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Crypto miners hit back at US climate critics, promise added grid benefits

18 February 2022 Keiron Greenhalgh

Cryptocurrency miners are poised to play an increasingly large role in addressing the vulnerabilities of the US power grid, even as scrutiny from lawmakers intensifies after miners decamped in droves to American shores following a Chinese government ban, raising electricity price and climate impact concerns.

Miners can currently provide speedy flexibility for grid operators, and at least one company recently stopped production during wintry blasts of weather to sell the power under its control. But the future offers even greater rewards for the backbone of President Joe Biden's climate goals, analysts and executives say.

Cryptocurrency mining has possibilities as an additional revenue source for solar or wind developers, a storage asset, or even a strategy for regulated utilities to make money with, they say.

The dominant cryptocurrency is Bitcoin. Bitcoin mining's total known power use globally was 3.338 GW at the end of December, according to data compiled by Coinshares Research, a Jersey, Channel Islands-headquartered digital investment house. The largest share of that mining power use was based in the US at 1.38 GW, or 41.3%, while 787 MW or 23.6% was in Kazakhstan.

America's share of Bitcoin mining increased from 4% in August 2019 to 35% in July 2021, according to US Senator Elizabeth Warren, Democrat-Massachussets. The US' share of mining soared after the Chinese ban came into effect in May 2021 and then was updated in September 2021, which the lawmaker said left 500,000 mining operations looking for new homes.

Computer servers known as "mining rigs" perform complex calculations to earn cryptocurrency blockchain such as Bitcoin. These servers require vast computational power and substantial amounts of electricity. As a result, miners typically seek out the cheapest power as a result. Where that is coal-fired generation, miners have attracted negative publicity against the backdrop of more ambitious US climate goals.

Warren and fellow lawmakers Sheldon Whitehouse, Jeff Merkley, Maggie Hassan, Ed Markey, Katie Porter, Rashida Tlaib, and Jared Huffman, sent letters 27 January to crypto mining companies seeking answers on their grid and climate impact. The six companies—Riot Blockchain, Marathon Digital Holdings, Stronghold Digital Mining, Bitdeer, Bitfury Group, and Bit Digital—were given until 10 February to respond.

"The extraordinarily high energy usage and carbon emissions associated with Bitcoin mining could undermine our hard work to tackle the climate crisis—not to mention the harmful impacts crypto mining has on local environments and electricity prices," said Warren in a statement revealing her latest consumer protection inquiries.

Earlier, Warren posed similar questions to Greenidge Generation, which operates a crypto mining facility in Dresden, New York. Warren said in December that GHG emissions from the Dresden operation increased nearly tenfold between 2019 to 2020 to more than 220,000 mt of CO2, which she said was the equivalent to the emissions of 50,000 cars. Warren also highlighted local residents' concerns over water quality.

Greenidge did not respond to Net-Zero Business Daily queries on any response to Warren.

Responses to Warren

January's inquiries saw the miners make their case in public and private. Stronghold Digital Mining and Bit Digital issued statements, while Marathon Digital Holdings told Net-Zero Business Daily it had responded to the lawmakers' request and was waiting to hear back from their offices. Bitdeer would only confirm 16 February it had responded to the request.

Stronghold Digital Mining said 8 February it was happy to educate the politicians on its ongoing positive environmental impact. In the statement, CEO Greg Beard said: "We believe that our differentiated business model demonstrates how Bitcoin mining can have a beneficial impact on the environment, local communities, and grid stability."

Pennsylvania-based Stronghold, which operates 165 MW of coal refuse-fired generation to power its mining operations, said its home state had deemed reclamation of coal refuse sites an environmental priority. Pennsylvania has over 840 piles of mining waste, with estimates of as much as 8 billion cubic yards of coal refuse lying unused around the state, it said.

The company's operations "efficiently convert damaging waste product" into power while helping achieve governmental priorities, it said. Those facilities also supply power to the grid when dispatched, it added.

New York-based Bit Digital on 31 January also took on the lawmakers in public, arguing it used clean energy for its electricity needs, had signed up for the Crypto Climate Accord (CCA) launched in April 2021, and had embraced the clean energy goals of the Bitcoin Mining Council (BMC).

Bit Digital said it sources power from hydro-electric, solar, and wind facilities while also participating in load balancing and voluntary curtailment programs. The company has US mining operations in Nebraska, Texas, and Georgia.

The CCA, it said, aims to develop, test, and implement new solutions to accelerate crypto mining's transition to renewable energy. Signatories seek to achieve net-zero emissions from the electricity consumption associated mining by 2030. In the future, Bit Digital intends to operate on 100% carbon-free power, it said.

Warren isn't the only lawmaker in Washington with an eye on crypto mining's thirst for power and climate impact. The US House of Representatives Committee on Energy and Commerce's Oversight and Investigations Subcommittee held a 20 January hearing seeking answers too.

Energy and Commerce Committee Chairman Frank Pallone said the hearing was intended to examine the potential environmental costs of the crypto mining industry. The New Jersey Democrat said an estimate found the 2021 carbon emissions from mining of Bitcoin and Ethereum—the second-largest cryptocurrency—to be 78.8 million mt of carbon, or the tailpipe emissions from more than 15.5 million gasoline-powered cars.

Bitfury Group CEO Brian Brooks, a former US acting comptroller of the currency, told the panel it was important Bitcoin shouldn't be judged solely on the basis of how much energy it uses, but rather on the basis of its energy mix relative to other energy users in the economy and the incentives Bitcoin creates for creating a more sustainable energy mix.

Brooks said that if Bitcoin competes as a store of value with gold, then an appropriate question is whether the energy used in Bitcoin mining produces more economic value per unit of energy than gold mining.

A recent Goldman Sachs report, he said, estimates that the global store-of-value market is comprised of roughly 20% Bitcoin and roughly 80% gold, with Bitcoin gaining market share over time.

According to the Cambridge Bitcoin Electricity Consumption Index, Bitcoin mining and gold mining consume approximately the same amount of electricity per year, Brooks said. Unlike Bitcoin mining, he said, gold mining presents a host of other environmental concerns, citing solid waste production through tailings and waste rock, open cut mining, chemical consumption, and emissions, plus the secondary effects of transportation and storage costs.

Aiding grid operators

Crypto miners can also offer flexibility that other power intensive industries can't, advocates say. In January, one of Warren's quarries, Greenidge, curtailed its mining operations in Dresden, New York, to aid the power system during a period of high electricity demand resulting from cold weather. Greenidge sent all the power it would normally consume to the grid run by the New York Independent System Operator (NYISO).

Fellow miner Compute North offered to aid NYISO's regional transmission operator counterpart, the Electric Reliability Council of Texas (ERCOT), during a January cold snap in that state. Compute North Vice President of Marketing Kristyan Mjolsnes told Net-Zero Business Daily that ERCOT did not request the company curtail its 11-MW load, but it would have been able to do within 10 minutes if needed.

Outside of offering that flexibility to the grid, Mjolsnes said Compute North is leveraging wind, solar, and carbon-free assets for its facilities and is putting energy efficiency at the heart of company operations.

Riot Blockchain also offered its Texas power needs to ERCOT in January. The company says it is currently the biggest Bitcoin miner in Texas, using 100 MW of power. It plans to expand its power consumption by 400 MW by the end of 2022, it said 4 February.

Meantime, the environmental impact of crypto miners is lower in the US than elsewhere in the world, according to a Coinshares study released in January. The carbon intensity of US miners was 447 g/kWh, compared with a global weighted average of 466 g/kWh, while Kazakhstan's was 787 g/kWh, the highest of any country mining Bitcoin the research house said it tracked. Calculations for individual US states showed Wyoming as the dirtiest miner at 830 g/kWh, closely followed by Kentucky and Montana at 810 g/kWh and 791 g/kWh, respectively. Each of those three states has a coal-heavy generation profile. Some of 79.5% power production in 2020 in Wyoming was from coal-fired units while in Kentucky coal accounted for 68.7% of the generation stack, according to US Energy Information Administration data.

Bitfury's Brooks told the House subcommittee the company's individual carbon emissions impact was 211 kg/MWh, compared with a 386 kg/MWh for the US grid as a whole. He added that his figure excluded carbon offsets purchased for one of Bitfury's international locations.

And miners' use of what industry body the BMC terms "sustainable energy" is on the rise too, according to a survey released 18 January. Information the BMC collected from more than 46% of the global Bitcoin network showed 66.1% of respondents power needs are currently sustainable, it said. Extrapolating from that data, the BMC said the global Bitcoin mining industry was using 58.5% sustainable electricity to meet its needs in the fourth quarter of 2021, compared with 57.5% in the previous quarter.

The BMC's definition of sustainable electricity comprises power from hydro-electric, wind, solar, nuclear, and geothermal sources. It estimates global Bitcoin miners consume 220 TWh and mining efficiency has become 58 times more efficient in the past eight years. The trade group expects a doubling of the sector's mining efficiency over the next four years.

Global pushback

Crypto mining is a global industry, in which cheap, abundant power sources draw in miners, so China and the US aren't the only places where its energy use has come under fire in recent months. Argentina raised power prices for miners 1 February, eliminating subsidies.

Kosovo's government banned crypto mining on 5 January, and later that week the country's police and customs service raided a mining operation and shut "illegal" activities down, one of a series of shutdowns. Economy minister Artane Rizvanolli saw it as "tens of thousands of Euros per month saved" and energy for "hundreds of Kosovar families."

In December 2021, Kosovo had announced a 60-day state of emergency to deal with the energy crunch exacerbated by a shutdown at one of the country's two coal-fired power plants, forcing the government to import power.

Coinshares estimates the Bitcoin network drew 75 TWh of electricity in 2020 and 82 TWh in 2021. As of December 2021, the annualized draw was 89 TWh, the second-highest monthly estimate of 2021, the highest being November at 93 TWh. The lowest monthly estimate in 2021 was July, estimated at 54 TWh.

Change of image and transformation of the sector's model

However, the prism through which cryptocurrencies are viewed could easily change, observers say.

IHS Markit Head of Capital Markets Research Christopher Fenske told Net-Zero Business Daily an often overlooked facet of cryptocurrencies is that the technology could be viewed as a store of value for power generation if the crypto markets remain efficient.

Fenske said that if there is a power source such as wind, solar, or flared natural gas, but there is no use for the electrons at that time for conventional users, the electrons could be stored in a battery, or stored in the form of a cryptocurrency if the market price of the coin makes sense compared with the time and energy required to mine it.

The economics of mining cryptocurrencies, said Fenske, is an arbitrage between mining power costs and current market value of the coin being mined, with more widespread use of less expensive green power sources having the potential to expand mining operations into traditionally higher cost electricity markets.

Miners will seek out the lowest-value power available, said Digital Power Optimization CEO Andrew Webber. As a result, crypto mining will become useful to society and grid operators by looking for the "energy that wasn't being used by society," he said, hunting for what he called "marginal, waste power," especially as margins for miners shrink.

Crypto mining is a useful grid management tool in that it can be turned on and off quickly, said Webber, adding that such flexibility as well as its profitability can help power producers. Crypto mining can help producers and grid operators "do their job better," he said.

John Belizaire, CEO of Soluna Computing, told the House subcommittee hearing the company builds data centers and crypto mining operations on-site at clean power plants to repurpose energy that would otherwise go to waste.

Curtailed energy is a nearly universal problem in clean energy development with up to 30% of clean power generated on solar and wind farms wasted, Belizaire said. Curtailed energy is a problem in the US because the grid is inflexible, as it is based on a legacy architecture of equalizing supply and demand, and it's not designed to handle the volume of clean energy that is in the pipeline, he said.

Over the next decade, meanwhile, Webber expects crypto mining to become a strategic tool for power producers, arguing that the "only people" mining for cryptocurrencies in 10 years' time will be large-scale electricity generators. This is because they'll be the only entities with the access to enough power, he said.

Lawyers at global firm Norton Rose Fulbright noted in December that already some power producers have entered into joint venture partnerships with crypto miners or have become vertically integrated crypto mining operations.

There is another way

That said, one segment of the crypto universe sees an alternative to the power consumption and climate critiques facing their brethren, especially those in the Bitcoin world wedded to what's known as "proof of work," or earning the Bitcoin by the energy-guzzling puzzle solving. This non-Bitcoin segment advocates using the "proof of stake" methodology instead, whereby cryptocurrency owners validate blockchain transactions based on the number of coins a validator stakes.

Ethereum is pledging to make the transition to proof of stake in the second quarter of 2022, and estimates the shift will reduce the currency's total energy use by "99.95%," according to the open source website, which is maintained by the nonprofit Ethereum Foundation.

Crypto pioneer Ari Juels, an academic at Cornell Tech, who told the House subcommittee hearing he coined the term "proof of work," said that a decade before Bitcoin was invented in 2009, he was already preaching what an inherent waste it was.

"We have far more energy efficient alternatives than proof of work. For the sake of the environment and our energy infrastructure in the United States, I believe that we need to embrace these newer options," he told the subcommittee.

Posted 18 February 2022 by Keiron Greenhalgh, Senior Editor


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