According to a study published this week, China could probably end up exceeding its ambitious emissions reduction targets as a result of carbon-intensive bitcoin mining. It is to be noted that 75% of the world’s bitcoin mining is done in China. This is due to the fact that there is relatively easy access to manufacturers who make specialized hardware coupled with cheap supply of electricity. Thus, according to a paper, the nation’s bitcoin carbon footprint is as big as one of its ten largest cities.
Bitcoin is quite distinctive when compared with most forms of currencies like fiat money, which is issued by a single entity like a central bank. Bitcoin is based on a decentralized network and needs to be “mined” in order to be attained.
Given, China’s stringent policy surrounding Bitcoin mining, miners are looking for workarounds to Beijing’s new cryptocurrency crackdown in China, which accounts for two-thirds of global bitcoin mining. Chinese provinces like Inner Mongolia, Sichuan and Xinjiang are no longer the safe havens they used to be for mining operations. Reportedly, Inner Mongolia has already issued strict orders to shut down all mining sites, and Sichuan is expected to soon follow suit.
The stringent action to shut down existing mining activities in Mongolia has led to a cut down on energy consumption. This had come after, Inner Mongolia, located in northern China, had failed to meet central government assessment targets regarding energy use in 2019. This had consequently led to a stern rebuke from Beijing which had propelled Magnolia to curb the illegal activities in its province. It laid out plans to curb energy consumption under the region’s development and reform commission. Part of these plans involve shutting down existing cryptocurrency mining projects by April 2021 and not approving any new ones.
This has led many lucrative investors and miners to go underground or look at some alternate mining operations overseas. This possibly will lead to higher cost of mining as miners now migrate to places with much more expensive electricity.
As per reports, a few big operators have halted their Chinese operations and are relocating mining projects to North America or Central Asia, while small miners are trying to clandestinely carry out their operations from their home.
Founder of mining service BTC.TOP, Jiang Zhuoer has stated that he is thinking of moving his company’s machines to North America and Central Asia. He stated that “North America has the best security and political environment for mining, but the cost is high. Central Asia is close to Xinjiang.”
It is to be noted that moving his lucrative operations out of China is only part of the cost he is facing. Taking the capital i.e. machines offline means losing out on time that could have been spent mining more cryptocurrency.
Xinjiang reportedly alone accounts for nearly 36 per cent of the global bitcoin hash rate. According to Cambridge University’s Bitcoin Electricity Consumption Index Bitcoin, hash rate is a measure of the total computational power on the global bitcoin network. Consequently, Sichuan and Inner Mongolia come in second and third position, respectively. This gives China a 65 per cent share of the global hash rate.
China’s Financial Stability and Development Committee, the financial regulatory agency under Vice-Premier Liu He, on May 21 had stated that the Chinese government would “crack down on bitcoin mining and trading behavior, and resolutely prevent the transfer of individual risks to the society”. The move was made in a response to volatile cryptocurrency prices.
Cryptocurrency mining, in rudimentary terms, takes place when bitcoin transactions are recorded on a public ledger called the blockchain and are “verified” by miners. These particular miners run deliberately, a purpose-built computer to solve complex mathematical puzzles. This effectively allows a smooth bitcoin transaction to happen which leads miners to then receive bitcoin as a reward. This shows that mining which is actively done on computer is an electricity intensive technique which is high especially when conducted on a large scale.
Huge carbon footprint and broken environment promises come despite China actively showing keen interest to become more environmentally friendly. Last year, president Xi Jinping had stated that the country was actively targeting peak carbon dioxide emissions and would attain carbon neutrality by the year 2060. But due to the aforementioned reasons bitcoin threatens to derail those ambitious plans.
Expects have stated that “Without appropriate interventions and feasible policies, the intensive bitcoin blockchain operation in China can quickly grow as a threat that could potentially undermine the emission reduction effort taken place in the country”.
It is to be noted that according to the Cambridge Bitcoin Electricity Consumption Index, a project of the University of Cambridge Worldwide, bitcoin mining consumes an estimated 128.84 terawatt-hour (Twh) per year of energy. This is emphatically more than the entire countries such as Ukraine and Argentina.
In the recent studies it has been stated that “The growing energy consumption and associated carbon emission of bitcoin mining could potentially undermine global sustainable efforts,”.
It has been additionally stated that “Without any policy interventions, the annual energy consumption of the bitcoin blockchain in China is expected to peak in 2024 at 296.59 Twh and generate 130.50 million metric tons of carbon emission correspondingly.”
According to experts, it is to be noted that China’s bitcoin energy usage by 2024 will surpass the total energy consumption of Italy or Saudi Arabia.
But it is worth mentioning that China’s motives for intensive bitcoin mining could go beyond making money . Silicon Valley billionaire Peter Thiel has thus rightfully expressed his concern that bitcoin could be used as a “Chinese financial weapon against the U.S.”
Thiel stated that “Even though I’m sort of a pro-crypto, pro-bitcoin maximalist person, I do wonder whether at this point bitcoin should also be thought in part of as a Chinese financial weapon against the U.S., where it threatens fiat money, but it especially threatens the U.S. dollar, and China wants to do things to weaken it, so China’s long bitcoin,”.