre for Alternative Finance, \u201c39% of hashing\u2019s total energy consumption comes from renewables.\u201d<\/span><\/p>\n Not all are impressed by recent measures, however. Alex de Vries, founder of Digiconomist, calls the co-location solution preposterous, telling Magazine: \u201cWe\u2019re not having a climate change problem because fossil fuel extraction is not efficient enough.\u201d He adds:<\/span><\/p>\n \u201cUsing a byproduct of fossil fuel extraction still means Bitcoin is running on fossil fuels, and it only adds to the bottom line of fossil fuel companies.\u201d\u00a0<\/span><\/p><\/blockquote>\n De Vries admits that solar panels provide green energy and are an improvement over using flared gas, \u201cbut so far the only substantial source of renewable energy going into the Bitcoin network is dodgy hydropower that can only be obtained for just a couple of months per year,\u201d as is the case in China\u2019s Sichuan province<\/span> \u2014 <\/b>the world\u2019s largest BTC mining hub.<\/span>\u00a0<\/b><\/p>\n Even if the Bitcoin network were to run entirely on renewable energy, continues de Vries, it wouldn\u2019t solve all its PoW-related problems. \u201cThis network runs on highly specialized equipment that cannot be repurposed,\u201d and the growing demand for the ASIC machinery \u201calready adds to the disruption in the global semiconductor supply chain.\u201d The end result will be \u201ca substantial pile of electronic waste on top of all that energy consumption. No amount of green energy can fix that.\u201d<\/span><\/p>\n Optics will become more important, arguably, if the mining industry\u2019s center of gravity shifts from China to North America, where regulators and environmentalists might be more sensitive than China\u2019s energy authorities to the industry\u2019s energy consumption and carbon footprint.<\/span><\/p>\n Beyond the energy and environmental questions, others see significant security risks in Bitcoin\u2019s consensus mechanism. \u201cJust consider that half of the network\u2019s hashrate is physically located in China,\u201d says de Vries. \u201cThat\u2019s a major security risk.\u201d<\/span><\/p>\n Something similar was suggested by Ripple co-founder Chris Larsen in an opinion piece for The Hill in August 2020. He <\/span>wrote<\/span><\/a>: \u201cAt least 65 percent of cryptocurrency mining is concentrated in China, which means the Chinese government has the majority needed to wield control over those protocols and can effectively block or reverse transactions.\u201d<\/span><\/p>\n <\/p>\nWhat took so long?<\/span><\/h4>\n
Bitcoin mining \u201cslammed\u201d by environmentalists<\/span><\/h4>\n
A security risk?<\/span><\/h4>\n