Quo vadis, bitcoin? Mining on the crossroads of regulatory pressure and innovative renewal.


“Bitcoin Is Massively Polluting the Earth — And We Should All Be Scared”, reads the headline of Global Citizen, a publication focused on “Defending the Planet”.

The headline is followed up by the claim that bitcoin mining uses as much energy as 28 million US households and most of it comes from fossil fuels. The Guardian, The BBC and NBC echo a similar sentiment.

Most of these publications are not satisfied with just pointing a finger at energy consumption, but go on to demand an end to bitcoin mining per se. They posit that bitcoin is ‘unnecessary’, a speculative bubble that will end badly for all involved, especially the environment.

As bitcoin holders, we have to ask ourselves: Is there merit to these claims? Where does this narrative come from? Which facts substantiate this claim and how can it be countered? Does PoW mining have a future, as it surely must for bitcoin to exist? And where are the opportunities for us as investors?

This research will start from the basics, and cover what bitcoin mining is. It will sketch what the mining industry does and go into detail about how much energy is used and what percentage is from renewable sources.

We will then map out the landscape of regulatory efforts to curb energy usage and in the process find opportunities for entrepreneurial miners.

First Act - Bitcoin Mining History

What is bitcoin mining?

Bitcoin’s blockchain consists of a linked series of data bundles, called blocks. Each block is sealed by a cryptographic hash that can be derived from the block’s data in an unambiguous way. If data was to be altered later, its hash would betray the tampering. Just a tiny change in the underlying data leads to vastly different hashes.

A bitcoin block consists of:

  • A link to the block before
  • Transaction data, represented by the Merkle root of its storage structure.
  • A nonce, or unique number
  • A cryptographic hash sealing the data

Bitcoin miners compete to submit a valid block, because they receive a BTC reward when their candidate is the first. A block is valid when a nonce is found that results in a hash satisfying the difficulty criteria, which demands a certain number of leading zeros in the resulting hash of the block. To find this nonce, miners have to try different values and compute the corresponding hash using the SHA256 algorithm. Bitcoin mining is called Proof-of-Work (PoW) because many calculations are necessary to find a satisfactory hash. This work is rewarded by block rewards and by the fees of included transactions.

Put simply, miners try trillions of different nonces until one produces a hash that has enough leading zeros. This puzzle is set to such a difficulty that all the miners in the network are only able to find a solution every ten minutes on average. When new miners join the network, the block time shortens until the protocol adjusts the difficulty to maintain the desired frequency. The total number of hashes the bitcoin network can calculate is expressed in hashes per second. The current capacity is 159 quintillion (10^18) SHA256 computations every second.

The bitcoin mining industry

Bitcoin mining was done as a background job on the computers of cypherpunks at first and quickly shifted to dedicated servers, as competition drove mining difficulty up. At the beginning of 2009, a conventional PC could mine 100s of BTC in a week.

In July 2010, one miner developed software for his private use which could harness the vast computational power of graphics card processors. But as Friedrich Dürenmatt cautioned: “What can be thought by oneself can be thought by others as well”. Just two months later, Puddinpop's CUDA miner for NVIDIA graphics cards was released to the public on 18 September 2010.

An arms race ensued that brought prolific innovation and entrepreneurship to the nascent industry. The first FPGA miner nicknamed “Pumpkin Miner”, after its inventor Nangeng “Pumpkin” Zhang, appeared in China in 2011. FPGA chips are processors that can be programmed to do specific things well. In this case, they could do nothing but compute SHA256 hashes quickly. In 2013, Butterfly Miners was the first company to hire a chip foundry and mass-produce application-specific chips called ASICs, that can work at much higher speeds than the reprogrammable FPGAs.

The “ASICs race” was on and led to the rapid evolution of chip design and manufacturing processes all the way to current state-of-the-art 5nm chips produced by industry leader TSMC.

Innovation didn’t stop at the hardware level. Glassnode shows that $18bn have been invested into the bitcoin mining industry so far. Financial services for miners, hosting facilities, hash rate rental services, OTC desks, mining pools and secondary markets for hardware have thrived in this growing economy, as innovators and entrepreneurs grasped the opportunity to create the foundation of a new digital economy.

Miner profits are between $50m to $60m worth of BTC per day at current prices. Every block has a reward of 6.25 bitcoin until the next halving on 7 May 2024.

Second Act - Energy, pollution and regulatory pressure

Bitcoin mining energy usage

The most advanced bitcoin mining machines in 2021 are the Antminer from Chinese company Bitmain and the Whatsminer from fellow Chinese manufacturer MicroBT. Both machines produce more than 100 TH/s and consume 3kW of electricity. A bitcoin miner converts electricity into cryptocurrency. Both cost about $12,000 and are often bought together with hosting and installation services from companies like Compass or D-Central.

As you can see in the picture above, tens of thousands of these miners are hosted together in modern mining facilities. Economies of scale reduce the cost of hosting, administration and maintenance per miner, and convey leverage in negotiations with energy suppliers.

The single largest expense for miners is the cost of electricity. That has unfortunately led to the demise of hobbyist miners, who cannot access electricity prices that are favourable enough to remain profitable.

A survey by the Bitcoin Mining Council (BMC), an organisation representing around 33% of the global hashrate, estimates that mining consumes a combined 188 TWh per year. More than the energy usage of Iceland or Syria, but less than that of Jordan or Azerbaijan, according to WorldPopulationReview.com. Seen as a country, bitcoin mining would be the number 72 energy consumer worldwide.

A country’s population consumes energy for transportation and heating, among other things, and not just electricity. When comparing electricity consumption alone, bitcoin mining would be number 22 worldwide and consume more than Thailand (185 TWh) and less than Turkey (251 TWh). Mining consumes considerably more electricity than Austria (66 TWh, 8.9m population) or the Netherlands (110 TWh, 17.5m population). (Source: EIA)

The press frequently mentions these last two comparisons to make an impression, muddling energy consumption and electricity usage to exaggerate its point. In all fairness, 188 TWh per year must raise some questions: Where does all this electricity come from? How much of that is renewable? Does it lead to shortages elsewhere?

Regulatory pressure and energy shortages

Chinese authorities have frequently cited energy usage and CO2 emission concerns for clamping down on bitcoin mining and usage. The political reality is that the idea of an alternative currency, which allows funds to move in and out of the country without oversight, never sat well with China’s political elite. “China bans bitcoin” has become almost a running gag in the crypto community because of the superpower’s fluctuating stance.

In June 2021, the authorities of Sichuan and other northern provinces declared bitcoin mining illegal. 90% of Chinese mining capacity moved overseas in the next month, most going to the US or Kazakhstan. Texas, especially, has been very amiable to bitcoin miners. Governor Greg Abbott signed a bill this June that puts cryptocurrencies under commercial law, making it easier for these businesses to operate in the state. In the same month, Abbott tweeted: “Texas will be the cryptocurrency leader!”

Kazakhstan limited the total amount of electricity the mining industry could consume to 100MW and just 1MW per facility. Far below the threshold needed for scaled commercial mining operations. The government referred to power shortages, including blackouts in its capital, Almaty, and an ageing grid that could not cope with miners’ demand.

The juxtaposition of China and Texas draws a map of where bitcoin miners can expect to thrive. Texas has a deregulated energy market and strong entrepreneurial culture. China’s energy market is state-owned, and its government sees private enterprises as a necessary evil on the road to true communism.

Aside from political fault-lines, concerns around pollution should be taken seriously by mining operators. The mining industry is young and not economically significant enough to make demands from legislators. Much of the crypto industry is also fully committed to less energy-intensive security mechanisms so that bitcoin is on its own here.

Bitcoin mining pollution

Pictures of smoking chimneys are part of any hit-and-run article about bitcoin mining. And in all fairness, credible accounts of miners co-locating with dirty coal power plants to shave off a few tenths of a cent on their energy price exist. But how much of the aggregate electricity is from renewable sources?

A poll by the BMC found that 65.9% of its members use a mix of renewable electricity. More than the EU members’ average of just 43.5% and double the US average of just 31.4%.

Why is that? Are bitcoin miners putting environmental concerns above profit? On the contrary, renewable electricity sources are among the cheapest. Hydropower costs as little as $0.01 per kWh, followed by wind and solar. Only natural gas turbines can compete.

The cost to produce a kWh of wind and solar energy has considerably decreased in the last decade and is expected to continue to do so for the foreseeable future. It is plain economic sense to use renewables as much as possible. Wind and solar energy produce electricity intermittently, which means that a bitcoin mining facility needs backups in the form of generators or access to the power grid. Closing this gap should be a priority for miners.

A cold hard look at reality shows that bitcoin mining pollution is far from rampant. Using expensive coal or gas power plants is economic suicide. What’s more, miners are unique energy buyers, as the next chapter will prove.

Third Act - Mining as a catalyst for renewable energy

A common misconception about energy production is that supply meets demand perfectly and symmetrically. The reality of energy production is much more complicated. Take the example of Chinese hydropower, where the province of Sichuan reported up to 6 GW of energy surplus after bitcoin miners had to move overseas.

The June 2021 crackdown and subsequent flight of mining capacity to other countries revealed a critical point. Bitcoin mining operations are mobile. China hosted 65% of the global hash power in June 2021. Within a month, 90% moved elsewhere. Many facilities host their miners in shipping containers that are production-ready within hours. Internet connectivity is necessary, but bandwidth requirements are low. Just 10MB per hour for a rig are required and available everywhere via satellite or mobile data providers.

Bitcoin miners can use energy that others can’t.

Hydropower in Sichuan and the Yunnan province represents the single largest stranded energy resource on the planet. These provinces had hosted almost 10% of global Bitcoin mining in the dry season and 50% in the wet season. Mobility is vital for miners.

Bitcoin miners as innovators

The race to squeeze out ever more hashes per second with less electricity has produced astounding results. Thanks to advancements in chip design, cooling technology and manufacturing, a bitcoin miner uses 42x less energy today than just eight years ago.

And innovation is far from exhausted. Some mining operations submerge their hardware in non-conductive fluids, dramatically improving cooling efficiency and hash rates in the process. The heated cooling fluid is then used for heating and electricity generation so that up to 90% of the energy input can be recycled.

Bitcoin miners as a catalyst for renewable energy

Renewable energy production faces two main challenges. The first is that electricity production is intermittent and fluctuating. A solar panel produces no electricity at night, and a wind turbine has no output during calm hours. The second challenge is that building the necessary power lines to connect wind and solar farms proves to be quite challenging in many developed nations. Some of these projects have to wait for years as landlines make their way through byzantine approval processes.

Estimates by BP Statistical Review of World Energy showed that almost one-third of the total energy production worldwide is lost due to inefficiencies.

Bitcoin miners are unique energy buyers. Their rigs can scale up and down or be switched off and on in minutes. They can be deployed quickly, even in the most remote locations. As such, they are a perfect catalyst for renewable energy deployments. Bitcoin mining can use wind farms while they wait for connections to landlines. It can also put excess solar or hydroelectric power to profitable use. Every bitcoin represents the energy used to mine it.

Bitcoin miners as pioneers

On the Bakken Oil Field in Montana, strange towers sit on top of drill holes. Operator Crusoe Energy Systems calls them “digital flare mitigation”. Instead of burning methane gas that escapes from drill holes, Crusoe produces electricity for 40 bitcoin mining containers on site. None of this energy could be used otherwise. The cost of connecting the oil field to the nearest landlines could never be recouped.

Meanwhile, in Kennerdell, Pennsylvania, the Scrubgrass Power Plant burns waste coal polluting the groundwater and soil in this area for decades. Scheduled for shutdown due to more stringent regulations, the Scrubgrass facility rebranded itself as a mining operation and will power 20,000 bitcoin miners by 2022. Two hundred tons of waste coal are eliminated for each bitcoin created. To date, as much as 1,000 acres of otherwise unusable land have been reclaimed and donated back to local communities, according to a report by H.C. Wainwright research.


We didn’t touch upon the question of whether bitcoin is necessary. Critics often display bitcoin energy usage as a total waste because the world doesn’t need bitcoin.

This argument is purely emotional and doesn’t need to be refuted. We could ask the same question for the tons of colourful plastic toys, soda cans, new cars, smartphones or anything else produced by a globalised, thriving economy. A world where nothing new except the barest necessities of daily life is produced, and we all live in an all-encompassing state that provides and controls might be a utopia for a few. For most, it is a nightmare.

Bitcoin is the basis for a new digital economy that has become an industry worth multiple trillions of dollars in just 12 years. Its existence is a fact to be reckoned with.

The Mandarin Chinese symbol for crisis consists of the two symbols for danger and opportunity. Bitcoin mining is at such a crossroads today. Regardless of whether miners’ energy usage contributes to global warming or not in reality, the narrative that it does can and will be used by legislators worldwide to curry favour with their clientele if and when they see fit.

The opportunity for miners is to beat legislators to the punch and use pushback to promote green mining that utilises waste energy and proliferates renewable energy production.

Mining operators who push the boundaries of sustainability will profit from regulatory benevolence and enjoy a clear competitive edge. They will ensure the network’s vitality by securing the longest-running blockchain, bitcoin.

Nothing in this article constitutes professional and/or financial advice. The content is provided exclusively for informational and/or educational purposes. Nothing is to be construed as an offer or a recommendation to buy or sell any type of asset. Seek independent professional advice in regards to financial, tax, legal and other matters.

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