It’s been a rough few weeks for cryptocurrencies. With the implosion of the TerraUSD “stablecoin” and the halving of the prices of mainstays like Bitcoin, some financial traditionalists are not-so-subtly saying “I told you so.” The Spectator’s Ross Clark derides cryptocurrencies, for example, as little more than a pyramid scheme and forecasts “a slide into nothingness.”
Environmentalists, meanwhile, are cheering this crypto slide.
To understand why, you first need to grasp a bit about how cryptocurrencies—particularly Bitcoin—operate. In order to earn Bitcoin, people use specialized computers to solve complex system-generated math puzzles. The first computer to solve the puzzle wins and earns the new coin. This idea, known as proof-of-work, gives Bitcoin a security advantage Bitcoin has over cryptocurrencies.
It also uses a ton of energy. To summarize the possibly-pseudonymous Satoshi Nakamoto’s landmark Bitcoin white paper, “time and electricity” are the skin in the game that Bitcoin miners must show to earn coins. Jeremy Hinsdale, writing for Columbia University’s State of the Planet, calls this crypto’s “dirty little secret.” To the environmentalists’ horror, the computers competing to earn Bitcoin and other currencies consume as much electricity as entire countries like Argentina and Thailand. This makes Bitcoin, in Hinsdale’s words, “a significant contributor to global air pollution and climate change.”
But the story that Hinsdale and other skeptical environmentalists tell about Bitcoin doesn’t account for a whole different side of Bitcoin’s relationship with energy. While Bitcoin uses a lot of electricity, it also provides some counterintuitive energy and environmental positives.
Because it doesn’t particularly matter where or when miners operate, cryptocurrency mining can, paradoxically, add to grid reliability through what’s called load balancing. When electricity is in high demand and prices are climbing, the computers can be switched off; when demand is low and prices are falling, they can be switched back on. This is especially useful in states where intermittent solar energy and wind energy are prevalent. Those intermittent sources often generate when traditional electricity users like households and businesses need it least. For households, electricity use is lower during the midday when solar generates the most power and higher in the evening when solar drops off the grid. For businesses, the overnight period is a lull, but that’s when wind is typically at its strongest. It’s during these periods that miners can ramp up to use otherwise wasted power and help keep the grid in balance.
One interesting way Bitcoin actually resolves an environmental problem directly can be seen most readily in Colorado and Wyoming. The problem is called “flaring,” which is when oil rigs burn off the natural gas that often accompanies oil in the drilling process. While natural gas is a valuable resource, when there isn’t the appropriate infrastructure to capture it and deliver it for sale, sometimes the most economic choice is to simply burn it on the spot.
Colorado’s Crusoe Energy and Wyoming’s JAI Energy are now using natural gas that would otherwise be burned off via flaring to instead power mining operations. Crusoe says it will have 100 units up and running in 2022, adding operations in the major oil and gas producing states of Texas and New Mexico to its existing footprint in Colorado, Wyoming, Montana, and North Dakota. JAI, which mines bitcoin both for itself and for other energy companies interested in creating new revenue streams, plans to expand its operations to Texas this year too.
In the Netherlands, meanwhile, a company called Bitcoin Bloem is using the excess heat that its computers generate to help grow flowers in greenhouses. As reporter Evan Walker explains, Bitcoin Bloem mines directly inside farmers’ greenhouses (saving Bitcoin Bloem on land costs) and pays the electricity bill so that the farmer gets free heat to boost crop growth. Bitcoin Bloem founder Bert de Groot sees this as a triple win. He gets space for his computers, farmers get heat and a lower bill, and natural gas that would otherwise power greenhouse heaters is saved. With Europe suffering from unprecedented natural gas costs in the past year, the value of this synergy is even more apparent.
Across the sea in Norway, a company called Kryptovault uses its excess heat to aid the local lumber industry, drying out logs free of charge. The Guardian’s Daniel Boffey traveled to one of Kryptovault’s two sites and reports that local lumberjacks are grateful for the community service the miners are providing.
In Costa Rica, a defunct hydroelectric power plant is getting a new lease on life to power crypto mining. According to plant owner Eduardo Kooper, “I was very skeptical at first, but we saw that this business consumes a lot of energy and we have a surplus.” The hydroelectric company, Reuters writes, invested $500,000 to venture into hosting miners. Kooper says Costa Rica is a great place for crypto entrepreneurs to set up shop, given its low-emissions, affordable energy and stable internet connections.
Across the world, cryptocurrency is flipping the environmentalist script. Yes, it takes a lot of juice to mine Bitcoin, but there are numerous positive environmental effects that can come with that.
Jordan McGillis is the Deputy Director of Policy at the Institute for Energy Research.