Bitcoin miners want to recast themselves as eco-friendly

Along a dirt-covered road in the heart of an agricultural region of Texas, cryptocurrency company Argo Blockchain is building a powerhouse for the internet age: a crypto “mining” site filled with computers that generate new bitcoins.

But unlike other bitcoin mining operations, which burn large amounts of fossil fuels and produce carbon emissions, Argo says it’s trying to do something environmentally responsible. As Peter Wall, Argo’s chief executive, led a tour of the 126,000-square-foot construction site one morning this month, he pointed to a row of wind turbines a few miles down the road, their beams whites shining in the sun.

The new facility, an hour from Lubbock, would be powered primarily by wind and solar power, he said. “It’s Bitcoin mining nirvana,” Wall said. “You look away and you have your renewable energy.”

In the face of criticism from politicians and environmentalists, the cryptocurrency mining industry has embarked on a rebranding effort to challenge the mainstream view that its power-hungry computers are harmful to the climate. The five largest publicly traded crypto-mining companies say they are already building or operating factories powered by renewable energy, and industry executives have begun to argue that demand from crypto miners will create opportunities for wind companies and solar to open their own installations.

The effort — part public relations exercise, part genuine attempt to make the industry more sustainable — has intensified since last spring, when China launched a crackdown on crypto mining, forcing some mining operations to relocate to the United States. A trade group called the Bitcoin Mining Council also formed last year, in part to tackle climate issues, after Elon Musk critical industry for the use of fossil fuels.

Crypto mining does not involve picks and shovels. Instead, the term refers to a verification and currency creation process that is essential to the Bitcoin ecosystem. Powerful computers compete to process transactions, solving complex mathematical problems that require quintillions of numerical guesses per second. As a reward for this authentication service, miners receive new coins, giving them a financial incentive to operate the computers.

In the early years of Bitcoin, a crypto enthusiast could mine coins by running software on a laptop computer. But as digital assets have become more popular, the amount of energy needed to generate Bitcoin has skyrocketed. A single Bitcoin transaction now requires more than 2,000 kilowatt hours of electricity, enough energy to power the average US household for 73 days, researchers say estimate.

To achieve this, some miners are revive broken coal-fired power plants, or use low-cost natural gas to power their computers. Last month, a study in the journal Joule found that Bitcoin mining around the world could be responsible for around 65 megatons of carbon dioxide per year, comparable to emissions from Greece.

According to the study, the Bitcoin network’s use of green energy sources also dropped to an average of 25% in August 2021, from 42% in 2020. (The industry argued that its average renewable use is closer to 60%.) This is partly a result of Chinese repression, which cut off a source of cheap hydroelectricity. But it also reflects fundamental economic incentives, said Alex de Vries, one of the Joule study’s authors. Renewable energy is an intermittent power source – the sun only shines for part of the day and wind speeds fluctuate greatly.

“What a miner is going to do if he wants to maximize profit is put his machine where it can run all day,” Mr de Vries said.

Bitcoin’s inflated energy consumption has long outraged environmentalists. But the criticism that made the biggest impression came from Mr. Musk, a longtime Bitcoin booster, who noted on Twitter in May that Tesla, its electric car company, would no longer accept cryptocurrency payments due to “the increasing use of fossil fuels for Bitcoin mining and transactions.”

His tweet sent the mining industry into crisis mode. Michael Saylor, the chief executive of software company MicroStrategy, which invests heavily in Bitcoin, reached out to Mr. Musk to discuss the climate issue. A group of mining executives, including Mr. Saylor and Mr. Wall, later met with Mr. Musk via Zoom.

“He wanted to make sure the industry was on the side of sustainability, and he gave us some guidance,” recalls Saylor. “His encouragement was, ‘Discover how clean energy is, how sustainable energy is. Determine how much you use. “” (Mr. Musk did not respond to a request for comment.)

After the call, Saylor created the Bitcoin Mining Council, a forum for the industry to share ideas and coordinate environmental strategy. One member, TeraWulf, is committed to mining cryptocurrency using over 90% carbon-free energy. It has two projects underway – a former coal plant in upstate New York powered by hydroelectricity and a nuclear plant in Pennsylvania.

“Everyone I talk to now talks about carbon neutrality,” said Paul Prager, CEO of TeraWulf. “The language has completely changed.”

But financial priorities and technological barriers in the crypto mining industry, which includes more than a dozen publicly traded companies like Argo, are preventing a full shift to renewable energy. In late 2020, Marathon, one of the largest publicly traded mining companies, began mining Bitcoin at a coal plant in Montana, citing easy access to cheap energy.

In Illinois, cryptocurrency mining company Sangha Systems has redeveloped an old steel mill in the town of Hennepin. The Sangha is led by a former lawyer, Spencer Marr, who said he founded the company to promote clean energy. But about half of Hennepin’s energy comes from fossil fuels.

“It was a compromise we had to make,” Mr Marr said. “It was a means to an end that allowed us to establish ourselves as a company.”

In recent months, Texas has emerged as a hotspot for crypto mining, attracting more than two dozen companies. The state has an unusual incentive structure that suits the nascent industry well: the Texas grid operator offers what amounts to a rebate to businesses that can quickly unplug when demand for electricity increases across the state, allowing energy to flow to ordinary homeowners. Many crypto mines can activate or deactivate within seconds, allowing them to take advantage of the incentive with minimal inconvenience.

The deal was part of the lure for Argo, a London-based company founded in 2017 that operates two other mines in Quebec, mostly using hydroelectricity. Wall said Argo was also drawn to the abundance of green power in West Texas. The facility outside Lubbock will be connected to the western sector of the Texas energy grid, where about 85% of the electricity comes from wind and solar infrastructure, including an array of turbines that sit virtually next to the construction site. construction of Argo.

But Mr. Wall cannot guarantee that Argo’s new center will have no carbon footprint. This would require bypassing the grid and buying power directly from a renewable energy company.

“A lot of these renewable energy producers are still a bit skeptical about cryptocurrency,” he said. “Crypto miners don’t have the credit profiles to sign 10- or 15-year contracts.”

Going forward, he said, Argo plans to build its own solar panels onsite in Texas and negotiate deals with local renewable energy companies to purchase power directly.

The broader cryptocurrency community is divided on whether cleaning up the mining sector is the best path to environmental sustainability. The energy-intensive authentication system that underpins Bitcoin is known as “proof of work”; some industry players are pushing to create new cryptocurrencies on a different system called “proof of stake,” which uses as little as 0.01% of the energy consumed in the mining process.

Mr Wall said he had no objection to experimenting with an alternative system. Still, he said, he believes in Bitcoin’s long-term potential to transform finance, though he wants miners to be called something less extractive-sounding, like “validators.”

It’s a battle he’s unlikely to win. But even in the face of the backlash, he said, companies will continue to mine Bitcoin.

“It’s just going to happen. It is a reality,” he said. “We have to do it in an environmentally friendly way.”

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