Bitcoin is under a cloud, one that Congress and others are beginning to acknowledge: the vast amount of energy required to obtain and maintain the virtual currency.
A university study released last week found the emissions produced by the worldwide network of computers that “mine” bitcoin sits “between the levels produced by the nations of Jordan and Sri Lanka, which is comparable to the level of Kansas City.”
The researchers, from the Massachusetts Institute of Technology and the Technical University of Munich, noted the blockchain validation process requires specialized hardware and “vast amounts of electricity” to do the mining and maintain the network, which could have a potential impact on climate change.
Congress and federal agencies, which have been examining the financial implications of cryptocurrencies, might not be able to ignore their carbon footprints much longer.
The Bitcoin Energy Consumption Index on the Digiconomist website estimates more than 18 U.S. homes could be powered for one day by the electricity consumed for a single bitcoin transaction.
The King & Spalding law firm, in its energy newsletter this month, looked at the carbon impact, using Digiconomist and EPA figures, and found a single bitcoin transaction emits the same amount of carbon as burning through two 14-gallon tanks of gasoline in an average American car.
The firm reported there are more than 390,000 bitcoin transactions in a 24-hour period. The mining process and the transactions are linked within the blockchain network.
Bitcoin’s ravenous energy appetite is gaining attention on Capitol Hill, especially following Facebook’s June 18 announcement of a new cryptocurrency, Libra.
Push for hearings
Rep. Darren Soto told CQ Roll Call in a phone interview that he believes Congress should hold hearings on the environmental impact of cryptocurrency technologies. The Florida Democrat, the co-chairman of the Congressional Blockchain Caucus, said he is “familiar” with the energy concerns and the issue will “absolutely” be discussed by the House Energy and Commerce Committee as it considers his bill that would also aim to prevent deceptive practices for cryptocurrency and blockchain projects.
The legislation would require the Federal Trade Commission to produce an annual report outlining the plan to further protect consumers when it comes to digital assets. Ensuring these technologies don’t drive up energy prices needs to be part of those consumer protections, Soto said. He said the issue of energy usage will figure prominently at upcoming congressional hearings on Facebook’s Project Libra.
Energy costs and demands of blockchain technology are of particular concern to lawmakers from states that have access to cheap power. In recent years, bitcoin miners have flooded to areas such as Washington state, New York and Montana to set up shop because of the availability of low-cost hydroelectricity.
Why does bitcoin require so much electricity? Its miners need high-powered computers to solve the complex mathematical equations that unlock new bitcoins, of which there is a finite amount. Unlocking bitcoins gives the miners a big payout, which in turn provides the incentive to maintain the network.
Cryptocurrency companies generally seek to house their machinery in large existing commercial or industrial facilities, filling them with computer servers. In Montana, a cryptocurrency company named Project Spokane occupied an old lumber facility that is reportedly one of the largest buildings in the state.
The influx of bitcoin miners to areas with access to cheap and plentiful energy has caused a backlash.
Washington state is experiencing “a tremendous increase in electricity demand attributed to mining of bitcoin,” Democratic Sen. Maria Cantwell said at a hearing of the Senate Energy and Natural Resources Committee last summer. “So, needless to say, there are some issues here that I think our state is sorting through.”
At the same hearing, Montana Republican Sen. Steve Daines said his state has two bitcoin mining facilities that collectively require about 80 megawatts of electricity. He expressed concern that as the demand from bitcoin miners increases, it could pose a threat to energy supply and prices for Montana as a whole.
Even the cryptocurrency industry sees a problem.
“We know energy consumption on this scale will limit the potential of the technology to expand into and create value and energy in other sectors,” testified Claire Henly, who at the time of the August 2018 Senate Energy hearing was the managing director of the Energy Web Foundation.
The findings aren’t necessarily an indictment of blockchain technology entirely. In an email to CQ Roll Call, Rambod Behboodi, a partner in King & Spalding’s international trade practice, stressed that the firm didn’t look into non-bitcoin blockchain transactions.
Smaller networks than bitcoin operations would have smaller carbon emissions, he said.
Other early blockchain-based cryptocurrencies, such as ethereum, are also energy intensive. According to the Energy Web Foundation, a global nonprofit group that explores blockchain use without energy-intensive mining practices, the ethereum community is moving toward a lighter energy footprint.
Still, in its current state, the entire Ethereum network consumes more electricity than a number of countries, according to Digiconomist.
For all the expressions of concern, there doesn’t appear to be a national effort to tackle the issues of bitcoin’s energy consumption and its effect on electricity prices and the environment.
The staff of the Senate Energy Committee told CQ Roll Call it has no plans to hold another hearing on the subject.
Behboodi said that while there is blockchain-related legislation moving at the federal and state levels, none of it makes a connection to carbon pricing.
“Nor have we come across any such efforts at the international level,” he said.
Industry groups the Chamber of Digital Commerce and the Blockchain Alliance declined to comment on the university study. The American Public Power Association said only that “this is certainly an issue our policy analysis folks are keeping an eye on.”
Local governments have been the most active in addressing the energy consumption of bitcoin mining.
In March 2018, Washington state’s Chelan County Public Utility District voted unanimously to impose a moratorium on accepting applications for electric service for cryptocurrency mining.
PUD General Manager Steve Wright said “impacts from cryptocurrency mining applications are hampering responses to the district’s overall planned work, and threatens the county’s electric grid capacity to meet planned growth.”
A few weeks later, also in Washington, Mason County’s PUD commissioners placed a freeze on accepting applications for service to cryptocurrency operations. The moratorium covered computer or data processing loads related to virtual or cryptocurrency mining, bitcoin, blockchain or similar systems.
Plattsburgh, New York, near the Canadian border, has attracted cryptocurrency companies due to its cool weather and cheap power from a large hydroelectric dam on the St. Lawrence River.
Early last year, the city imposed an 18-month moratorium on commercial bitcoin mines, citing a sharp increase in energy costs.
In February, though, the city lifted the freeze after revising its zoning laws and building codes on bitcoin mining facilities. There was also a ruling from the New York State Public Service Commission that permits upstate municipal power authorities to charge higher electric rates “to cryptocurrency companies that require huge amounts of electricity to conduct business.”
Plattsburgh Councilor Elizabeth Gibbs told CQ Roll Call she was glad local officials were able to address the problem without the need for “big government” to intercede. Mayor Colin Read said it is only a matter of time before the federal government will need to weigh in.
“It’s going to be in their ballpark,” he said, pointing to developments such as Facebook’s Libra project.