Two things that seem futuristic: Bitcoin and energy efficiency. Two things that are diametrically opposed: Bitcoin and energy efficiency. Mining Bitcoin might not sound like a resource-intensive process, but in fact it requires almost unbelievably vast amounts of energy. In order to track the shocking energy footprint of Bitcoin mining, the University of Cambridge’s Centre for Alternative Finance created an online tool that measures this consumption to its best ability and compares it to the energy consumption of other entities to put the shocking quantities into perspective.
Thanks to the climbing price of Bitcoin, this week the cryptocurrency’s energy consumption topped that of Pakistan--a nation of more than 200 million people.
This spike in Bitcoin mining is thanks to an explosion in Bitcoin prices. The cryptocurrency’s value has jumped 276% this year alone, trading around $27,000 on Tuesday with a total market value near $500 billion. As MarketWatch points out, this could make Bitcoin not only more energy intensive, but less energy efficient, as the price spike “has made it more profitable to use less-efficient equipment.”
It’s not just Bitcoin’s energy footprint and market value that are gargantuan--its carbon footprint is worryingly large as well. Last year, however, Bitcoin defenders rallied around a new study by cryptocurrency investment products and research firm CoinShares that found nearly 75% of Bitcoins were mined using clean energy. Unfortunately, that report has now come under great scrutiny by other researchers, who have found that estimate to be greatly exaggerated. After all, two thirds of all Bitcoin mining in the world takes place in China, where more than half of the nation’s power is coal-fired.
In recent months however, this dependence on coal has become a major issue for Bitcoin mining operations in China. As China has experienced an energy shortage in recent months, in large part thanks to Beijing’s decision to blacklist Australian coal imports, domestic Bitcoin mining has come under siege. While China is still far and away the world’s largest trader of Bitcoin, energy shortages and the increased production of other countries are quickly closing that cap.
As of now, two thirds of bitcoin production happens in China, followed by the United States which represents just 7% of all bitcoin production. The U.S. is closely followed by Russia and Kazakhstan. But that ranking could soon change as Russia makes a power play to ramp up its mining operations in a venture led by Gazpromneft, the petro-based subsidiary of Russia’s state-owned natural gas giant Gazprom, the 10th biggest oil producer in the world.
Gazpromneft recently began a cryptocurrency mining operation based in one of its Siberian oil drilling sites, “unlocking the power of Russia’s oil and gas resources for the needs of bitcoin mining,” Yahoo! Finance reported this week. In slightly better news for Bitcoin’s carbon footprint, Russia’s new mining operation will be powered by natural gas from the oil field, located in the Khanty-Mansiysk region of northwestern Siberia, which has its own power plant to convert the gas into electricity for Bitcoin production. And there is another silver (and green) lining to this model: “The CO2 that gets freed during the oil drilling is normally a liability for oil companies as they have to burn it into the atmosphere, which results in fines. However, there are ways to utilize it instead of wasting it, and electricity generation is one of them,” Yahoo! Finance reports.
The location of the new Russian Bitcoin farm also means that the costs of the operation will be relatively low. Instead of paying a premium to use energy from the grid, locating the cryptocurrency mining on-site at an oil field means that a steady supply of natural gas is virtually free. All this is to say that China and the U.S. had better get ready for some stiff competition.
By Haley Zaremba for Oilprice.com
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