Cryptocurrency “Mining” and the Environment

Kentucky’s history with digital currency is fairly recent, yet the process of ‘mining’ cryptocurrency has quickly become a significant industry, at least as far as impacts to the climate. In recent years, Kentucky has become home to nearly 20% of all of the country’s proof-of-work cryptocurrency mining operations, and at this moment, Kentucky produces more carbon dioxide pollution from cryptocurrency mining than any other U.S. state, with a carbon footprint from cryptocurrency mining is estimated at 3.3 megatons of carbon dioxide per year.

The Bulletin of the Atomic Scientists outlined some of the environmental impacts in a recent article: “It is now well understood that bitcoin mining uses vast amounts of energy. Alex de Vries, one of the leading experts on bitcoin and energy, estimates that the network uses 204.50 terawatt hours annually, about as much as Thailand. A more conservative estimate by the Cambridge Center for Alternative Finance puts it closer to 115.4 terawatt hours, or more than the Netherlands.”

The interest in this industry from a legislative interest began in 2019, when The Blockchain Working Group was formed after the passage of H.R. 171 , urging a comprehensive study of and subsequent plan to deal with the growing blockchain technology. The workgroup was a collaborative panel of subject matter experts defined later in S.B.55 (from the 2020 legislative session), and subsequently codified in Kentucky Revised Statute Chapter 42.747, with the mission to evaluate the feasibility and efficacy of using blockchain technology to enhance the security of and increase protection for the state's critical infrastructure, including but not limited to the electric utility grid, natural gas pipelines, drinking water supply and delivery, wastewater, telecommunications, and emergency services. 

 From the Blockchain Working Group report:

“While it is difficult to predict the impact of Blockchain technology on utilities at this early stage there are some potential implications for financial transactions, energy generation and distribution, renewable energy, infrastructure management, enhanced customer service, and service delivery….Tokens referred to as “Renewable Energy Credits” or RECs are a method of monetizing renewable energy. Currently these tokens are thoroughly audited to ensure the token is only used once. Blockchain enabled RECs would be more efficient and eliminate the need for audits. As carbon emission tracking becomes more common, Blockchain could usher in an acceptable mechanism to track these emissions. The tracking system could be a unified platform offering a single solution for calculations.”

Where exactly are these ‘mines’ located?

Since some of these operations are not tied to the electrical grid, and the “digital mining” industry is not well regulated, it is hard to determine exactly where some of these businesses are operating. Operations tied to the grid are somewhat easier to track, but may be hard to identify as cryptomining operations. Some are referred to as “data centers” for example. But some operations have been disclosed in public media or regulatory filings.

Are “Crypto Mines” and “Data Centers” the same thing?

Not exactly.

There is often a misleading conflation between the characteristics of “Data Centers” vs. a Crypto mine, which is a specific type of data operation. Both Crypto mines and data centers involve large banks of computers. But data centers support multiple commercial uses such as e-commerce and cloud computing, whereas crypto mines are dedicated solely to crypto mining and support only the owners of the crypto mine.

This can be an important distinction for local governments to assess the community impacts and job creation opportunities related to these operations.  Both data centers and Crypto mines can be heavy users of energy and can have a significant impact on utilities. But the environmental considerations are different.

The larger growth of Data Centers in general, including the use of data centers for cryptocurrency production, along with the expansion of other uses such as cloud computing for storage, artificial intelligence (AI), etc. creates new challenges for our ability to move away from fossil fuels, and raises new questions about the concentration of these energy-hungry operations in environmental justice communities, as these companies seek out the cheapest electricity possible, and generally in areas with lax regulations and zoning—areas that have already been impacted in adverse ways by energy production.