Energy demand is high and supplies are low from Europe to Asia. Many countries in the European Union have enacted emergency provisions to help their most vulnerable citizens survive a winter of sky-high energy bills. China is returning to coal with a vengeance while India threatens to run out of it entirely. Supply chains are disrupted around the globe and inflation is on the rise worldwide. In Kazakhstan, the government has kept energy prices artificially low, but that has invited a new and unforeseen challenge: the rise of cryptocurrency mining is now compounding the energy crisis.
Mining cryptocurrencies such as Bitcoin requires massive amounts of energy. The process involves solving extremely complex “proof of work” calculations that require massive amounts of computational energy. To keep cryptocurrencies secure and to keep the rate of production stable, these puzzles become increasingly harder to solve the more people try to mine it. This means that mining one Bitcoin requires far more computing now than it did five years ago, causing the crypto asset’s energy footprint to rapidly expand as more and more people begin to mine, driving up the difficulty level and energy cost of the mining itself.
Bitcoin’s global energy footprint is now 117.0 TWh per year, greater than that of the Netherlands and only slightly smaller than Argentina — a country of more than 45 million people. Cryptocurrencies are now under increasing scrutiny for their ecological impact and the threat they pose to climate change mitigation goals. Now, some governments are starting to crack down on crypto, due to the threats it poses to the climate as well as to established currencies and the global economy as a whole. Even China, which was once synonymous with the large-scale Bitcoin mining sector, imposed a blanket ban on cryptocurrency trading and mining in September.
Now, Chinese crypto miners are pouring over the border into neighboring Kazakhstan, where energy is cheap and government agencies are ill-equipped to root out illegal mining operations. Seemingly overnight, Kazakhstan has found itself hosting the second-biggest crypto sector on Earth, after the United States. Now, both legal “white” and illegal “gray” crypto mining operations are sucking the Kazakh grids dry at the height of a global energy crisis.
Defenders of cryptocurrency, and particularly Bitcoin, have argued in the past that operations are largely powered by renewables and their carbon footprint is over-exaggerated — a claim based on dubious grounds. In Kazakhstan, however, there is no pretending that crypto-mining is being powered by clean energy. The country is almost entirely powered by coal, and the recent proliferation of crypto mining will make it all but impossible for the country to meet its climate goals. “What we have in Kazakhstan is heavy reliance on coal with very low prices … But this creates very big problems in meeting the obligations that Kazakhstan has taken on with regards to making the economy greener,” says Eric Livny, regional economist at the European Bank for Reconstruction and Development.
Reuters reports that a Kazakh crackdown on crypto mining operations is imminent. While many of these illegal operations can be well-hidden in basements or abandoned warehouses, experts say that they can be located using satellites equipped with heat-sensing technologies. “I think we will have the directive [limiting power to unregistered miners] issued before the end of this year, because this issue cannot be delayed any longer,” Kazakhstan Deputy Energy Minister Murat Zhurebekov was quoted earlier this month.
Whether or not Kazakhstan is able to crack down on crypto mining, it likely won’t make a lasting dent in the cryptocurrency market. Miners will just as easily pick up shop and move on to the next unsuspecting market. With a business as decentralized as cryptocurrency, attempts to regulate emissions or tax energy use are pointless. Tackling this wicked problem will require creative problem solving and a globalized effort.
By Haley Zaremba for Oilprice.com
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