Taking a Closer Look At The Energy Used to Mine Bitcoin
Last week, I wrote a blog discussing bitcoin's environmental impact. This post proved to be a bit controversial within the virtual walls of CoinFlip headquarters and created some exciting conversations about bitcoin's use of energy. In general, bitcoin's energy footprint is a topic that is heavily debated. Bitcoin naysayers are quick to pass judgment on it, while enthusiasts believe the cryptocurrency can do no harm. While there is no arguing that bitcoin indeed uses a lot of energy, bitcoin proponents believe that the source of bitcoin's energy footprint is not as extreme as many believe.
In the spirit of stimulating a well-rounded discussion that looks at both sides of the coin, today, I'm taking a closer look at exactly where the majority of the power that fuels bitcoin mining comes from. Let's get into it.
Where Does Bitcoin's Energy Come From?
When people talk about Bitcoin's energy usage, they are usually referring to Bitcoin mining. Bitcoin mining requires specialized computers that use a lot of energy to add blocks of transactions to the blockchain and generate new bitcoins. For more information on exactly how bitcoin mining works, I recommend reading our article Bitcoin Mining 101.
As I mentioned in the previous article, the majority of Bitcoin mining takes place in China. According to data from the Cambridge Center for Alternative Finance's Cambridge Bitcoin Electricity Consumption Index (CBECI), China is by far the country with the most extensive bitcoin mining operations, with an average monthly hash rate of 65%. Hash rate is a metric from which you can infer the amount of power used to mine bitcoin.
For context, find the top five bitcoin mining countries and their average share of the hash rate as of April 2020 below:
China - 65.08%
USA - 7.24%
Russia - 6.90%
Kazakhstan - 6.17%
Malaysia - 4.33%
Within China, bitcoin mining is most prevalent in the following provinces:
Xinjiang - 35.76%
Sichuan - 9.66%
Inner Mongolia - 8.07%
Yunnan - 5.42%
The percentages above indicate the average monthly share of the total hash rate in April 2020.
Energy in Xinjiang and Inner Mongolia
Based on the data from the CBECI, it is clear that Xinjiang is the world's bitcoin mining epicenter. To better understand bitcoin's environmental impact, we can look at the energy available in Xinjiang province.
Xinjiang is a highly coal-abundant area, which means inexpensive energy for bitcoin miners - especially during the dry seasons when hydropower is scarce in other provinces. Xinjiang does have some renewable energy power stations, but the vast majority of electricity in the area is coal-based. As I mentioned in the previous article, when fossil fuels like coal are burned, they release CO2 and other greenhouse gases, which trap heat in our atmosphere, making them the primary contributors to global warming and climate change.
Xinjiang's reliance on coal presents multiple environmental hazards. This month, a series of major coal plant accidents took nearly a quarter of bitcoin's hash rate offline. It is expected that these BTC miners in this area will not be back online for at least a week. While this explosion has not directly impacted the Bitcoin network in any significant way, the accidents highlight just how much bitcoin mining relies on coal power.
Like Xinjiang, Inner Mongolia is a heavily coal-dependent region. However, government officials in China have recently proposed to close bitcoin mining farms in Inner Mongolia as part of the country's commitment to carbon neutrality by 2060. The plan indicates that all crypto mining projects will be shut down by the end of this month, April 2021. It is expected that the majority of mining operations in Inner Mongolia will be transferred to the regions of Sichuan and Yunnan, where hydropower is the primary source of energy.
Energy in Sichuan and Yunnan
The Sichuan province is rich in two sources of energy: coal-based and hydroelectric. Much of Sichuan's power comes from the Zipingpu Dam on the Min River. However, hydropower is only abundant during rainy seasons, which means more bitcoin mining in Sichuan happens during the wet periods. While Sichuan accounted for an average of 9.66% of the total hash rate in April 2020, it accounted for 20.46% in October of 2019. Like Sichuan, the Yunnan province also is dependent mainly on hydropower, though the average monthly share of the total hash rate does fluctuate as much by season.
During the rainy seasons, there is too much water flowing into the dams across Sichuan and Yunnan for the power grid to consume as there is low population density in the areas. During this time in these areas, energy is wildly overabundant, which means electricity is relatively cheap. Cheap renewable energy is great for bitcoin miners, but this is only applicable during some parts of the year.
Upon taking a deeper look into where bitcoin's energy footprint is coming from, it is clear that Xinjiang province in China is the epicenter of the world's bitcoin mining - producing the largest share of the total hash rate. Unfortunately, Xinjiang is heavily dependent on coal, which means that much of the energy used to mine bitcoin comes from burning fossil fuels.
Ultimately, the Cambridge Center study mentioned above estimates that only 39% of bitcoin mining energy comes from renewable sources. As I have mentioned before, I am hopeful for a more environmentally sustainable future for bitcoin. I genuinely believe that as bitcoin mining becomes more profitable, there will be innovations in energy efficiency.
Moreover, I do genuinely believe there are far more egregious environmental wrongdoings in the world, and Bitcoin is not even close to being the world's most polluting industry. It remains clear that bitcoin's benefits far outweigh its current environmental impact. Still, as members of the bitcoin community, it is wise to be as environmentally conscious as possible and prioritize making more sustainable choices in the other parts of your life.
If you are looking to make a difference this Earth Day, use a CoinFlip ATM, and we will plant a tree for you! Learn more about our Earth Day 2021 initiatives here. We are excited to begin working towards improving our business's environmental impact. We hope to incorporate more sustainable practices in the future. Be sure to visit your closest CoinFlip ATM to help us make a difference!
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