Estimates have long suggested that Bitcoin mining is a dirty business, but it took a blackout in China’s Xinjiang province during the weekend of April 17-18 to confirm the appalling state of Bitcoin’s network. The blackout occurred due to a safety inspection following a flooding in the Fengyuan coal mine in Hutubi County, which required halting some generation plants. This, in turn, briefly took down around a third of the entire Bitcoin network’s computational power.
The drop confirms several things; with the most obvious one being that a substantial part of the Bitcoin network is being fueled by Chinese coal in Xinjiang. Even though it was already established several years ago that the carbon intensity of the energy used by Bitcoin miners is on average comparable to that of gas-based electricity (at 480-500 grams of CO2 equivalent per kilowatt-hour), the Bitcoin community has continued to argue that Bitcoin mining supposedly runs primarily on renewable energy sources. The outage should be the final nail in the coffin of the narrative that Bitcoin mining is somehow “green”. Just the part of the Bitcoin network that went down during the weekend already has a carbon footprint similar to the size of a country like Denmark (with a population of 5.8 million people). Not even considering the rest of the Bitcoin network this translates to a carbon footprint of ~330 kilograms of CO2 for every unique Bitcoin transaction, which is comparable to the carbon footprint of around 731,000 VISA transactions.
Secondly, the event also confirms the massive concentration of Bitcoin mining activities in China. The magnitude of the drop seems to be perfectly in line with previous estimates on the share of Bitcoin mining activity located in Xinjiang. According to Cambridge’s mining map, almost 36% of Bitcoin’s total computational power was located in Xinjiang during April 2020. The same map also estimates that the total share of Bitcoin’s network in China amounts to 65%. Such a large concentration could be a significant security risk for Bitcoin’s network, which is ultimately still vulnerable to a majority (51%) attack. If China were to confiscate all of the available Bitcoin mining equipment within its borders, it could theoretically completely paralyze the Bitcoin network. Earlier this year the Iranian government seized thousands of Bitcoin miners, and there’s no guarantee China won’t ever do the same.
Even though this security risk presents a strong additional reason to reconsider the use of proof-of-work mining, the Bitcoin community instead doubled down on suggesting that Bitcoin mining is actually a good thing – as ARK Invest released a new paper on April 21 to argue that Bitcoin mining can incentivize renewable generation. In a nutshell, the paper tries to make the case that Bitcoin miners can be a source of interruptible load demand, that can absorb temporary excesses of solar energy. The Financial Times managed to provide the best summary for this paper:
The problem with trying to unpick this sort of “research”, as we have noted before, is that there are so many bizarre and unfounded assertions that pretty much every sentence requires dealing with individually. You end up having to write reams in order to show it’s wrong.
Some more details on the shockingly elementary mistakes by ARK Invest can also be found on the Twitter thread below, though this is by no means exhaustive.
It’s also interesting how these papers keep on ignoring that the sustainability issues relating to the use of mining hardware. The current demand for Bitcoin (and other cryptocurrency) miners is exacerbating the global chip shortage, while there’s also electronic waste to worry about at the end of the line. A single Bitcoin transaction is already equivalent to throwing away an iPhone 12 mini in terms of materials, and no amount of renewable energy can fix that. It’s perhaps best to end with the words of Bloomberg:
The message being sent out is that it’s not up to Bitcoin to fix its glaring issues — such as energy-inefficient mining algorithms that were always going to create problems at scale — but it’s the rest of the world that must adapt. Given the huge amount of money riding on Bitcoin staying just the way it is, namely digital gold to be hoarded speculatively rather than spent efficiently, its defenders will probably keep pushing complicated workarounds, not fundamental change.
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