Loud statements by Elon Musk and other market participants about the dangers of mining for the environment became one of the reasons for the correction. However, is this reasoning true?
In May, Elon Musk announced that Tesla would no longer accept Bitcoin as a means of payment and named the reason: increasing environmental pollution due to Bitcoin mining. Musk raised the problem – the non environmental friendliness of cryptocurrency mining.
Tesla & Bitcoin pic.twitter.com/YSswJmVZhP
— Elon Musk (@elonmusk) May 12, 2021
Researchers at the University of Cambridge have concluded that bitcoin uses more electricity annually than all of Argentina: about 121.36 terawatt hours of electricity per year. Experts believe that this number is unlikely to decrease in the near future.
The Greenpeace organization was also interested in the problem of environmental pollution due to mining. Opinions about the dangers of mining for the environment have been expressed more than once.
In addition to the “green” ones, the problem of mining harm to the environment was also high lighted in China.
For example, the Xinhua news agency, close to the country’s authorities, in its statement on a possible mining ban in the country, among other things, indicated that mining “consumes a lot of energy resources,” so the cryptocurrency does not meet the goal of “carbon neutrality”.
Impact of restrictions on the environmental friendliness of mining
Together with the recent ban on mining in Iran, restrictions in China can improve the environmental friendliness of mining and increase the use of renewable energy sources in it, said expert Daniel Frumkin from Prague. Frumkin calculated how much energy is spent on mining.
For example, waste gas in the US alone is probably enough to keep the Bitcoin network running.
According to Frumkin, the very reasoning about the benefits or harms of this or that type of energy consumption is illogical without reference to the context and specific conditions.
Solar powered mining
The production of solar panels, which are actively supported by advocates of renewable energy, does some harm to the environment.
Large production of these panels is located in Xinjiang province, where a large number of mining farms are also located, which are accused of environmental pollution.
In early June, the authorities of the Xinjiang Uygur Autonomous Region ordered the immediate termination of miners‘ activities. Other regions in China will make a similar decision.
A joint study by Square and ARK Invest speaks of the possibility of using solar energy in mining – taking into account the change in the power of the sun’s energy throughout the year and day.
The document specifies the Levelized Cost of Electricity (LCOE): the total cost to build and operate a power generation facility over its entire life cycle, divided by the total amount of energy produced.
The authors found that even if the price of BTC remains constant for two years, using electricity from solar panels, the difficulty of mining will continue to increase until the average cost of mining for miners equals the actual price of BTC.
At the same time, mining will remain profitable for miners, albeit at a constantly decreasing rate, throughout the entire 48-month period. In addition, the initial investment actually pays off towards the end of the 3rd year of operation.
Thus, the use of solar energy for mining will only be rational if investors believe that the price of BTC will rise significantly over the next 4 years.
Renewable energy sources
Much of the energy used for mining comes from renewable sources. So in 2019, according to some estimates , about 73% of the energy used for mining was carbon neutral.
According to the University of Cambridge, this number is almost 2 times less and only 39% met the carbon neutrality criterion in September 2020.
According to the aforementioned Daniel Flumkin, a significant proportion of mining farms use energy from hydroelectric power plants and natural gas.
In recent years, the levelized cost of renewable energy has dropped significantly and is almost equal to that of coal-fired power plants. All this suggests that the harm factor of bitcoin for the environment can be exaggerated.
The topic “harm of mining to the environment” in the crypto industry becomes a powerful argument when switching from one blockchain to another.
In a recent interview, One Of founder Lin Dai stated that “we really can’t feel comfortable enough to use the Ethereum platform, mainly due to the environmental impact and high gas fees.
” While the Ethereum 2.0 update is intended to address these issues, Lin Dai announced the move of the One Of project to the Tezos blockchain, which already uses a PoS algorithm to improve environmental efficiency.
