Spring is coming to the North American cryptocurrency mining industry. With access to resilient capital markets, cheap electricity, a stable political climate, and increasing involvement of technological innovators, industrial-grade mining operations are growing in the US and Canada, offering competition for hashing power to Chinese mining pools, which now control more than half the world.
These new companies understand the need to minimize the carbon footprint of mining. In March, as Neptune Digital Assets and Link Global announced They would develop a new five megawatt bitcoin mining facility in Alberta, Canada. Cale Moodie, CEO of Neptune, quoted the “considerable global development pressure” sustainable [emphasis added] Bitcoin mining around the world “- the project would run on solar, wind and natural gas.
“A major investment is currently being made in North America’s mining infrastructure,” Ethan Vera, co-founder and chief financial officer of Luxor Technologies and Hashrate Index, told Magazine, while Meltem Demirors, chief strategy officer of CoinShares writes A recent blog post states, “We saw that more than $ 200 million in capital was invested in building onshore mining capacity in the US alone.”
“There is an upward trend in mining companies with a view to the US and North America,” Amy Davine Kim, chief policy officer of the Chamber of Digital Commerce, told the magazine, and some US states are increasingly willing to undertake such crypto-mining projects support. Kentucky, for example, passed two laws in March giving crypto miners tax breaks that the state seeks to attract to create jobs and boost the local economy.
“North American capital has been released,” explains Vera, adding, “Public and private markets are investing money in Bitcoin mining.”
What took so long
Some wonder how and why Western nations allowed China to take such leadership in crypto mining in the first place. China now Accounts for 65% of global BTC mining, according to the Cambridge Center for Alternative Finance. This compares to just 7.24% for the US, which is the second largest hub, though no one really knows the global distribution for sure.
Some have set the Chinese share at a lower value. For example, a 2020 study commissioned by Fidelity Investments Estimates that 50% of the world’s mining capacity is “likely” in China and 14% in the US. Meanwhile, on April 6, an article was published by scholars at the University of the Chinese Academy of Sciences, Tsinghua University, Cornell University and the University of Surrey in Nature communication, a peer-reviewed journal, Estimates the Chinese share is said to be much higher: “As of April 2020, China accounts for more than 75% of Bitcoin blockchain operations worldwide.”
The paper goes on to explain that some rural areas of China are considered “ideal destinations for Bitcoin mining” due to cheaper electricity prices and large undeveloped areas for building pools.
“In the early days, the wild west nature of the mining industry held back large investments,” Vera explains about how bitcoin mining became so geographically skewed. “The opaqueness of the ASIC supply chain” – the application-specific integrated circuits designed specifically to perform the hashing calculations required by miners – “and the verifiability of the mining pool resulted in capital being incapacitated.”
Regarding “verifiability,” he goes on to say that “most miners did not know if they were underpaid for their hashrate on mining pools. When mining pools gave them a fee, it was very difficult to verify that it was the actual fee they were charged. In many cases, miners blamed the mining basins for the underpayment. “More recently, however, the professionalism of the mining supply chain has improved significantly,” adds Vera.
China’s dominance may be better explained in macroeconomic terms, suggests Yu Xiong, Associate Dean International at Surrey University and Chair of Business Analytics at Surrey Business School – and one of the authors of the Nature communication Paper. North America has higher labor and energy costs than China, which leads the world with around 30% of global hydropower capacity and 50% of coal production. “These have made the mining industry in China easier,” Xiong told the magazine.
Chase Lochmiller, CEO and co-founder of Crusoe Energy Systems – a Colorado company that uses off-gas from oil wells to power Bitcoin mining equipment – tells the magazine that more miners are now migrating to North America, reflecting increased awareness of BTC is used by investors and society in general.
Bitcoin mining “slammed” by environmentalists
Any move to North America could also invite environmental researchers who attacked Bitcoin’s enormous energy consumption – and the associated climate-threatening emissions – for further investigation. The annualized energy consumption of the Bitcoin mining industry in China alone will peak at 296.59 terawatt hours in 2024 Nature communication Paper that “exceeds total energy consumption in Italy and Saudi Arabia” in 2016.
Bank of America analysts in March Bitcoin mining “slammed” because of its pollution“A single Bitcoin purchase at ~ $ 50,000 USD has a carbon footprint of 270 tons, which is the equivalent of 60 ICE trains [internal combustion engine] Cars.”
The Proof of work The consensus mechanism for verifying Bitcoin transactions requires prospective miners to compete against each other to solve intricate math puzzles. Computers, such as ASICs, designed specifically to solve these problems, use immense amounts of electricity. Miners who solve the puzzle can form and confirm the next “block” of transactions and receive BTC as a reward for their efforts.
“This is a safety feature from PoW, not a bug,” says Vera. If the puzzles to be solved – the answers of which are known as “hashes” – are too easy to solve, the network invites hackers to denial-of-service attacks.
According to Lochmiller, consuming a lot of energy is “not necessarily a bad thing” in and of itself if done correctly. For example, Crusoe Energy has developed a technology that captures the natural gas that is “inflamed” into the atmosphere at oil well sites and “uses that exhaust gas to power modular data centers.” [mining rigs] used directly at the drilling site. ”
When oil rigs are merged in this way – as the company has done in Colorado, Montana, Wyoming, and North Dakota – the result is an overall 71% reduction in carbon emissions compared to flaring, Lochmiller told the magazine. “It’s a net benefit to the environment and a net benefit to BTC.”
The environmental challenges associated with crypto mining are “easy to handle,” said Clark Swanson, CEO of Blockcap – one of the largest bitcoin mining companies in North America – to the magazine, adding:
“The Bitcoin network is the first energy consumption where the energy source does not have to be placed near the end-user population.”
Swanson points out that BTC mining aims to make renewable energy the primary source “and perhaps one day the only source of energy for the Bitcoin network”. Blockcap still uses electricity today, which achieves a CO2-neutral output of almost 50%. “We continue to set our CO2 emissions target to neutral.” However, currently most of the Bitcoin mining worldwide is not operated with renewable energy sources like sun, wind or water. according to To the Cambridge Center for Alternative Finance: “39% of all energy used by hashing comes from renewable sources.”
However, not everyone is impressed with the recent measures. Alex de Vries, founder of Digiconomist, describes the co-location solution as absurd and explains to the magazine: “We have no problem with climate change because the extraction of fossil fuels is not efficient enough.” He adds:
“Using a by-product of fossil fuel extraction still means Bitcoin is fossil fuel powered, and it only adds to fossil fuel businesses’ bottom line.”
De Vries admits that solar panels provide green energy and are an improvement over the use of flare gas. “So far, the only significant source of renewable energy flowing into the Bitcoin network is seedy hydropower that can only be generated for a few months a year,” as is the case in the Chinese province of Sichuan – – the world’s largest BTC mining center.
Even if the Bitcoin network were run entirely on renewable energy, de Vries added, it would not solve all PoW-related problems. “This network is powered by highly specialized equipment that cannot be used for other purposes,” and the growing demand for ASIC machines “is already disrupting the global semiconductor supply chain.” The end result will be “a significant pile of electronic waste, on top of all of the energy consumption. No amount of green energy can fix that. “
The optics arguably become more important as the mining industry’s focus shifts from China to North America, where regulators and environmentalists may be more sensitive than China’s energy agencies to the industry’s energy use and carbon footprint.
A security risk?
Beyond energy and environmental issues, others see significant security risks in Bitcoin’s consensus mechanism. “Just keep in mind that half of the network’s hashrate is physically in China,” says de Vries. “It’s a big security risk.”
Ripple co-founder Chris Larsen suggested something similar in an opinion piece for The Hill in August 2020. He wrote: “At least 65 percent of cryptocurrency mining is concentrated in China, which means that the Chinese government has the majority to exercise control over these protocols and can effectively block or reverse transactions.”
Likewise, former acting US currency auditor Brian Brooks written down In November 2020, China recorded more than 51% of mining capacity on the Bitcoin blockchain, “which means that the very first Internet of Money […] is now essentially owned by China. As a country, we are now faced with a geostrategic problem of competitiveness: Do we want to have Internet 2.0 as well as Internet 1.0 in the USA? ”
Warnings of a 51% attack on the Bitcoin network from China or other countries pop up fairly regularly on Cryptoverse, but the risk is largely theoretical. writes Developer Jameson Lopp in a blog post from August 2020. Regardless of its “scary sounding” name, such an attack would be “limited in its effectiveness” and “unlikely to disrupt network operations for more than a short period of time”.
During one such attack, the attacker couldn’t arbitrarily steal people’s Bitcoin, explains Lopp, and attackers could only double-spend their own coins. In addition, the hackers could not validate invalid transactions or change consensus rules. These restrictions, Lopp continued, make cryptocurrency exchanges probably the “juiciest targets” for 51% attacks. But even to these limited attacks, there are numerous drawbacks, including the fact that “any exchange with adequate liquidity to make them vulnerable will likely have withdrawal limits”. Lopp adds that the threat from China, however limited, will continue to diminish over time:
“I expect semiconductor foundries outside of Asia will in the long run produce more mining chips and countries with even cheaper power sources will continue to industrialize, creating more competition as miners look for new locations to open businesses. China’s mining dominance is unlikely to continue. I assume that this theoretical attack is becoming increasingly unlikely. “
According to Kevin Dowd, Professor of Finance and Economics at Durham University in the UK, it is not environmentalists, hackers or even hegemonic nation-states that will ultimately doom the PoW mining model – it is the basic laws of business.
Dowd argues that Bitcoin mining has the industrial structure of a natural monopoly – i.e. H. Where production with a producer is cheapest. “There are inherent centralization tendencies that ultimately undermine the value proposition,” Dowd told the magazine. This over-centralization problem will not go away even if most of the BTC mining operations were moved from China to North America, he claims.
Is the PoW Consensus Doomed?
Does the PoW protocol then have its own expiration date? After all, Ethereum, which has the second largest cryptocurrency by market capitalization, is moving to a consensus mechanism for proof of stake that should bring significantly reduced energy consumption and a smaller carbon footprint – along with a higher speed if anything is good. Does this represent the future of blockchain technology?
“Proof-of-work is the only battle-tested consensus mechanism,” says Vera. “Even if the evidence of the use works, it is still an experiment.” His business believes that Bitcoin will hold onto a PoW consensus “indefinitely – and get better over time”.
“I see value in both consensus mechanisms,” Lochmiller told the magazine. The sheer size of the investments required to mine BTC is discouraging cyberattacks, while PoS “is still in its infancy and still being rolled out”. Swanson adds that in the 12 years of Bitcoin’s existence, the PoW consensus protocol has successfully thwarted all attacks on the network.
“While a proof-of-stake protocol can be more efficient due to its power usage and computational speed, it has inherent shortcomings that make it inadequate as a long-term Bitcoin protocol.”
When asked if mining is Bitcoin’s Achilles heel, Kim replied, “I disagree. There are ways to encourage adequate energy use. “The current bitcoin mining may be wasteful, but other things waste a lot of energy and emit a lot of carbon, including the US military. Ecology alone may not be a sufficient reason to abandon PoW mining.
“First, we need better data,” adds Kim. How much ecological damage is really being done? “We also need to look at the benefits” of the Bitcoin network, which offers a secure way of transferring value anywhere in the world and bringing millions of people without a bank account into the world’s financial system for the first time – to name two potentials . Ecology is a problem, yes, “but it’s important not just to talk about climate,” says Kim.
A new focus for BTC mining?
Can you really expect Bitcoin mining activities to shift significantly from China to North America in the next few years? With higher energy and labor costs and stricter regulations, Xiong is doubtful that North America will dethrone China anytime soon. Perhaps, however, “some other countries with more renewable energy and lower operating costs could compete with China,” he told the magazine.
“The US is growing aggressively” as a mining location, says Lochmiller, partly due to the “professionalization” of the sector. But all of these Chinese mining groups are not going to go away overnight – barring a few major regulatory interventions. Because of this, Lochmiller predicts that in three years’ time China will still claim 40% to 50% of the world’s BTC mining activity, maybe 30% from North America, 20% from Europe, and the remaining 10% from other countries.
Regarding the future configuration of mining, “I would like to see it inverted,” Kim says with 65% for the US and 7% for China – although that is probably not likely. Crucially, the U.S. needs comprehensive policies at both state and federal levels to attract and retain innovative crypto and blockchain companies.
Kim adds, “We want this work here – as happened on the internet and in Silicon Valley.” States like Kentucky and Texas, as well as cities like Miami, are already realizing that blockchain is the future. “So I expect some progress in mining over the next three years.”
“North America is on the verge of an explosion in hashrate growth and uses robust capital markets, a sophisticated energy infrastructure and a political climate,” says Vera. “I expect North America to gain another 10% of the global hashrate market share next year.”
However, as the North American mining industry develops, the environmental costs of growth must be taken into account, and the continued move towards renewable and climate-neutral energy sources is critical to gaining mining shares, Vera emphasizes. “With the increasing mass adoption of Bitcoin, this will be achieved [the environmental impacts] will continue to be the main argument against it. “