Externalities of America’s Next Great Gold Rush
By: Conner Smith
Bitcoin is a digital currency used for personal transactions. Every transaction is recorded on a public ledger, called a blockchain. Blockchain ensures everyone knows how much bitcoin is in circulation; therefore, users don’t have to rely on a central authority, like the U.S. Federal Reserve. Bitcoin mining is the process in which super computers solve incredibly complex mathematical problems in order to discover more Bitcoin, and verify bitcoin transactions by adding them to the aforementioned blockchain. The puzzles become increasingly complex the more people solve them, so these “miners” create mining pools, to combine their computers’ processing powers in order to increase their odds of finding solutions to the puzzles.
Notably, the amount of energy the super computers use to solve these puzzles is estimated to be 74.48 terawatt-hours per year. That’s level of energy consumption comparable to Venezuela! That heap of energy produces 35.38 megatons of carbon emissions per year, comparable to the carbon footprint of the entire country of New Zealand. Researchers at the University of New Mexico quantified the health and environmental costs that Bitcoin mining has on the United States. Their findings estimated that “every $1 of Bitcoin value created was responsible for $0.49 in health and climate damages in the United States.” In other words, every dollar worth of bitcoin that is mined incurs a 50% cost to the health and climate of the U.S.
Bitcoin miners tend to set up their operations where energy is cheap, such as in upstate New York, rural Washington state and across China. The blockchain industry research group CoinShares estimated that 73% of bitcoin mining uses renewable energy, such as in New York and Washington which run on hydroelectric power. Some researchers are skeptical about that percentage, however, mainly due to the differences in energy sources found in regions of China, with some using coal and others using hydroelectricity. Even in those regions of China that do use hydroelectric power, miners may have to resort to energy from fossil fuels because mining requires a constant source of energy and hydropower’s availability could depend on seasonal rain.
It’s important to remember the repercussions that come with the next great American gold rush. Standards must be set immediately for the amount and kind of energy these miners can use. Without proper standards in place from the EPA and other governmental leaders the environmental externalities from the mining process will get further out of control, as the crypto craze shows no signs of slowing down.