Industry seeking new ways to reduce mining’s carbon footprint
This is the first in a series of articles on the growing interest in and shift toward cryptocurrency, concerns over its carbon footprint, and innovations being explored by the oil and gas industry to reduce that footprint. The articles will focus on cryptocurrency and its growing place in the construction industry, potential areas of dispute, and best practices for minimizing risk while capitalizing on cryptocurrency’s promise.
Elon Musk’s recent public pullback from Bitcoin has shed new light on the carbon footprint that mining of cryptocurrency creates. The issue is not a new one, however, and several industries are researching ways to sustainably fuel the process while reducing its concerning environmental impact.
The oil and gas industry, in particular, is investigating ways to reduce its own carbon footprint, pivot to more sustainable sources of energy, and, among other things, simultaneously provide sources of energy for cryptocurrency mining. While implementation of these emerging solutions may still be far off, the industry’s commitment to researching them is a strong signal that crypto—and its inherent opportunities and challenges—is here to stay.
Section 1 – what is cryptocurrency?
Cryptocurrency (“crypto”) is a decentralized digital currency, meaning it is not issued by a bank or other financial institution. Bitcoin (or BTC) and other cryptocurrencies, such as Dogecoin, Ethereum, Litecoin, and others, are created through a computerized process known as “mining.” Crypto transactions between buyers and sellers are encrypted and are posted on a ledger known as a Blockchain.
Crypto can be used to buy or sell goods or services, or for other types of transactions such as currency exchange or ownership of an NFT. Its inherent independence from oversight by traditional banks or other financial institutions has been touted by some as a great benefit. Others fear that this independence and general inability to trace transactions has downsides, and that crypto can be more easily used for nefarious purposes—including money laundering—than traditional, fiat currencies.
Acceptance of crypto has been rising steadily since 2008, when Bitcoin became the first to be developed and widely promulgated. Researchers estimated that there were between 2.9 and 5.8 million unique users using a cryptocurrency wallet in 2017, with most using Bitcoin. The number of users has risen since, especially after Musk and other high-profile innovators began publicly praising the currency for its egalitarianism and independence from traditional currencies.
Bitcoin is the most widely used crypto today. In November 2020, approximately 18.5 million Bitcoins had been produced to-date and, by March 2021, Bitcoin had reached an all-time high in terms of its market cap. Now, after some fluctuation, Bitcoin’s market cap is valued at more than $600 billion (USD) – approximately half of the entire crypto market cap of roughly $1.5 trillion, as of May 31, 2021. While experts predict that its value will continue fluctuating, the use of Bitcoin and other cryptocurrencies is expected to continue its upward trajectory, as new users continue to explore, mine, and invest.
Section 2 – how cryptocurrency is mined
Bitcoin and other cryptocurrencies are created through a network of linked, independent computers, that process transactions in exchange for a “reward” of newly created, or minted, Bitcoin.
Notably, mining has become intentionally more difficult and time-consuming in the years since Bitcoin first was created. The increasing difficulty is built into the process to prevent a devaluing proliferation of Bitcoins. In 2009, crypto miners could use personal computers to mine coins; today, the complexity of the mining process and the “problem” to be solved requires the use of supercomputers. Scores of supercomputers, many stored together in vast mining warehouses known as “farms,” compete with each other to solve random math problems, and the first computer to solve the problem is rewarded with a Bitcoin or crypto coin. At any time, thousands of computers are competing simultaneously, all trying to solve the same math problem, to secure their financial reward.
The process of mining is arduous, requiring an average of 10 minutes of computing time for each and every computer involved in crypto transactions. That computing time, in conjunction with the sheer number of computers competing simultaneously, requires a significant amount of energy.
Section 3 – challenges presented by cryptocurrency mining
The crypto mining process inherently uses incredibly high levels of energy. This has caused concern among environmentalists and financiers who are not convinced that the energy usage is worth the result.
According to a Cambridge University think tank, Bitcoin mining requires more than 121 terawatt-hours per year—more energy than a country the size of Sweden uses annually.
Musk sent shockwaves through the Bitcoin and traditional financial networks in May when he announced that Tesla would no longer accept Bitcoin for transactions. Musk citied Bitcoin mining’s heavy carbon footprint as the reason for the highly publicized pullback. Musk’s statement came only two months after Tesla began accepting Bitcoin for car purchases, a move that sent stock prices for Bitcoin and other cryptos soaring. Conversely, Musk’s Twitter statements in May caused BTC prices to tumble, along with overall consumer confidence in the currency.
Musk is not alone in his concern over crypto mining’s carbon footprint, and some environmentalists say miners should pay a carbon tax or other penalty for the energy they use. Others feel that governments should offer incentives to companies that are helping to solve the problem. Some US states with historic and well-established ties to the natural resource industries are considering implementing incentives or have already initiated friendly regulation policies Texas, in particular, has invested billions to pivot US energy usage from oil and gas to cleaner sources of energy. The oil and gas industry in Texas, and in other parts of the world, is under increasing pressure to reduce its own carbon footprint by 2050. As a result, the industry is looking at ways to reduce its own emissions and more sustainably power its processes. Notably, one area of concern among environmentalists – natural gas flaring – has garnered attention as a way to meet crypto mining’s rising power demand while helping refineries meet emissions reduction goals.
In the next article, we will explore how emissions from natural gas flaring and other innovations could be used to power cryptocurrency mining, and the opportunities and challenges it presents.
