The White House climate report: the good, the bad & the ugly

Recently, the US Office of Science & Technology, commissioned by the White House, released a comprehensive report on the climate impact of cryptocurrencies. The report is largely critical, and Bitcoin’s Proof of Work consensus mechanism in particular takes the brunt. Nevertheless, the report also identifies some positive aspects. Read the good, the bad & the ugly here.

The report Climate and Energy Implications of Crypto-Assets in the United States was released earlier this month and is a result of President Biden’s ‘Executive Order on Ensuring Responsible Development of Digital Assets’.

According to the report, the US government has set a goal to ensure that digital payment systems are developed, designed and implemented in a responsible manner that reduces the negative climate impact and environmental damage that can be caused by “some types of cryptocurrency mining.”

According to the report, digital assets contribute to greenhouse gas emissions, generate waste, cause noise pollution and a variety of other negative effects. Depending on the technology used, digital assets could therefore hinder the United States’ efforts to reach “net zero” emissions, the report said.

Bitcoin mining

Reading between the lines, of course, “some species” is mostly about Bitcoin, and in particular the energy consumption of Bitcoin’s Proof of Work (PoW) mining mechanism.

Bitcoin mining is a process where miners try to find the next block in the blockchain. They can add a number of transactions to such a block and receive a reward in bitcoin for finding the block. The block is cryptographically linked to the previous blocks in chronological order, as a chain.

It mainly serves as a security mechanism. Finding a block takes a lot of computing power and therefore energy, but that is where the security lies. A malicious person who wants to change the transactions in a block needs more than 50% of the computing power of all miners worldwide, and therefore also the associated energy. Influencing transactions earlier in the chain requires much more computing power, because not only that block but also all blocks after it have to be mined again. That makes an attack on the Bitcoin network extremely expensive and practically unfeasible.

The report describes Proof of Work as follows: ?ǣThe PoW mechanism is designed to require more computing power as more entities try to validate transactions for coin rewards, and this feature helps to discourage malicious actors from attacking the network.?ǥ

The Good

First the good news: the report is not only critical, but also identifies some positive aspects of Bitcoin.

For example, the report acknowledges that Bitcoin mining can help the climate by limiting greenhouse gas emissions. Especially methane, which according to the report is 80 times more damaging to the climate than CO2. Limiting methane emissions is therefore one of the global priorities in combating climate change.

Methane is released during oil drilling, at waste heaps, sewerage facilities and in the agricultural sector, among other things. There is often no local application for the gas and it is too expensive to dispose of. In many cases, therefore, it is released into the atmosphere ( venting ) or is burned ( flaring ).

Emissions can be limited by connecting generators and mining equipment to the methane gas on site. That makes it worthwhile to capture the gases as efficiently as possible. Bitcoin mining is uniquely suited for this because the equipment is location-independent, movable and scalable, and also easy to switch on and off. It can therefore be connected to almost any quantity of gas, regardless of location. Various large oil companies and other companies have been experimenting with this for some time

The report acknowledges the role Bitcoin mining can play in this: ?ǣ Crypto-asset mining where equipment is installed and methane discharged is used to generate electricity for the operation is more likely to help achieve US climate goals than to hinder them ,” the report said.

The report also identifies that there are ways to mine Bitcoin based on ‘net zero’ emissions. For example, if mining companies take care of the construction of new sustainable power plants themselves.

Conversely, the use of energy from existing sustainable power stations is undesirable, according to the report. This would reduce the existing supply of sustainable energy on the local market, forcing other market participants to use electricity from other energy sources.

The exception to this is if miners use renewable energy that is surplus, because there is no market for it at that time. For example, when solar panels and wind turbines produce more energy than the local demand for energy.

The report states that miners using this type of power generate additional income for renewable power producers, which encourages the construction of new renewable power plants.

According to the report, Bitcoin mining can also help balance the power grid. Miners can make agreements with local energy suppliers to turn off equipment when the local power demand is high. This has been happening for some time in Texas, where miners stopped their activities during the winter and summer months to relieve the power grid.

But, the report states, while it’s valuable that miners can help lower peaks in power demand, those peaks are actually higher because of miners. The report seems to insinuate that there is no advantage, but higher spikes are only a problem if the grid can’t handle it, in which case miners turn off their equipment. Meanwhile, all troughs are continuously higher, making (sustainable) energy producers more profitable.

The Bad

The rest of the report is more critical. According to the report, cryptocurrencies cause climate damage to a greater or lesser extent in almost all other cases.

The energy consumption of PoW mining is the main culprit, according to the report, but the production, transportation, cooling, maintenance and disposal of used equipment also cause CO2 emissions. Computers are also used for cryptocurrencies where mining does not play a role and energy consumption is also counted.

According to the report, all cryptocurrency activity in the US combined consumes 0.9% to 1.7% of the energy generated and is therefore responsible for 0.4% to 0.8% of total US greenhouse gas emissions.

In addition, the waste from mining would also cause environmental damage in the form of e-waste . According to the report, miners would sell their equipment after just one year and four months. That claim is questionable, because a lot of mining equipment is resold and reused by others. Mining equipment is also largely recyclable and contains hardly any materials for which this does not apply.

Bitcoin mining also causes noise pollution, according to the report. And it affects air quality, because power plants do. And also the water in the area, because power plants that supply the electricity use the water for cooling.

Mining is even bad for marginalized groups, indigenous communities and minorities. The reasoning goes something like this: minorities, indigenous communities and marginalized groups are more likely to live in places that are more vulnerable to climate damage, and since mining consumes power and power plants cause climate damage, mining contributes to the disproportionate climate damage these groups suffer.

The overall picture it paints is that mining is pretty bad for the environment and the climate. The report does not shy away from emphasizing the point with numerous comparisons: comparisons with countries, with data centers, with the diesel use of US trains, with the emissions of freighters on inland waterways, the emissions of three million cars, and every home computer or lighting in the US . The water consumption of an average household is also included as a comparison.

However, comparisons are just like statistics: you can easily paint a certain picture with them. Other comparisons that paint a completely different picture are also possible. For example, researchers at Cambridge estimate that mining uses less power than the refrigerators in the US and that we spend about 22 times as much energy on air conditioning. The Bitcoin Mining Council states that mining consumes about half the power of the gold industry and about 20 times less than the financial sector. According to them, Bitcoin mining’s global power consumption is slightly higher than the global power consumption of party lights, or computer games.?? ??

The report is slightly more positive about Proof of Stake (PoS). That is a different consensus mechanism than Proof of Work and is used by most altcoins. Mining plays no role in this and energy consumption is therefore much lower.

According to the report, PoS is a more environmentally friendly alternative to PoW, but that too is questionable. PoS is experimental, more vulnerable to attacks and, according to experts, does not lead to the same decentralization. It may be more environmentally friendly, but if it leads to a different result, it is not an alternative and misses the mark. Without decentralization, a blockchain is superfluous and a simple centralized system is more environmentally and climate-friendly in every way. The latter is also indicated in the report.

The report calls for policies aimed at minimizing greenhouse gas emissions and other environmental damage. To this end, the government should provide guidelines and technical support to introduce climate-friendly standards that should lead to responsible design and use. Among other things with regard to low energy consumption, low noise production, low water consumption and the use of sustainable energy.

If that isn’t enough, the report argues, the government should consider legislation to restrict or prohibit the use of “high energy intensity consensus mechanisms.” In other words: Bitcoin.

The report points out that China has already restricted bitcoin mining, citing climate goals as the reason. The report also mentions that the upcoming European Markets in Crypto-Assets Regulation (MiCA) will include sustainability requirements. Yet here too the necessary nuance is missing. According to analysts, China swept through all kinds of ‘undesirable’ sectors, in the context of the 100th anniversary of the Chinese Communist Party, and the climate goals were perhaps not their main motivation. And the sustainability requirements of the European MiCA have now been relaxed

The Ugly

Then the ugly. The report is extensive, detailed, substantiated with more than 200 sources and it gives the impression of objectivity. However, anyone who pierces through it discovers an incomplete and colored analysis.

The basic position seems to be that virtually all types of energy consumption of cryptocurrencies such as Bitcoin by definition cause climate damage, unless it complies with very narrowly defined rules such as the use of surplus sustainable electricity or the construction of one’s own sustainable energy plant.

The climate damage caused by the energy sector will therefore be on Bitcoin’s plate. This strictness is not applied for other types of energy consumption. Christmas lights, computer games, Netflix and electric cars consume electricity, just like mining equipment, but are not held responsible for the climate damage of energy producers in the same way.

The negative undertone may be explained because the report is largely based on the publications of ‘Digiconomist’ Alex de Vries. In the list of sources we find his publications more than thirty times. De Vries is a controversial Bitcoin critic and has been publishing negative climate reports about Bitcoin for years. There is much criticism of the one-sidedness and color of the reports, the measurement methods and the overall framing .

If one reports in the media that Bitcoin mining or a transaction consumes as much energy as some country or household, the source is usually a report by De Vries. His claims are also adopted and repeated at a high level.

Despite the efforts of the community to debunk the claims every time, most editors, as well as politicians and policymakers, still do not have sufficient (technical) knowledge to judge the content.

However, other relevant studies and sources are completely ignored in the report. Most notable is the absence of any reference to the Bitcoin Mining Council (BMC) self-reports.

The BMC is an alliance of Bitcoin miners that claims to represent about 50% of the global computing power of Bitcoin miners. The BMC publishes a self-report on energy consumption every quarter.

Of course, self-reports can paint a biased picture, but they offer an entirely different perspective: Bitcoin mining, according to the BMC, is done with a power mix that is about 60% renewable and is becoming more sustainable – much more sustainable than the average power grid in most countries. According to the BMC, Bitcoin mining accounts for about 0.15% of global energy use – still not a small amount, but less alarming than “some sources” that have been misleading journalists and, as a result, politicians for years.

There are also several other sources that sound similar to the BMC, for example from Square and Ark Invest, NYDIG, Coinshares or Arcane Research. These, like a multitude of other studies and online articles, are easy to find via a search engine. Yet these perspectives are almost completely absent from the report.

The benefits and usefulness of Bitcoin are also not factored in. The report’s approach focuses only on the costs in terms of energy consumption and climate impact, not whether the benefits outweigh the benefits. It is not mentioned that Bitcoin is now used by 100 to 200 million people, has been embraced by two nation states and that the network moves billions of euros in value every day. The fact that there are more than one and a half billion people worldwide without access to the banking system and that Bitcoin is mainly catching on in poorer countries where inflation is high is also not taken into account. And that Bitcoin can replace significant parts of the financial sector, with its countless employees and energy-guzzling enormous office buildings in every major city, is also not considered.

The report seems mainly an attempt to turn over every possible stone and magnify all forms of climate damage. Unfortunately, the nuance of a thorough and balanced analysis that you would expect from an Office of Science and Technology is missing.

Nevertheless, the report calls for further research and a fact-based approach, including by collecting data from market participants. However, the question is: do people also seek a dialogue and are they open to opposing views, or is it mainly about collecting data to reinforce a position that has already been taken?

That position already seems to shine between the lines: cryptocurrencies are harmful to the climate but may be useful in some way, but Bitcoin’s Proof of Work is the main culprit and may be better curbed are laid. For Bitcoin critics, it is probably grist to the mill.

There is also the possibility that the report will influence the European discussion around MiCA, the upcoming European regulation of the cryptocurrency market. It is therefore important to keep informed, so that all perspectives come to light and a balanced and well-considered discussion is possible.

Read the White House report yourself? You can do that via this link.

 

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *

© 2024 Cryptocoin Budisma.net