Bitcoin mining isn’t as bad for the environment as it used to be

For years, bitcoin critics have maligned the world’s biggest cryptocurrency for polluting the planet. But new data from Cambridge University shows that the geography of mining has drastically changed over the last six months, and experts tell CNBC this will improve bitcoin’s carbon footprint.

China’s big crypto crackdown this spring set off a chain reaction in the mining world.

For one, it took half the world’s bitcoin miners offline practically overnight. Fewer people mining has meant less machines running and less power being consumed overall, which slashed bitcoin’s environmental impact. 

Beijing’s new crypto rules also permanently took a lot of older and more inefficient gear offline.

And crucially, China shutting its doors to crypto mining has set off a massive migration. Miners are now heading to the cheapest sources of energy on the planet, which more often than not are renewable.

“The bitcoin network is ruthless in its drive for the lowest cost,” said Mike Colyer, CEO of digital currency company Foundry. “Miners around the world are looking for stranded power that is renewable. That will always be your lowest cost. Net-net this will be a big win for bitcoin’s carbon footprint.” 

China has long been the mecca of the crypto mining world, accounting for nearly three-quarters of all bitcoin miners at its peak, according to the Cambridge Centre for Alternative Finance. But after Beijing decided to expel its miners in May, more than 50% of the hashrate – the collective computing power of miners worldwide – dropped off the network. 

Today, bitcoin draws roughly 70 terawatt hours of energy per year, or 0.33% of the world’s total electricity production. That is almost half of what it was in May and is roughly equivalent to the annual energy draw of countries like Bangladesh and Chile.  

The exodus from China also means that a lot of older mining equipment that was probably long-past due for retirement will never be turned back on. 

“It took off, likely forever, a large amount of the most energy inefficient rigs,” explained Alex Brammer of Luxor Mining, a cryptocurrency pool built for advanced miners.

Colyer says the overall bitcoin network will now be mostly made up of more efficient rigs that get about double the hashpower for the same amount of electricity. “This continues to significantly improve the security-to-energy ratio of the bitcoin network,” he said.

But not all of China’s miners are going dark. Many have begun to patriate elsewhere, gravitating to the world’s cheapest sources of power.

“The cool thing about bitcoin that is under appreciated by a lot of the naysayers is that it’s…like a portable market; you can bring it right to the source of energy,” explained Steve Barbour, founder of Upstream Data, a company that manufactures and supplies portable mining solutions for oil and gas facilities.

Because miners at scale compete in a low-margin industry, where their only variable cost is typically energy, they are incentivized to migrate to the world’s cheapest sources of power.

“They need to constantly reduce their electricity costs, which is their number one expense, in order to be competitive,” said Ria Bhutoria, former director of research for Fidelity Digital Assets. 

The data shows that a whole lot of these miners are headed for cheaper pastures in the U.S.

The United States has fast become the new hotspot for the world’s global crypto miners. In the last six months, the country has jumped from fifth to second place and now accounts for nearly 17% of all global bitcoin miners. Although China was still solidly in first place as of April, with 46% share, America’s share of the market is likely a lot higher now since the Chinese government booted miners in May.

U.S.-based bitcoin mining operators have seen a huge uptick in business. Whit Gibbs, CEO and founder of Compass, a bitcoin mining service provider, says that retail hardware and hosting sales have increased nearly 300% since mid-June.

Darin Feinstein, founder of Blockcap and Core Scientific, says he’s seen a rapid rise in mining operations looking to relocate in North America, mostly in the U.S., and Fred Thiel of Marathon Digital, another major player in the U.S. mining industry, tells CNBC that if the roughly 500,000 formerly Chinese miner rigs looking for homes in the U.S. are deployed, this would mean that North America would account for close to 40% of the global hashrate by the end of 2022. 

Long-term, this is good news for bitcoin’s carbon footprint.

Energy consumption is not equivalent to carbon emissions. While it is relatively easy to determine the amount of energy that is consumed by the bitcoin network, it is much harder to determine its carbon footprint.

An accurate read of bitcoin’s carbon emissions would require exact knowledge of the energy mix used to generate electricity used by each bitcoin mining operation. One unit of hydropower, for example, does not have the same environmental impact as the equivalent amount of power sourced from coal. And China’s bitcoin mining operations were known for both.

But on the whole, the market is pushing North American energy sources to get greener.

Each year, investment bank Lazard releases a breakdown of energy costs by source. Its 2020 report shows that many of the most common renewable energy sources are either equal to or less expensive than conventional energy sources like coal and gas. And the cost of renewable power keeps going down.

Thiel says that most miners new to North America will be powered by renewables, or gas offset by renewable energy credits. Gibbs estimates that bitcoin mining in the U.S. is more than 50% powered by renewables. 

Miners migrating to North America are also preparing for a future in which their energy usage is questioned by putative investors — and possibly regulated.

Brammer has been helping Chinese clients find new homes. He says that most are aware of the political and normative winds in North America and want to hedge themselves against regulatory risks in the future by establishing new facilities in primarily renewable-powered locations.

“The largest of them are also looking at the potential of going public or are looking for investors to help them grow,” Brammer told CNBC. “They realize that public markets nowadays have no appetite for proof of work mining that is powered by non-renewable [energy sources]. I have yet to even have a discussion about a deal involving coal power, which is heartening to us.”

Bitcoin mining engineer Brandon Arvanaghi tells CNBC that in the long run, the migration to the U.S., where innovation around bitcoin and renewables is already underway, will be an overwhelming positive for bitcoin’s energy mix.

“Places like Texas have cheap electricity, in large part because of subsidies toward wind power,” according to Arvanaghi.

Miami Mayor Francis Suarez has also popularized the idea of mining bitcoin with nuclear power in Florida.

“And all this is largely voluntary — the federal and state governments haven’t even gotten involved to require any renewable mix,” continued Arvanaghi.

Not all miners, however, are headed to renewable destinations.

Kazakhstan is now just behind the U.S. in terms of its share of the global bitcoin mining market, with about 8% of all crypto mining. It’s home to coal mines that provide a cheap and abundant supply of energy — but also ample carbon dioxide emissions.

However, several mining experts tell CNBC they think that Kazakhstan, which neighbors China, is just a temporary stopover on a longer migration west.

Brammer sees large miners going there in the short-term with older-generation equipment. “But as older-generation machines reach the end of their service lives, those companies will likely deploy new machines into more stable and energy efficient and renewable jurisdictions,” he said.

Also likely to put a damper on Kazakhstan’s popularity is a law newly signed by the president that will introduce extra taxes for crypto miners starting in 2022.

“This will significantly change the incentives for people to deploy capital in Kazakhstan,” said Brammer.