Bitcoin miners are responding to environmental criticism by claiming that their industry is speeding up the transition to renewable energy.
When Congress meets on Thursday to discuss cryptocurrency's environmental impact, it will focus on a growing problem for Bitcoin miners: the perception, fair or not, that they are a threat to the environment.
Foundry, a Digital Currency Group subsidiary whose network of Bitcoin mining machines has quietly grown to become one of the two largest in the world, the other being China's Antpool; volume varies from week to week.
Foundry is an American success story, helping customers earn thousands of dollars in Bitcoin and bringing a burgeoning industry back to the United States. However, due to increased environmental scrutiny, Foundry's future may hinge on persuading governments and the general public to accept a novel and divisive proposition: that crypto mining will play a critical role in ushering in a renewable energy era.
Bringing Bitcoin back to the United States
Bitcoin is a global technology that began in the United States. Bay Area cryptographers, including coder and Satoshi confidante Hal Finney, were the first to use it, mining it on home computers. Many Americans mined Bitcoin on their own—sometimes on their cell phones—or started companies to do so at scale in the early days.
By 2015, however, the popularity of Bitcoin had made it necessary for anyone who wanted to mine new coins on a regular basis to use machines with specialized chips called ASICs. And, like so many other computer components, they were manufactured by Asian companies.
China, in particular, dominated not only the manufacture but also the use of Bitcoin "rigs," with Chinese mining pools raking in the lion's share of newly mined Bitcoins for years. Then, in 2020, when Foundry entered the market, the North American miners, who still held about a 15% share of the market, got a boost.
Grayscale Investments, Genesis Trading, and CoinDesk are all owned by DCG, which also owns Foundry. Barry Silbert, DCG's deep-pocket owner, has stated that he is operating DCG's new mining venture with a decades-long horizon in mind.
Foundry switched to a federated model the following year, supplying financing and machines to Bitcoin companies across the United States, after mining a handful of Bitcoins with its own rigs in 2020. The company also established a pool for American miners to pool their rewards (a long-standing practice in crypto mining) and promised guaranteed returns to those who joined.
Then Foundry and other U.S. miners, including Marathon and Riot Blockchain, which are publicly traded, got a lucky break: In the spring of 2021, China stepped up its anti-mining efforts, driving nearly all miners out of the country. As a result, Bitcoin mining now takes place primarily in North America. Meanwhile, Foundry assisted Asian miners with the difficult logistics of bringing their machines—and, in some cases, entire operations—to America.
Foundry's network has mined 2,826 Bitcoins so far this year, an average of 157 per day. Based on Bitcoin's recent low of around $40,000, that translates to $6.3 million in daily earnings—a figure that would be closer to $10 million if Bitcoin bounced back to its recent high of around $68,000.
Until recently, the majority of this money would have gone into the pockets of Chinese corporations. Now, it is American investors and operators who are reaping the benefits of the Bitcoin boom, ensuring that, as in the early days of cryptocurrency, the majority of crypto wealth remains in the United States and Canada.
If it weren't for the growing environmental concerns about Bitcoin mining—concerns that were once muttered by a few green activists but are now the subject of a hearing in the United States capitol—this would be an unadulterated American success story.
Newer crypto projects, such as Solana or Tezos, use a fraction of the power used by Bitcoin because they don't require a "proof of work" system to update their blockchains, according to crypto advocates at the hearing. (Ethereum, the second-largest cryptocurrency, is expected to abandon proof-of-work later this year.)
Bitcoin, on the other hand, has no plans to abandon proof of work, despite the fact that it is the largest blockchain in terms of economic value and power consumption. As a result of their status, Bitcoin miners are likely to be singled out by environmentalists and lawmakers.
Banning Bitcoin mining?
Bitcoin is regarded by most crypto enthusiasts as a fantastic new technology that spreads wealth and financial inclusion around the globe. Critics have a different take on it. They see it as an environmental disaster—a computer network that consumes more energy annually than Argentina as a whole and serves no useful purpose other than enriching selfish libertarians.
The critics have been gaining ground in recent months. Their complaints have resulted in a crypto mining ban in New York state (which produces 20% of all Bitcoin in the United States).
In Europe, where a Swedish push to outlaw Bitcoin mining is gaining traction, the industry is faring no better. Meanwhile, a major financial regulator has proposed that a similar ban be implemented across the continent.
The Bitcoin community has largely reacted angrily to its critics, characterizing their complaints as ill-informed and motivated by vengeance, and pointing out that the traditional finance industry consumes enormous amounts of energy as well. Such knee-jerk retorts are unlikely to deflect environmental scrutiny, and Foundry and other US miners will need a more compelling story to counter the green lobby.
Mike Colyer, the CEO of Foundry, believes he has one. According to him and other Foundry executives, Bitcoin mining is assisting in the construction of a bridge that will aid the United States' transition from fossil fuels to renewable energy sources.
Colyer cites Texas as an example of a state that is attempting to expand its solar energy capacity after an unreliable grid left millions without power last winter. Foundry and its partners are signing deals with solar and hydroelectric providers, or buying them outright, to buy large amounts of power, according to him.
Bitcoin companies' promises to buy power, according to Colyer, can tip the scales when it comes to utilities deciding whether or not to build a solar plant or another type of renewable energy plant. Bitcoin mining, he claims "has becomes a powerful flywheel for renewables. It's a path to a renewable energy future "
Mining companies can also aid in "load balancing," or drawing energy during off-peak hours when utilities have a surplus, according to Colyer. In practice, this means that a Texas utility might devote the majority of its capacity to Houston residents cranking up their air conditioners during a summer heat wave, and then provide power to Bitcoin companies at night when temperatures cool down.
Colyer says Foundry is already in talks with Texas power companies that have progressed "beyond the learning phase," though he won't say which ones because the companies don't want to publicize the initiatives.
This hesitancy stems from hard lessons learned during the 2017 Bitcoin boom, when fly-by-night companies promised a Bitcoin bonanza to public utilities across the United States, only to vanish when prices plummeted, leaving damage and environmental degradation in their wake.
According to Colyer, the current mining boom is different because Foundry and its parent company are in it for the long haul and have always paid attention to regulators and maintained a positive reputation.
Colyer isn't the only one who believes the mining industry in North America has progressed. Similar arguments are made by John Warren, the CEO of Gem, a smaller mining company backed by hedge funds and family offices.
"Green power is a more and more important aspect of mining," Warren says, noting that many people are unaware that mining operations in North America are far cleaner than those in Kazakhstan, another crypto-production hotspot.
Warren claims that renewable energy accounts for 91% of the energy used by Gem's Bitcoin mining rigs. Foundry claims that this percentage is 71 percent, with the rest of its network's energy coming from oil, natural gas, and coal.
Profits and the environment must be balanced.
Alex de Vries is a University of Amsterdam researcher whose website Digiconomist has become a powerful voice in the debate over cryptocurrency's environmental impact. In an interview with Decrypt, he claimed that Foundry and others' "bridge to renewables" thesis is unpersuasive.
Miners' "load balancing" argument—that they won't burden energy grids by drawing power primarily during off-peak hours—is improbable, according to de Vries, given the economics of running a Bitcoin rig. Miners are in a race against time, he says, because the chips in a rig typically become obsolete after 18 months, giving them a strong incentive to run the rigs around the clock.
"If you own one of these machines, the last thing you want to do is shut down. You have to ensure you make your profit before that happens." he says.
De Vries is also sceptical that Bitcoin miners will provide a significant boost to the development of new renewable power plants. The issue, he claims, is that building a new power plant takes time, which miners who are rushing to deploy their rigs can't afford.
More broadly, de Vries and others, including environmentalists pushing for a complete ban on Bitcoin mining in Sweden, question whether the benefits of Bitcoin are sufficient to justify the expansion of any renewable energy source. Steve Wright, who manages hydroelectric dams in the Pacific Northwest, is among those who have raised this issue.
In a 2020 interview, Wright said, "When you have a green supply of power and you have a carbon-challenged world, people were asking if this is the best use of that power."
The answer to Wright's question is an unquestionable yes for Foundry and millions of Bitcoin supporters around the world. According to them, Bitcoin mining not only benefits the financial network it provides, but it also acts as a catalyst for increasing the total supply of renewable power.
According to Kevin Zhang, a VP at Foundry, "Bitcoin mining is the path forward to a renewable future. It is a perfect battery."
The Foundry executives are convinced that their position is correct. It remains to be seen whether policymakers in the United States will agree.
Even though the energy mix for Bitcoin mining in North America is cleaner than elsewhere, the fact that dirty fuels like coal are powering any crypto operations is unlikely to please environmentalists—in fact, a fossil fuel operation on Seneca Lake in upstate New York has made international headlines.
Some of these concerns may be alleviated by Foundry's claim that Bitcoin mining is hastening the transition to renewables. However, not everyone is convinced that this theory is correct.
By fLEXI tEAM