Producing cryptocurrencies such as bitcoin requires lots of cheap electricity, putting pressure on the industry.
Bitcoin mining has earned a bad reputation for guzzling cheap electricity in the pursuit of profit. Now bitcoin miners are trying to go green, to a point.
Companies that mine bitcoin are aiming to power their computers with renewable energy or sign up for data centers that rely on the sun or wind. Falling prices for renewables and rising prices for bitcoin make it possible to still earn a profit.
But much of bitcoin mining still relies on fossil fuels, including coal, the cheapest and dirtiest power source. “Crypto has a carbon-intensity problem,” said Paolo Natali, principal at the Rocky Mountain Institute’s Climate Intelligence program.
That problem led to the creation of the Crypto Climate Accord in April, a voluntary framework that asks cryptocurrency firms to reduce net carbon emissions from electricity to zero by 2030. Some 180 companies have signed up, Mr. Natali said.
The miners say they are thinking about the environment, but they have other incentives to reduce their carbon emissions: Investors, who increasingly are making carbon emissions part of their research, are pressing them to do better.
Legislators in New York state are considering a bill banning the use of fossil fuels to mine bitcoin and are calling for miners to document their carbon footprints. The Securities and Exchange Commission also is considering measures requiring publicly traded companies to disclose climate data.
Many of the most lucrative cryptocurrencies, including bitcoin, use an energy-intensive process called proof of work to validate transactions. That requires significant computing power, which requires lots of electricity.
The lower the price of electricity, the bigger the profit. The cheapest sources are sometimes the dirtiest, leading some miners to restart previously decommissioned coal-fired plants. In places with abundant renewable resources, mixing green power with coal, natural gas or other sources can give miners an edge.
“If you are mining crypto, you care about the cost of electricity and you don’t have the luxury to care about the climate so much,” said Alex de Vries, an economist who created the Bitcoin Energy Consumption Index.
Gryphon Digital Mining joined the Crypto Climate Accord in May and says it has achieved net-zero carbon emissions. It got there by launching a 21-megawatt facility powered by hydroelectric power and signing up with a digital hosting company that gets more than half of its power from renewable sources. It fills the gap by buying carbon offset credits, the same way an airline passenger can offset the carbon emissions.
“It’s because we wanted to be corporate good stewards of the world,’’ said Gryphon Chief Executive Rob Chang.
About 76% of firms mining proof-of-work cryptocurrencies combine green and fossil-fuel power sources, but less than 40% of the total energy used to mine bitcoin and other cryptocurrencies comes from renewable sources, according to a survey of 280 crypto firms by the University of Cambridge’s Centre for Alternative Finance.
Still, the renewable energy used by crypto miners could force utilities to generate additional power using fossil fuels, Mr. de Vries said. Bitcoin miners in El Salvador harness green energy from a volcanic region to power operations. Despite having an abundance of renewable resources, the Central American nation imported nearly 20% of the fuel used to generate electricity in 2019, according to the International Trade Administration.
“If you put green energy into bitcoin miners you need to up your fossil-fuel imports,” Mr. de Vries said. “You’re just displacing the problem.”
Cryptocurrency mining has increased in the U.S. and Canada after China banned transactions with bitcoin and its ilk. The U.S. and Canada accounted for 45% of global bitcoin-mining activity in August, up from 12% in January, according to the Cambridge Centre for Alternative Finance. Bitcoin-mining activity declined 20% during that period after miners based in China were shut down.
Some of the crypto world’s most important companies are now focusing on carbon emissions. A spokesman for publicly traded digital coin exchange Coinbase COIN -4.67% said the company is now focusing on environmental issues and will announce actions addressing climate change in the coming weeks.