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President Biden signed Executive Order 14067: “Ensuring Responsible Development of Digital Assets,” but nothing was suggested at the time that the US would consider banning Bitcoin mining.
As a result of said order, the Biden administration just completed a fairly compressive study called the CLIMATE AND ENERGY IMPLICATIONS OF CRYPTO-ASSETS IN THE UNITED STATES.
The Study was completed by twenty Federal Agencies:
• Commodity Futures Trading Commission (CFTC) • Consumer Financial Protection Bureau (CFPB) • Department of Commerce (DOC) • Department of Defense (DOD) • Department of Energy (DOE) • Department of Homeland Security (DHS) • Department of Justice (DOJ) • Department of Labor (DOL) • Department of State (DOS) • Department of Transportation (DOT) • Department of Treasury (Treasury) • Environmental Protection Agency (EPA) • Executive Office of the President (EOP) • Federal Deposit Insurance Corporation (FDIC) • Federal Reserve Board (FRB) • General Services Administration (GSA) • National Science Foundation (NSF) • Office of the Director of National Intelligence (ODNI) • Securities and Exchange Commission (SEC) • U.S. Agency for International Development (USAID)
Tackling the Climate Crisis at Home and Abroad
The Good the Bad and the Ugly???
- There is potential for blockchain, distributed energy resources (DERs), DLT to facilitate the energy consumption development of environmental and energy markets, AKA “Virtual Grids”.
- Blockchains and Distributed Ledgers in Environmental Markets
- Crypto-Assets Affect Electricity Usage and the Grid
- Environmental Impacts Include Air and Water Pollution, Noise, and Electronic Waste
- Crypto-Assets Result in Greenhouse Gas Emissions and Other Environmental Impacts
- Emerging Digital Asset Technologies Could Support Climate Monitoring or Mitigation
The report sought to identify who crypto-asset mining was having an impact on the environment and electrical grid.
“Nearly all crypto-asset electricity usage is driven by consensus mechanisms: the DLT used to mine and verify crypto-assets. The dominant consensus mechanism is called Proof of Work (PoW), which is used by the Bitcoin and Ethereum (formerly used, our note) blockchains. Bitcoin and Ether combined represent more than 60% of total crypto-asset market capitalization. The PoW mechanism is designed to require more computing power as more entities attempt to validate transactions for coin rewards, and this feature helps disincentivize malicious actors from attacking the network. As of August 2022, Bitcoin is estimated to account for 60% to 77% of total global crypto-asset electricity usage, and Ethereum is estimated to account for 20% to 39%.”
It also cited China as an example of why a nation might ban crypto-asset mining.
“In China, the incompatibility of large-scale Bitcoin mining with the country’s environmental goals has been cited as one several of the reasons why the US government should ban crypto-asset transactions in 2021.”
Yet, I found no comparison of demand or usage to any other industry such as the kilowatts required to operate one EV in America. Though that might be logical as the rise of EVs is supposed to rise in parallel with a rise in alternative energy. Both appear to be hitting inflection points at about the same time. EVs reaching 5% of sales and solar accelerating as the fastest growing source of new energy.
Anyway, the PoW mechanism is designed to require more computing power as more entities attempt to validate transactions for coin rewards, and this feature helps disincentivize malicious actors from attacking the network. So, in short, proof-of-work is not only costly but a burdensome technology that wastes electricity and causes green house gases to secure the network from fraud and abuse.
On the other hand, the EPA and the Department of the Interior have proposed new rules to reduce methane for oil and natural gas operations, and crypto-asset mining operations that capture vented methane to produce electricity can yield positive results for the climate by converting the potent methane to CO2 during combustion. Yet, the report directly targets conventional power grid demand that is diverted to crypto miners that burn fossil fuels, while they have no problem if miners develop new uses for clean energy sources.
What was also encouraging was that they spoke about how mining operations that replace existing methane flares would not likely affect CO2 emissions since this methane would otherwise be flared and converted to CO2. Mining operations could potentially be more reliable and more efficient at converting methane to CO2.
Another example in the report cited that Europe has placed conditions on crypto-asset mining that require renewable energy. This jives with the parallel approach of EVs and renewable energy to power them. Indeed, most new crypto miners of any scale are using renewable already in the U.S.
And, there are numerous examples of miners ceasing operations temporarily during periods of high energy demand by the rest of the grid. The impact recently has been that when there is excess energy, the crypto miners use it, but when there is not, they take a break. It is an added efficiency for the system in many respects.
Summing it up!
The target is to reduce global methane emissions by up to 50% by 2030 per say and not ban crypto mining. Though it appears that an outright ban, other methods (maybe a type of carbon credit scheme) will be put in place to disincentivize conventional crypto mining using fossil fuels. This is yet another reason to be bullish on clean energy, not bearish on Bitcoin.
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