Mining Harms the Environment. How Significant Is It?

The resounding statements by Elon Musk and other market participants about the dangers mining presents for the environment were one of the reasons for the correction. Yet, how fair are these arguments?

In May, Elon Musk announced that Tesla would no longer accept Bitcoin as a means of payment citing as the reason increasing environmental pollution due to Bitcoin mining. Musk raised the issue of the environmental unfriendliness of cryptocurrency mining.

Researchers at the University of Cambridge concluded that the annual electricity consumption of bitcoin exceeds that of the whole Argentina, i.e., about 121.36 terawatt hours of electricity per year. Experts believe that this number is unlikely to go down in the near future.

The Greenpeace has also shown interest in the issue of environmental pollution due to mining. Opinions about the harm mining inflicts on the environment have been expressed more than once. In April, Nature Communication magazine predicted  that by 2024, the greenhouse effect from mining farms in China will exceed that of the Philippines.

Not only the Greens but China also highlighted the problem of harm mining causes to the environment. For example, the close to the country's authorities Xinhua news agency indicated in its statement on a possible mining ban in the country that, among other things, mining “consumes a lot of energy resources,” therefore, the cryptocurrency does not meet the goal of “carbon neutrality”.

Impact of Restrictions on the Environmental Friendliness of Mining

An expert from Prague Daniel Frumkin believes that restrictions in China, together with the recent ban on mining in Iran, can improve the environmental friendliness of mining and increase the use of renewable energy sources in it. Frumkin made his own calculation on how much energy is spent on mining.

For example, the amount of waste gas in the US alone is probably sufficient 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

Manufacturing of solar panels so insistently supported by the advocates of renewable energy is in some respects harmful to the environment. Xinjiang province is the exact place where major production of these panels is located and where a lot of mining farms accused of environmental pollution are also located.

In early June, the authorities of the Xinjiang Uygur Autonomous Region ordered the immediate termination of miners' activities. Other regions in China may follow the suit.

A joint study by Square and ARK Invest mentions the possibility of using solar energy in mining adjusted to the fluctuations in the strength of the sun's energy throughout the year and day. The document specifies the Levelized Cost of Electricity (LCOE) which is the total cost of construction and operation of a power generation facility over its entire service life divided by the total amount of energy produced.

The authors found that even if the price of BTC remains constant for two years, the difficulty of mining using electricity from solar panels will continue to increase until the average cost of mining for miners reaches the actual price of BTC. At that, mining will remain profitable for miners, albeit at a constantly decreasing rate, throughout a 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 justified 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. For example, in 2019, according to some estimates, about 73% of the energy used for mining was carbon neutral. The University of Cambridge researchers believe though that in reality this number is almost twice lower than such estimates and that only 39% met the carbon neutrality criterion in September 2020.

According to the aforementioned Daniel Frumkin, a significant part of mining farms use the energy manufactured by 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 may be exaggerated.

The topic of the harm of mining to the environment becomes a powerful argument in the crypto industry when switching from one blockchain to another. In a recent interview, OneOf co-founder Lin Dai made the following statement, "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 such issues, Lin Dai announced that the OneOf project moves to the Tezos blockchain which already uses a PoS algorithm to improve environmental efficiency.

Energies from Volcanoes for Mining

El Salvador's President Nayib Bukele instructed Minor Gil, President of the state-owned energy company LaGeo, to start mining bitcoins using cheap, 100% clean and renewable energy from volcanoes. LaGeo operates two geothermal power plants located in El Salvador in the Ahuachapán and Berlin regions.

According to the LaGeo’s report, 20% of the electricity used by El Salvador comes from geothermal sources. The company has a resource potential of 644 MW, but at the moment, uses only a third of it.

Bukele states that he has already been informed about the construction of a new well, the commissioning of which will ensure 95 MW production.

On June 9, bitcoin became a legal tender in El Salvador after the country's parliament has adopted the relevant law. Acceptance of bitcoins for payment will become mandatory in the country. The head of El Salvador stressed that the cryptocurrency will be a legal tender along with the US dollar.

The government also plans to create an official crypto wallet wherein it will store $150 million worth of bitcoins in a trust fund based on the Development Bank of El Salvador to ensure the automatic and instant conversion of BTC into the US dollar.

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