Greening the coin

Governments are anticipated to take more coordinated action towards harmful crypto mining activities. But, increased regulation could well push miners to new regions with plenty of cheap, dirty electricity.

Golden bitcoin with Chinese yuan banknotes
Golden bitcoin on a pile of one hundred Chinese yuan banknotes. Image: cherayut000CC BY-NC-ND 3.0

What is going on?

Cryptocurrencies have dominated news headlines for a considerable amount of time. Whilst many are baffled by the market’s incredible growth (the total market cap recently surpassed US$2 trillion, 70 per cent of which is Bitcoin) the tone has not always been positive. Elon-Musk-driven volatility prompted regulatory crackdowns and environmental concern which ultimately put a pause to the euphoria that promised a new era of transactional transparency and money flow.

What does the data tell us?

If you’ve been following our weekly insights since February of this year, you’ll remember us talking about the unbelievable energy consumption of cryptocurrencies. Taking Bitcoin as an example, the energy used in annual mining operations could power the entire of Czech Republic twice over, with the carbon footprint of a single transaction equalling that of 1.89 million VISA transactions.

The vast inefficiency of Bitcoin transactions and the need for a constant, low-cost energy supply has caused a natural disconnect with the increasing global shift towards renewable energy sources. It comes as little surprise that the majority of crypto mining takes place in coal- or gas-abundant nations.

Even China’s latest crypto crackdown motivated over worries of the impact of illicit coal mining on national financial risks warrants only a short-lived celebration. Attracted by unparalleled excess energy capacity and reasonable prices, most mining operators simply fled next door to Kazakhstan causing crypto-related carbon emissions to surge once again. Only a few miners took the opportunity to “come clean”, turning instead to United States’ states Texas and Ohio where incentivised by the anticipated, gigantic demand for electricity power, plans for an increase in renewable energy capacity at lower prices have been made.

What can we do?

The idea of cryptocurrencies shifting towards renewable energy sources is nothing new. Even Cathie Wood’s analysts argue that, at least in Bitcoin’s case, mining operations could “skew the global energy mix towards renewables.”

And while our personal impact at the governmental level may be limited, there is a high likelihood that further regulatory crackdowns will come. Although the given example of China does not instil much hope, it is anticipated that governments will take a more coordinated action towards harmful crypto mining activities. This, in turn, will leave little space for miners to hide in the shadows of non-renewable energy consumption.

What’s left for us to do is to allocate our crypto portfolio to sustainable alternatives (many of which can be found on this list) – driving the paradigmatic shift from within.

Arabesque is a global group of financial technology companies offering sustainable investment, advisory, and data services through advanced ESG and AI capabilities.  

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