The hearing was surprisingly promising for the crypto industry. Prior climate discussions had focused on the crypto industry’s high energy use, with less emphasis on its economic value and influence on innovation. The panel of witnesses in the recent hearing, however, featured key crypto defenders, demonstrating the Federal Reserve System’s willingness to engage with industry players to gain a better understanding of the mining industry’s power consumption and carbon emissions, without stifling innovation around blockchain technology.
The witnesses touched on several important issues faced by the industry1, but among the most prominent talking points were crypto’s validation models, renewable energy efforts, and opportunities for innovation.
Baked into the energy discussion were competing views on cryptocurrency’s consensus models, Proof of Work (PoW) and Proof of Stake (PoS). Cornell Professor Ari Juels drove home his main point that “Bitcoin does not equal blockchain.” Separating Bitcoin from blockchain technology as a whole, he challenged Bitcoin’s reliance on PoW validation as an “inherent waste.” Blockchain is akin to a digital bulletin board that is globally readable and immutable, and on its own, represents a promising technology with many use cases, he argued. But, according to Juels, Bitcoin’s reliance on PoW, an energy-intensive validation mechanism, ought to be replaced by the greener alternative developed by the blockchain community, PoS.
John Belizaire, CEO at Soluna Computing, and Brian Brooks, CEO of Bitfury, a mining and blockchain technology provider, took the opposite position. For them, Bitcoin’s energy consumption is a feature of the Bitcoin protocol, not a “bug” and certainly not a waste, considering the large amounts of money people are willing to pay for the asset2. While PoS has its place in the crypto economy, PoW exists for an entirely different set of purposes and, by design, its energy intensity is precisely what protects it; the energy used provides evidence that the block was rightfully earned and validated. It would take an infinite amount of computing power and energy for ill-intentioned actors to alter the blockchain in any meaningful way. Simply put, it would be prohibitively expensive, according to Brooks, to rewrite transaction blocks. While he acknowledged that PoS is less energy-intensive, it does not produce the same valuable attributes as PoW—credible monetary policy that gives Bitcoin its economic value and a truly trustless system of peer-to-peer exchange, where users need not depend on shareholders to act in their best interests. PoS, in contrast, depends on trust in the stakeholders and is comparable to an electronic version of corporate governance, where the major stakeholders can theoretically control the system.
Better than a Battery: Curtailed Energy, Computing Power, and Grid Infrastructure
Staunch PoW defenders Brooks and Belizaire also made the case for more sustainable energy solutions. While renewable sources of energy are preferred because of the reduced emissions, their outputs depend on variable natural resources, making forecasting and meeting load demands difficult for grid operators. What the US needs, according to Belizaire, is a more flexible grid that could handle the volume of clean energy in the pipeline. The current inflexibility of the grid results in a high level of curtailment—spilled or wasted energy3. As such, renewable power producers are often weary of revenue uncertainty. Curtailed energy is a universal problem, Belizaire said. These power plants lose approximately 30% of unused energy when production exceeds demand. Storage technologies are still being developed and scaled and building transmission infrastructure to direct excess energy to areas with high energy demands is a long-term solution. A more immediately deployable application for this curtailed energy is to continue building data centers near renewable energy power plants to consume curtailed energy for computing applications, such as AI, machine learning, drug discovery, and, unsurprisingly, cryptocurrency mining. Because of crypto mining’s mobility, this is a plausible solution that would in turn reduce the need for transmission and distribution infrastructure. This solution is “better than a battery.” Brooks added that further development of renewable energy must be incentivized, and that crypto mining could be part of the solution4.
With Great Power Comes Great…Mining-Inspired Innovation
For some, what the US needs is more energy, not less crypto. US Rep. Neal Dunn (R-Fla.) commented that, instead of running from technology that requires a lot of power, the US should look for more ways to invest in renewables and energy-efficient technology. In many ways, we are already seeing examples of these initiatives, including Soluna Computing’s data computing centers and more energy-efficient Application-Specific Integrated Circuit chips employed in crypto mining. Crypto mining is also responsible for the return of immersion cooling technologies used by data center operators. In his written statement, Brooks noted that LiquidStack, Bitfury’s immersion cooling business, is “focusing on reducing by as much as 90% the cooling energy used by bitcoin mining and other high-performance data centers.” In response to Dunn’s comments about repurposing the defunct coal mines in Virginia, Brooks noted that a big component of crypto mining energy costs is cooling costs, so miners would likely be attracted to cooler locations such as the coal and limestone mines in Virginia.
The Road Ahead
While it was generally acknowledged throughout the hearing that crypto mining requires significant energy consumption, the path forward was unclear. What was clear from the hearing is there is more work to be done—namely, understanding blockchain technology and its various applications to facilitate thoughtful legislation that achieves a balance between climate goals and crypto’s economic productivity. The PoS vs. PoW debate, for example, is highly technical and requires more education and ongoing discussion to properly inform legislature. The validation models have different goals, and banning one in favor of the other based on energy consumption alone may be too simplistic. Some hearing participants advocated letting the market decide instead.
Similarly, there were valid points made about mining’s energy requirement relative to the value produced. Several of the panelists contended that the fact that Bitcoin is a major asset for which users across the globe are willing to pay demonstrates Bitcoin’s economic productivity and, therefore, mining should not be deemed a waste. If Bitcoin competes with gold as a store of value and banking as a means of payment, according to Brooks, “…the appropriate question is whether the energy used in bitcoin mining produces more economic value per unit of energy than gold mining [and banking].”
Finally, more research on mining and climate is needed. As one member pointed out, there are vastly different estimates from different sources about the amount of energy mining consumes, making it difficult for lawmakers to assess the true severity of crypto mining on the environment, let alone create laws.
The hearing made clear that policymakers are likely setting the stage for mining-related policy. While we await further guidance, miners should consider their long- and short-term plans going forward. For the long term, they should consider ways to incorporate more energy-efficient alternatives into their operations, to manage climate risks and meet impending compliance obligations. For the short term, miners should consider how they will respond to potential congressional inquiries about their energy usage5.
Special thanks to Trisha Gangadeen for co-authoring this article.
1 Whether or not cryptocurrency is a good or a financial instrument, appeal of user-owned information on the blockchain, and China’s “unplugging” from crypto were among some of the other points of discussion. 2 The measure of waste in an economic activity is whether the activity is producing value for people, Brooks argued.
3 Energy production from renewable sources that is wasted when production exceeds demand. 4 Renewable power developers are working with crypto miners to provide baseload power that would otherwise be curtailed, according to Brooks.
5 On January 27, 2022, eight democratic members of congress sent letters to six major crypto mining companies requesting information about their energy consumption and the sources of electricity.