Green cryptocurrency mining – is it possible?

Green cryptocurrency mining - is it possible?

Eduardo Kopper’s hydroelectric facility, Poas I, in Costa Rica’s Central Valley, had to shut down its turbines by the end of 2020, after 30 years of operation. Because Costa Rica has a surplus of renewable energy, the Costa Rican Institute of Electricity, the country’s official electricity distributor, rejected Kopper’s request to sell its power.

“There was basically nothing we could do,” Kopper said. “It was a tense situation. At the very least, we are attempting to assist our employees.” He came upon bitcoin at that time.

According to the Bitcoin Energy Consumption Index, the cryptocurrency is a massive energy consumer, with a carbon footprint similar to Kuwait’s. Kopper saw Bitcoin mining as a means to immediately transform his green energy into money, so he decided to dedicate his factory to it. Poas I resurfaced in April 2021, after a three-month hiatus, as a cryptocurrency mining hub fueled by renewable energy.

And Kopper isn’t the only one. Miners all around the Americas, notably in the United States, are getting on board with “green bitcoin.” Bitfarms and Neptune Digital Assets, two major US crypto mining companies, are now selling their operations as “green.” Meanwhile, embattled Brazil is discussing a tax exemption for bitcoin mining based on renewable energy.

Is it a waste of valuable energy?

The astonishing energy consumption of Bitcoin is at the foundation of its blockchain technology. “Proof of work” is a feature that allows new bitcoins to be “mined” by solving challenging mathematical challenges. The blockchain network will be decentralized as a result of this. However, it necessitates a significant amount of processing power, since miners hurry to address these issues first.

Recognizing the negative environmental impact of energy-intensive money, over 200 businesses and individuals signed the Crypto Climate Accord last year, pledging to achieve net-zero operations by 2030, mostly through the use of renewable energy sources. But not everyone sees green mining as a win-win solution to cleaning up dirty currency. Spending valuable renewable energy on “random computing,” rather than industries that give jobs and other economic benefits to a national economy, according to economist and bitcoin specialist Alex de Vries, can be problematic.

Renewables, which are generally the cheapest source of energy, have already played a significant part in crypto mining until recently. According to a report by cryptocurrency analytics business CoinShares, at least 74 percent of Bitcoin’s global energy usage in 2019 came from renewables, with Chinese hydropower accounting for the majority of this market. However, in 2021, the Chinese government outlawed all cryptocurrency-related activities, citing their high energy consumption as a reason. Meanwhile, Sweden has called on the European Union to prohibit crypto mining, claiming that it diverts renewable energy that could be used to decarbonize other sectors, putting climate goals at risk.

Cryptocurrency is a massive energy consumer
Cryptocurrency is a massive energy consumer. Source: Pexels

The Costa Rica exception 

Jose Daniel Lara, a Costa Rica energy researcher at UC Berkeley, admits that green cryptocurrency mining makes sense with Costa Rica’s energy surplus. Costa Rica’s surplus electricity would be ideal to export. But that isn’t an option right now. Nicaragua, for example, is energy-poor and might benefit from Costa Rican energy, but it lacks the infrastructure to import it.

Bitcoin mining has allowed Kopper to reopen two of its 1 MW hydropower plants and convert the electricity into a form that can be transferred without the use of physical power infrastructure. “We discovered a way to convert energy into a digital token here,” he explained. He built a container-like storage area for central processing units, insulated it against Costa Rica’s heat and humidity, and began renting out some of the processors to American mining corporations. He now mines bitcoins as well. It avoided laying off its 25 workers and intends to reopen a third facility in the near future. Although the Poas I crypto mining center is the first of its sort in Costa Rica, other private energy providers in the nation have expressed interest in joining Kopper. Companies in other parts of the world claim that crypto mining can genuinely help overcome the problems associated with creating renewable energy.

Crypto mining as a network stabilization technology

Lancium, a Texas-based technology firm, is developing bitcoin miners powered by renewable energy. However, rather of competing with regular power use, the initiative is marketed as a means of grid stabilization. The problem with renewables, such as Texas’ expanding wind capacity, is that power generation varies throughout time. Oversupply can cause grid congestion and even failures, which is why fossil-fuel power plants with variable output are frequently utilized to balance renewable-intensive power systems.

Lancium claims that its technology enables bitcoin enterprises to provide this service instead, by simply increasing or decreasing mining activity based on the amount of excess power available. According to Lara, projects like Lancium’s could benefit from this approach. Lara says that this way, projects like Lancium’s could actually support the expansion of renewable energy and reduce the need for fossil fuels.

Miners are migrating to economies powered by fossil fuels

Green money isn’t having much of an impact on the world’s massive carbon footprint, according to de Vries. Following China’s ban on crypto mining, activities shifted west, mainly to Kazakhstan, which is rich in fossil fuels, as well as to the United States.

“The new places simply don’t provide the same amount of renewable energy,” said de Vries. The United States accounted for 5% of worldwide bitcoin mining in August 2020. According to research from the University of Cambridge, that figure had climbed to 35% a year later. Texas is promoting itself as a crypto capital, but despite initiatives like Lancium’s, coal and gas still provide the majority of the state’s power.

A more energy-efficient crypto model

Green mining, according to Kopper, might clean up bitcoin’s carbon footprint in the long run if the world shifts to renewable energy.

“We try to distinguish between dirty and clean Bitcoin,” he stated. “It may take some time for customers to notice, but I believe it is only a question of time.” But de Vries thinks making cryptocurrencies more energy-efficient would be a better solution. Some – like Cardano and Binance – already use a different model called “proof of stake”, whereby miners stake their own coins to engage in transactions, instead of solving calculations. “If you use proof of stake, you don’t need a hardware contest anymore,” de Vries said. “You just need a device with an internet connection. Proof of work alone increases the energy needed by a factor of 10,000. Ethereum, the world’s second-largest cryptocurrency, will switch to proof-of-stake this year.

Although the technology is still in its early stages, de Vries believes that if it works for Ethereum, it may be applied to other currencies. Proof of work, on the other hand, remains vital to Kopper’s new business model’s success. And he has no plans to put Poas I back to its original purpose. “We generate more profitability as we learn to optimize the extraction process,” he said. “I don’t think we’re going back today. For our electricity, we’ve found a new market.”

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