When crypto was just starting out, you could easily mine some using a decent laptop or
desktop computer.
But as digital currency prices have soared over the years, a flood of large-scale
crypto mining operations like the one behind me have piled in, hoping to cash in on the boom.
Crypto mining requires a lot of power.
So much so that bitcoin, the world’s biggest cryptocurrency, now uses up as much energy
as entire countries.
That has led to concern from policymakers about the environmental toll of cryptocurrencies,
with some countries, such as China, even moving to ban crypto mining.
So how did we get here exactly, and can the crypto industry clean up its dirty image?
To find out, I’ve come to Boden, a small military town in northern Sweden.
It's also home to a huge crypto mine run by Canadian firm Hive Blockchain.
That’s where I met Johan Eriksson, an advisor at Hive.
He's seen first-hand how much power it takes to mine crypto around the clock.
30 megawatts of installed hardware.
That's approximately in excess of 120,000 GPUs running 24/7.
Hive's machines use chips called GPUs to mine ethereum, the world's second-biggest cryptocurrency.
And, as you can hear, they’re pretty loud.
So why does mining crypto use up so much electricity?
Well, it all comes down to three little words: proof of work.
Unlike traditional currencies, cryptocurrencies are decentralized.
That means the work of recording transactions and minting new units of currency is handled
by a distributed network of computers, rather than banks and other intermediaries.
To facilitate a payment on a crypto network, all of the participants, known as miners,
need to agree that the transaction is valid.
In bitcoin’s case, the method of reaching this consensus is known as proof of work.
The reason that bitcoin, in particular, uses quite significant amounts of electricity is
because of the consensus protocol that Bitcoin runs on.
Kirsteen Harrison is a climate policy advisor for the crypto exchange, Zumo.
What that means is that essentially, a number of computers need to compete to solve cryptographic puzzles,
and that is what creates the bitcoin.
When someone finds a solution to a puzzle, the rest of the network checks to see if that
miner put in the required amount of work to do so.
If they’re satisfied, the miner gets to add a new batch of transactions to the blockchain
and is rewarded with some tokens for their effort.
But just like mining for gold, the chances of discovering new crypto can be pretty slim.
In fact, the best way to improve your chances is with more processing power, or “hash power.”
The higher the hash power, the more chances a computer gets to guess the right answer to a puzzle.
And as usage of the blockchain grows, the difficulty of successfully mining cryptocurrency
also increases, meaning miners are forced to use more power-hungry machines.
The whole point of proof of work is that it's the energy expenditure that secures the network.
Today, the process of creating new bitcoins consumes more than 130-terrawatt hours of electricity annually.
That’s more than entire countries, including Sweden, which has a population of over 10 million.
This is proving problematic for global governments, who are under pressure to limit global warming
to well below 2°C, and eventually reach net-zero emissions.
Locally, we're getting quite a bit of support.
Towns, municipalities, local suppliers, definitely power producers, grid owners.
We're getting a bit of backlash from Finansinspektionen in Sweden.
Finansinspektionen is Sweden’s financial regulator.
The government agency called on the European Union to ban crypto mining due to its huge energy usage.
I think regulating it and alleviating any worries the Finansinspektionen may have about
these kinds of assets would help a long way.
To address concerns around pollution from crypto mining, companies like Hive are increasingly
shifting away from dirty fossil fuels to renewable sources of energy, like wind, solar and water.
This Hive facility is powered by a local hydropower plant.
This region is renowned for its surplus of cheap, renewable electricity.
In the north of Sweden, 100% of the power is either hydro power-based or wind power-based.
So, it is 100% renewable.
More than two-thirds of Sweden has a large excess production of electricity, or the possibility
to produce a lot more electricity.
And what the crypto miners are doing here is they're utilizing that excess electricity.
China used to be the world's biggest crypto mining hub, home to between 65-75% of the market.
But since China banned crypto mining, the country’s share of the bitcoin mining market
has plunged dramatically.
Bitcoin’s backers had hoped this would make the cryptocurrency greener, with miners flocking
to less fossil fuel-reliant regions.
However, a peer-reviewed study released in February 2022 suggests China’s crypto ban
has had an inverse effect: bitcoin mining got dirtier in 2021.
Zumo is a member of the Crypto Climate Accord, a private sector-led initiative inspired by
the Paris Climate Agreement that aims to achieve net-zero emissions in the crypto industry by 2030.
They're working on something called the green hash rate solution.
And what that does is it allows the source of electricity used in mining to be verified as renewable.
And there's quite a lot of trials going on with that at the moment.
If that's successful, then hopefully that will filter out to the rest of the sector.
But some activists believe steps to decarbonize bitcoin production are misguided.
Greenpeace and other environmental groups are calling for the bitcoin community to make
a change in the cryptocurrency's code to replace its proof of work mechanism
with something called proof of stake instead.
Proof of stake removes the huge computational cost of verifying new crypto transactions.
The technology is already being used by blockchains like cardano and solana.
And Ethereum is also planning to upgrade to a proof of stake protocol later this year.
If that does happen successfully, which at the moment, all the signs are looking good,
then that will reduce the electricity consumption of the Ethereum network by 99% or more.
That puts bitcoin in an awkward position.
I don't believe that there's an option to do away with proof of work, precisely because
not one single player has control of the system.
It's a peer to peer network, a trustless network, and no individual has control over it.
And for that reason, I don't think any of us can make a decision about what happens
with proof of work.
Ethereum’s change to proof of stake also has implications for the future of ethereum miners,
such as Hive, although Johan says he’s not worried by this.
There's been delays on implementing proof of stake so far.
And I think there's going to be more delays going forward.
So proof of work, for the foreseeable time is going to have its place.
So you're not worried about the future of Hive being at risk?
Not really.
In Sweden, it's running on GPUs.
And that has so many uses.
If power of proof of work goes away, then I mean, you could use these same facilities
for rendering, high-performance computing.
Even if it goes away, there's a good business for shifting the focus from mining to other
sources of income.
So, can crypto go green?
Well, with regulators closely scrutinizing cryptocurrencies’ energy usage,
and climate change top of mind for global governments, the stakes couldn’t be higher.
We know that we're a bigger user of renewable energy than most other sectors, because the
data that we do have suggests that at least 39% of electricity from Bitcoin mining is from renewable sources.