In recent years, the Bitcoin ecosystem has experienced enormous growth. Many major organisations around the world have embraced the digital currency, including payments firms such as PayPal and Mastercard, banks such as Goldman Sachs and BNY Mellon, and retailers such as Starbucks and Amazon-owned Whole Foods.
However, one side of Bitcoin that attracts criticism is the mining aspect. Bitcoin mining (the process by which new Bitcoins are entered into circulation) has a notoriously large carbon footprint, and in a world that is increasingly focusing on sustainability and mitigating climate change, this is not looked upon favourably. Tesla, for example, recently announced that it would no longer be accepting the cryptoasset as a form of payment due to its increasing use of fossil fuels for mining and transactions.
The good news is that there appears to be a solution that could dramatically reduce Bitcoin mining’s impact on the environment. Recently, Bitcoin miners have discovered that they can use oil and gas companies’ unwanted natural gas — which would otherwise be “flared” so that it’s not sent into the atmosphere — to power their mining computers. It’s still early days, but the solution looks very promising. Here’s a look at how this innovative energy solution could potentially reduce Bitcoin’s impact on climate change and further increase the appeal of the cryptoasset.
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Bitcoin mining uses how much energy!?
Before discussing how Bitcoin miners are using natural gas to power their systems, it’s worth taking a look at how Bitcoin mining works and how much energy it consumes.
In order to mine the digital asset, crypto miners need to solve complex mathematical problems generated by Bitcoin’s algorithm using high-powered computing equipment. If a miner successfully finds the solution to a problem, he is rewarded with a block of Bitcoin. This process — which can potentially be very lucrative — uses a lot of computing power. As a result, it’s extremely energy-intensive.
It’s not difficult to see why environmentalists and those focused on sustainability aren’t fans of Bitcoin mining. According to the Cambridge Centre for Alternative Finance, Bitcoin mining consumes 110 terawatt-hours per year, or 0.55% of global electricity. To put those numbers in perspective, that’s roughly equivalent to the annual energy consumption of countries such as Malaysia or Sweden. Meanwhile, Bitcoin’s global carbon dioxide emissions have risen to around 60 million tons, according to the Bank of America. That’s equal to the exhaust from about nine million cars.
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As for why Bitcoin mining uses this much energy, it all comes down to the difficulty of solving the complex mathematical problems created by the Bitcoin algorithm. In the early days of Bitcoin, mining was quite easy. In fact, it was so easy that those interested in the cryptoasset could mine it using their personal computers. However, as its popularity and value have increased over the years, so has the difficulty of the mining process. To handle the growing level of difficulty, significantly more computer processing power is now required.
As a result, crypto miners today use powerful computers with multiple graphic cards (GPUs) from the likes of NVIDIA and Intel to solve the complex maths problems, and these computers require high-wattage power supplies. These “mining rigs” work for 24 hours per day and can consume 1,000 watts when running — around the same as an air conditioner unit. Put together a stack of computers (mining companies can have thousands of rigs in one location), and the power consumption can be huge.
Bitcoin miners are turning to flared natural gas
On the positive side, however, Bitcoin mining has a high level of flexibility when it comes to energy sources. Usually, end users of energy (cities, factories, homes, etc.) have fixed locations. So, they tend to use energy that is produced nearby in order to keep costs down. For example, a city may use renewable energy from nearby wind or solar plants. Bitcoin mining is different as it can be mined from anywhere. Indeed, Bitcoin mining facilities are quite “nomadic” in nature, in that they have the option to move to locations that offer the best mining environment. For example, one “crypto farm” was installed in the remote Siberian city of Norilsk, beyond the Polar Circle, due to the fact that the city offered cheap energy and an average annual temperature of -10 degrees Celsius — which could help cool the computers. This geographic freedom means that miners can potentially utilise power sources that are inaccessible for most other applications. And this is where flared natural gas comes into play.
For years, oil exploration companies have struggled with the issue of what to do when they accidentally hit a natural gas deposit while drilling for oil. While oil can easily be trucked away, gas requires a pipeline for delivery. Now, if a drilling site is situated next to a pipeline, the company can connect the gas to the pipeline and collect a fee from a buyer at the other end. However, if the gas formation is miles away from a pipeline, the situation is more complicated. More often than not, it’s not worth building a new pipeline for the gas due to the time and expense involved. So, quite often, drillers simply dispose of the gas on-site by burning it off in a process known as “flaring.”. This explains why you’ll often see flames rising from oil fields.
Recently though, Bitcoin miners have discovered that they can use this unwanted gas to power their mining rigs. And savvy miners are taking advantage of this. Today, across the US, you’ll find trucks with trailers carrying pipes, generators, and computers positioned right next to oil and gas drilling sites. These trailers are capturing oil and gas companies’ unwanted natural gas and converting it on the spot into electricity to power their Bitcoin mining operations. It’s a win-win situation. Not only do the miners get the electricity they need at a low price, but they also use energy that otherwise would have gone to waste, thereby reducing their carbon footprints.
Benefits for oil and gas companies
It’s also a major win for the oil and gas companies. Thanks to the crypto miners, these companies can now make money from a waste product that they would have disposed of in the past. In addition, there are potential tax breaks. The states of North Dakota and Wyoming, for example, have passed laws that provide tax breaks to oil companies that provide unwanted gas to cryptoasset miners.
Given the benefits, major energy companies are getting involved. For example, in early 2021, oil and gas giant Exxon piloted a project to divert methane gas from a North Dakota oil drilling site to power crypto mining rigs. Exxon is reportedly considering launching similar pilot projects in other countries such as Argentina, Germany, and Nigeria.
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A trend that is likely to continue
It’s worth noting that the appeal of this new strategy has been boosted by China’s ban of crypto mining in 2021. In the past, a large proportion of the world’s Bitcoin mining took place in China due to the cheap renewable energy that was available. However, China has now banned the practice as it has very aggressive climate targets. As a result, crypto miners have left the country in search of new ways to mine Bitcoin cost effectively, and US oil and gas companies are benefitting.
Of course, this approach to Bitcoin mining is not a totally green solution. The Bitcoin produced this way is not mined from renewable energy, and still creates emissions. However, this strategy does avoid the use of unnecessary fossil fuel energy to power the Bitcoin mining network. So, from a climate change perspective, it can make a difference. With so much focus on sustainability today, it’s a trend that could generate a lot of interest in the years ahead. According to experts, there’s enough flared natural gas around the world to power the entire Bitcoin network five times over.
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Cryptoassets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply.
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