Can change come fast enough for an ESG-embattled mining industry?Read MoreFeedzy
This is the second part of a two-part series. Read the first story here.
When China banned Bitcoin mining from May of last year, it handed the U.S. a “trillion-dollar present,” as one mining executive told CoinDesk. But perhaps most importantly, crypto miners, particularly listed firms in the U.S., Canada and parts of Europe, are presiding over a shift towards greener and more innovative ways to use energy for mining coins.
Adding to a higher mix of renewables, crypto miners are becoming more adept at balancing the load of demand at power grids, while energy giants like Exxon are now exploring new paradigms, such as piloting the use of wasted gas from its North Dakota oil wells to power bitcoin mining operations, for example.
While this transformation is moving rapidly, it can’t come fast enough for the now-adolescent Bitcoin mining industry, whose ingrained dirty image continues to attract the attention of lawmakers and the public.
Environmental, social and governance (ESG) pressures on crypto mining’s energy use are mounting, both from within U.S. President Joe Biden’s administration and also from the European Union with its recent deliberation on a possible ban of proof-of-work (PoW) mining. An adjacent concern comes in the form of proposed rules that would give the Securities and Exchange Commission (SEC) insight into carbon footprints of listed firms.
This piece is part of CoinDesk’s Mining Week
The “greener mining” saga goes back a decade, when North America constituted a mere sliver of Bitcoin’s global hash rate.
For those cryptocurrency frontiersmen, an obvious step towards improving the sustainable power mix was simply locating mining operations in places where an excess of renewable energy was on offer. That could be parts of Canada where there’s a lot of hydropower, and, more recently, places like Texas with its surfeit of wind and solar.
In such places, renewable energy production has to be curtailed at times because there’s too much congestion on power lines transmitting that energy to urban centers. So there’s a need for local load brought by Bitcoin miners, who act as a kind of safety valve for stranded power that would otherwise go to waste.
“Proximity matters,” said Peter Wall, CEO at listed mining firm Argo Blockchain (ARBK), which was set up initially in Quebec, tapping into the region’s hydropower, and is now also located in West Texas. “When you are close to renewables, you have better access to them. That’s just a reality.”
In addition to providing renewable power, the grid in Texas, run by the Electric Reliability Council of Texas (ERCOT), incentivizes a high capacity power user like Argo to quickly shut down at times when the utility requires a lot of power; for example, to heat people’s homes in the winter, or cool them in the summer.
Financially incentivizing Bitcoin miners’ flexible load capabilities adds a virtuous competitive element into the Texas grid, Wall explained.
“If you opt in every day to be a flexible load provider, i.e. to be on call to be shut down, the Texas grid will give you a discount on your power, and will pay you back to be essentially a virtual power plant,” Wall told CoinDesk. “To have the option to shut you down instead of having to fire up some other type of generation is economically advantageous for the miner. But more importantly, it’s economically advantageous for the grid because it keeps the cost of power lower for everyone.”
Core Scientific, another U.S. crypto mining giant, produces monthly reports detailing the amount of energy handed back to the grid in times of need.
“We have arrangements with the communities and utilities wherein; when the grid needs it, we will down power,” said Core Scientific CEO Mike Levitt in an interview. “If we get a call from one of the utility companies in the geographies where we operate who need 30 megawatts available from two to five o’clock today, we put the machines into sleep mode, and it’s literally a keystroke because we have a software program that manages the 160,000-plus mining rigs.”
Last month, for example, Core powered down in two different states, for a total of 4,400 megawatt hours.
“Our industry really can quite legitimately, effectively and uniquely release energy utilization to the grid; it’s almost as if we’re acting as a battery,” Levitt said. What’s often not recognized, he added, is that utility companies would normally have to rely on so-called peaker power plants in times of high demand. “Generally speaking, those peaker facilities are the old ones and the dirty ones and the expensive ones,” Levitt said.
There’s a tacit understanding that when China controlled the lion’s share of Bitcoin mining such transparent arrangements simply didn’t exist; it needed publicly accountable companies operating on U.S. regulated soil to make that happen.
“China’s ban that resulted in the down-powering of mining infrastructure was a trillion-dollar present to the U.S.,” said Core Scientific co-founder Darin Feinstein. “I am certain that the people in China will question the wisdom of banning one of the largest innovations in financial, economic and accounting history.”
Nasdaq-listed mining company Marathon (MARA) echoed Core Scientific’s sentiment regarding China, and pointed to the rapid shift in Bitcoin mining’s renewable power mix over the past year.
“One of the reasons that so much of the mining industry moved into North America when China banned bitcoin mining, is that people woke up to the fact that we have a lot of excess power in the United States,” said Marathon VP of Corporate Communications Charlie Schumacher in an interview.
Bitcoin mining went from 37% sustainably powered to 59% sustainably powered as an industry, according to the Bitcoin Mining Council, an industry group including most of the large miners and fronted by big names like MicroStrategy chief and Bitcoin enthusiast Michael Saylor. And as Schumacher pointed out, this does not include any carbon offsetting.
“I don’t know of any other industry that’s improving its power mix quite that rapidly,” Schumacher said.
The past year has also seen a rapid U-turn among power utilities who would previously not touch Bitcoin mining, but who are now banging on the door of firms like Marathon, having woken up to the fact this is a valuable way to use excess power, Schumacher said.
Looking ahead, Bitcoin can also play a central part in the transition of energy grids to becoming more decentralized, Schumacher said, since community-based renewable energy projects could use Bitcoin mining to become more economically viable, with potentially battery storage.
Another interesting trend would be power companies becoming the Bitcoin miners of the future, something that’s being talked over right now and which would most likely happen via joint ventures, Schumacher said.
“Power companies own the single biggest input cost, since electricity is 70% of the input cost for a miner,” Schumacher said. “If you sell excess power to a Bitcoin miner you charge, say, 3 cents per kilowatt-hour. But if [power companies] owned 100% of the Bitcoin, at today’s prices, it works out at more like 35-40 cents per kilowatt-hour.”
(A crypto mining source who asked to remain anonymous said a few power companies were among a rush of speculative new entrants back in 2017 when the price of Bitcoin spiked, but that most found the infrastructure requirements were too daunting to proceed with. However, joint ventures in the future seem inevitable, the source said.)
The possibility that power companies could become Bitcoin miners has an interesting parallel in the world of proof-of-stake blockchains, where large telcos that provide infrastructure for such networks are also taking part in staking and crypto earning rewards, with the likes of Germany’s Deutsche Telekom leading the way.
In addition to plugging into a grid with a greener power mix, another arrow in the quiver for Bitcoin miners is the use of renewable energy certificates (RECs), the means by which many corporate entities pay a premium to promote more renewable energy use.
An accurate way of verifying the RECs has been created by decentralized data storage protocol Filecoin among its storage providers (the blockchain system’s equivalent to miners). And now an ambitious RECs platform tailored to Bitcoin miners has been launched in the form of the Sustainable Bitcoin Standard (SBS).
SBS co-founder Bradford van Vorhees, who has worked on sustainable supply chains and responsible sourcing with brands such as The North Face, Wrangler, Timberland and Vans, understands very well that firms don’t change unless it’s good for business.
“The Sustainable Bitcoin Standard is a protocol that financially incentivizes or rewards Bitcoin miners using verified clean energy sources,” he said. “It also allows institutional investors who have ESG mandates to add proof of sustainable mining to their Bitcoin holdings. And it does the two of those without disrupting the fungibility of Bitcoin in any way.”
The project, which was born out of the first Stacks accelerator cohort (the blockchain system formerly known as Blockstack), is at various stages of cooperation with 10 large miners, said van Vorhees, that are either publicly listed or extremely well capitalized. The two that can be named at this stage are Bitdeer, the crypto mining platform spun out of Chinese chip manufacturing giant Bitmain; and sustainable energy-focused miner ClearSpark.
When a miner wins a block reward of Bitcoin, it is issued a matching amount of sustainable Bitcoin certificates (SBCs), which, like Bitcoin, are on-chain tokens divisible by 100 million. These tokens can be held or uncoupled from the Bitcoin coinbase and sold to institutional investors and ESG-focused investors, who can then match these to their Bitcoin holdings. Next month, the protocol will carry out its first end-to-end transaction from distribution of SBCs to a miner, to those being sold on to an ESG-focused investor, van Vorhees said.
The system is modeled on the renewable energy certificate (RECs) market in the U.S., in that it distributes a reward to miners, whose green credentials have first been verified by the Center for Resource Solutions, a third-party non-profit which works with the likes of Apple and Proctor and Gamble.
However, quantifying or auditing carbon offsetting and accounting for a possible variation in or duplication of renewable energy certification opens a whole new can of worms, such that the Bitcoin Mining Council (BMC), has removed RECs from its attempts to calculate how green the industry is.
When you are close to renewables, you have better access to them. That’s just a reality.
The problem with not counting RECs is that some Bitcoin miners want to get credit for relocating to another, greener power grid, according to Doug Miller the co-founder of clean energy platform Zero Labs.
“I think part of this happened as a result of miners relocating from China to North America and they’re trying to get credit for sourcing clean energy from the ‘greener grids’ they’ve relocated to without having done anything beyond moving,” said Miller via email. “They want credit without having the standard evidence/documentation (RECs), so it seems like they want credit for essentially doing nothing other than relocating.”
Speaking on behalf of the BMC, Core Scientific’s Feinstein said RECs were removed in the last quarter’s numbers because it was judged not to be feasible to compare different REC credits across a wide range of companies based all over the world.
“The purpose of the Bitcoin Mining Council is to educate globally on what’s going on in terms of Bitcoin mining and its energy footprint. The simpler the message is, the better,” Feinstein said in an interview.
With his long-time experience working with RECs, van Vorhees acknowledges the problem of creating a standard that will fly, pointing to the SBS’s use of Green-e RECs, which are “pretty much the pinnacle.”
He also adds that his role is not to become an arbiter of what constitutes green or sustainable energy use; for instance, if methane miners, which burn flare gas at drill heads to power electricity generators, are actually helping to mitigate CO2 equivalents, then perhaps they should be included in the protocol as being sustainable, van Vorees said.
“We are starting for now with North America and just organizations that are using renewable energy that is verified by using RECs that meet the Green-e standard,” said van Vorhees. “This is extremely stringent.”
Cities across the U.S. are grappling with what it means to have cryptocurrency mining operations in their communities. Plattsburgh offers a sobering case study. This piece is part of CoinDesk’s Mining Week.
As clean energy gradually gets cheaper, mining operations will help subsidize green projects, writes the CEO of mining firm CleanSpark.
“Optical proof-of-work” would improve geographic distribution of hashrate and quell fears of climate-related pushback, proponents argue.
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