Shanghai, CHINA – A lot of noise, probably more than the din of Bitcoin mining rigs (which are deafeningly noisy), has been made about the wastefulness and the amount of energy used in the process of cryptocurrency mining. For the uninitiated, the idea of cryptocurrency mining may conjure up unromantic images of sweat and dirt covered men in hard hats, toiling away to extract some precious resource deep within the depths of the earth using all manner of extraction tools. Cryptocurrency mining may be just as noisy, but it’s nothing like mining at all. Cryptocurrency mining is basically the process by which “miners” compete to verify transactions and add them on to the blockchain, the immutable decentralized ledger of transactions, by solving a complex series of mathematical puzzles. The first miner to solve the puzzle is awarded the cryptocurrency, for instance Bitcoin, for their troubles and depending on the specific programming protocols of that particular cryptocurrency, the supply of the cryptocurrency is algorithmically limited and in the case of Bitcoin, the mathematical puzzle becomes more difficult to solve, the more miners take part. The process requires large amounts of computational power and because computers work using electricity, the more difficult the puzzle they have to solve, the more power is needed. By some estimates, the Bitcoin network gobbles up as much energy as some medium-sized countries, while Ethereum, the second most prominent cryptocurrency is estimated to soak up another medium-sized country’s worth of electricity each day. Estimates such as these, made by the New York Times, while good for “shock” factor, add little to the discourse and distract from the true value of cryptocurrencies. Peter Van Valkenburgh, director of research at Coin Center, a group that advocates for cryptocurrency technology argues,
“The electricity usage is really essential. Because of the costs, we know the only people participating are serious, that they are economically invested. That creates the incentives for cooperation.”
The mining race is also meant to be hard so that no one can dominate the accounting and cook the books. Satoshi Nakamoto, the mysterious pseudonym behind the global cryptocurrency phenomenon wrote in Bitcoin’s whitepaper in 2008 that the system was designed to thwart a “greedy attacked” who might otherwise want to alter the records and “defraud people by stealing back his payments.” Because of the mining and accounting rules, the attacker “ought to find it more profitable to play by the rules.” Despite the alleged electricity consumption, the rules have kept such attackers at bay in the nine years since the Bitcoin network first kicked off. The issue is that the public often have difficulty distinguishing between hacks of the Bitcoin blockchain (which has never been carried out successfully) and hacks of the centralized exchanges which trade in Bitcoin and other cryptocurrencies. Because of this failure to distinguish between the two, it’s understandable that people would question the justification behind the energy consumption for a system that at first blush does not appear to be hack-proof.
The other issue with claims about the energy consumption of Bitcoin mining is that high energy consumption is immediately associated with carbon emissions when that simply isn’t the case. Already, cold climates such as Finland have become centers for Bitcoin mining in order to reduce cooling costs for the Bitcoin mining centers, Iceland has also emerged as a hub for Bitcoin mining due to its access to geothermal energy, which has near zero carbon emissions. Over in the United States, Washington State with its ample supply of hydroelectric power has also risen to prominence as a destination for Bitcoin and other cryptocurrency mining centers. What all this means is that far from increasing carbon emissions, cryptocurrency mining is moving towards a carbon neutral form of value storage and transfer. Compare that against the energy demands and carbon footprint of physical notes and coins as well as the extraction of gold and other precious metals and the justification for greater adoption of cryptocurrencies becomes more apparent.
Asia as the Global Hub for Renewable Energy
So it should come as no surprise that Asia, which has sought to shrug off its reliance on fossil fuels and other carbon-emitting energy sources is well-placed to emerge as a cryptocurrency mining center. Already in 2017, Asia accounted for almost two-thirds of renewable energy generating capacity, according to a report published in April by the International Renewable Energy Agency. And as the economies of Asia have been roaring ahead, governments have focused more attention on meeting increased demand for energy on renewable sources, including wind, solar, biothermal, geothermal and hydropower. For Asia as a whole, including Central Asia, renewable energy capacity has doubled over the past five years, reaching 918GW in 2017 with China and India taking the lead. China alone accounted for nearly half the growth in worldwide renewable power generating capacity, so it’s no wonder that China has also emerged as the leader in Bitcoin mining.
China today has around 36 times more solar capacity than it did five years ago, producing 130GW of solar power, far exceeding the government’s target to hit those levels by 2020. Part of the increase has also been innovation in creating much more efficient solar power cells which are better able to convert solar energy into electricity. China is already the undisputed leader in solar cell manufacturing. According to the Paris-based International Energy Agency, Chinese companies make up around 60 percent of the world’s annual solar cell production.
When it comes to renewable energy, India is no slouch either, with the country’s solar energy capacity have doubled since 2016 to 19GW. The country’s wind energy capacity also rose by 15 percent to almost 33GW.
Unfortunately for cryptocurrency advocates, both China and India have taken a harsh stance towards cryptocurrencies, both in their trading and their production. This has allowed Asia’s third largest renewable energy producer Japan, to take the lead in all matters related to cryptocurrencies. Japan’s total renewable energy capacity is 82GW, having risen by 7GW last year alone and solar energy contributed to 96 percent of that increase. Japan’s openness to cryptocurrencies and fintech innovation has put it squarely in the driver’s seat in leading Asia’s push to adopt the innovative technology. This coupled with its abundant renewable energy infrastructure and it’s no wonder that governments in China and India are wondering if they shouldn’t start to re-examine their stance towards cryptocurrencies.
Southeast Asia Could Lead Cryptocurrency Production
Over in Southeast Asia, harnessing renewable energy sources such as hydropower could create new jobs and new industries in cryptocurrency mining for a young, digitally-connected population.
Vietnam for instance, is Asia’s fourth largest producer of renewable energy, with hydropower from the mighty Mekong River accounting for a full third of the country’s electricity production. Neighboring Laos, which is sometimes dubbed the “Land of a Thousand Waterfalls,” is already a net electricity exporter and could potentially become a regional hub for cryptocurrency mining given the abundance of cheap and carbon-neutral electricity available.
With Singapore emerging as a hub for Initial Coin Offerings (ICOs), where companies issue their own digital tokens, the Southeast Asia region could support the financial activity surrounding cryptocurrencies in the island state and still have a key participatory role in the cryptocurrency ecosystem.
Weighing the Costs While Crypto-ing the Future
For all the alleged energy costs of cryptocurrencies, the actual carbon footprint of cryptocurrencies is a small fraction of those of physical currencies such as notes, coins and precious metals. Yet despite that, Bitcoin and other cryptocurrencies have allowed for the creation of the world’s first financial market with no government or company in-charge. Free from centralized manipulation, decentralized and in many ways, democratic. In countries like Zimbabwe and Argentina, despite the volatility of Bitcoin, it has sometimes managed to provide a more stable place to park money than the local currency. And in countries with more stable economies, Bitcoin has led to a flurry of new investments, jobs and startups. According to Marc Bevand, a Bitcoin miner and analyst, writing on his blog,
“Labeling Bitcoin mining as a ‘waste’ is a failure to look at the big picture. The jobs alone are a direct, measurable and positive impact that Bitcoin already made on the economy.”
With manufacturing starting to get more expensive in China and Vietnam and increased automation, countries with large youthful populations should start to seriously consider the value of adoption and participation in the cryptocurrency economy. If not just for the jobs, then at least to contribute to the future, where the creation of money may require lots of energy, but leave no carbon footprint. In that respect, Asia has the potential to take the lead if its leaders and regulators will let it.