When the US Congress got together on Thursday (20) to discuss the environmental impact of cryptocurrencies, highlighted a growing problem for bitcoin (BTC) miners: the perception, whether fair or not, that they are a threat to the planet.
One company that followed the meeting closely is Foundry, a subsidiary of the Digital Currency Group (or DCG), whose network of bitcoin mining machines has become one of the two largest in the world, alongside China’s Antpool. The volume varies weekly.
Foundry is a US success story as it helps its clients make thousands in bitcoins and helps repatriate a growing industry to American shores.
But growing environmental scrutiny may indicate that the Foundry’s future depends on persuading governments and the public to accept a controversial new proposition: crypto mining will play a key role in ushering in an era of renewable energy.
Taking bitcoin home
Bitcoin is a borderless technology, but it started in the US. The first to use bitcoin were San Francisco Bay Area cryptographers, including Hal Finney, a programmer and confidant of Satoshi Nakamoto who mined on home computers.
In the beginning, many Americans mined bitcoin alone (sometimes even on cell phones) or started companies to mine it on a large scale.
However, in 2015, the popularity of bitcoin suggested that anyone who wanted to mine new coins regularly needed machines with specific chips, known as application-specific integrated circuit chips (or ASICs), intended for that purpose.
And with many other computing components, Asian companies became their manufacturers.
China has dominated not only the manufacture of bitcoin “farms”, but also the use of them. For years, Chinese mining pools made a lot of money from freshly mined bitcoins.
In 2020, North American miners who still had a 15% market share were boosted when Foundry entered the field.
Foundry enjoys support from DCG, also owner of Grayscale Investments, Genesis Trading and CoinDesk. Barry Silbert, the wealthy owner of DCG, claims he will operate DCG’s new mining venture for decades.
After mining a lot of bitcoin on its own farms in 2020, Foundry switched to a federal model in 2021, providing funding and machinery to bitcoin companies across the US.
The company also created a pool for American miners to share rewards (an ancient practice in crypto mining) and promised guaranteed returns to those who joined it.
Then Foundry and other American miners, including exchange-listed companies Marathon and Riot Blockchain, hit the jackpot: China further cracked down on bitcoin mining in 2021, causing nearly all miners to leave the country.
The result is that the majority of bitcoin mining now takes place in North America. Meanwhile, Foundry helps Asian miners with the difficult logistics of moving their machines (and all of their operations) to American lands.
This year, the Foundry network has already mined 2,826 BTCs or an average of 157 per day.
Based on the recent drop in bitcoin’s price of around $40,000, this translates to a daily average of $6.3 million in profit – a number that could be closer to $10 million a day if bitcoin approach its record high of $68,000.
Much of that money, until recently, would have gone into the pockets of Chinese companies.
Now, it is American investors and traders who are taking their laurels in bitcoin and ensuring that, much like in the early days of cryptocurrencies, much of the crypto wealth remains in the US and Canada.
This would be an American success story if it weren’t for growing environmental concerns about bitcoin mining, once muttered by few activists but now the subject of a hearing in the US capital.
Crypto advocates in the audience will likely emphasize that most newer projects like Solana or Tezos use only a fraction of the energy used by Bitcoin, as they do not require a proof-of-work (or PoW) system to update their blockchains.
Ethereum, the second largest cryptocurrency on the market, is expected to migrate from this model later this year.
This is not the case with bitcoin, which has no plans to abandon PoW, even if it remains the largest blockchain in terms of economic value and energy consumption.
This status means that those who mine bitcoin are likely to be criticized by environmentalists and lawmakers.
A ban on bitcoin mining?
Most crypto enthusiasts consider Bitcoin to be an amazing new technology that spreads wealth and financial inclusion around the world.
Critics disagree. They regard it as an environmental catastrophe: a computer network that consumes more energy annually than the entire country of Argentina and has no useful purpose beyond enriching selfish libertarians.
In recent months, critics have gained traction. His accusations became a bill in New York State (which accounts for 20% of US bitcoin production) to ban cryptocurrency mining.
The industry is also not doing well in Europe, where an initiative in Sweden wants to ban bitcoin mining. Meanwhile, a major financial regulator has proposed implementing a similar ban across the European continent.
The Bitcoin community has always reacted to criticism with outrage, stating that their grievances are ill-informed and fueled by hatred, noting that the traditional financial industry also draws immense amounts of energy.
Such automatic counterarguments are unlikely to deflect environmental oversight, so the Foundry and other US miners will need a better narrative to challenge the sustainable lobby.
Mike Colyer, Foundry’s CEO, believes he has a counter-argument.
He and other company executives told the Decrypt that bitcoin mining helps build a bridge that will help the US accelerate its transition from fossil fuels to renewable energy sources.
Colyer highlighted the state of Texas, which is trying to build its solar power capacity after an unreliable grid left millions in the dark last year.
He points out that Foundry and its partners are entering into agreements with solar and hydroelectric suppliers or buying them directly to acquire massive amounts of energy.
According to Colyer, requests by bitcoin companies to acquire power can tip the balance when it comes to utilities that are deciding whether or not to build a solar station or other type of renewable energy plant.
Bitcoin mining “has become a powerful flywheel for renewables. It is a path to a future of renewable energies”, he said.
Colyer adds that mining companies can also help “balance the load” or get power during times of low usage when utilities have a surplus.
In practical terms, this means that a Texas utility can supply much of its capacity to Houston residents who turn on their air conditioners during a heat wave one afternoon and then power bitcoin companies at night. when temperatures drop.
Foundry is already talking to energy companies in Texas that have progressed “beyond the learning phase,” Colyer says, though he declined to specify which ones, saying companies are cautious about publicly announcing their efforts.
This reluctance is likely the consequence of hard lessons learned during the bitcoin craze of 2017, when shady companies made promises to utilities across the US but disappeared when prices plummeted, often leaving environmental damage and degradation in their wake.
The current mining craze is different, according to Colyer, as the Foundry and its parent company are here to stay and have always been careful to care about regulators and maintain a positive reputation.
Colyer is not alone in claiming that the US mining industry has evolved. John Warren, CEO of the small mining company Gem, backed by hedge funds and family offices, has similar arguments.
“Clean energy is an increasingly important aspect of mining,” he explains, adding that many people do not understand that mining operations in North America are much cleaner than those in places like Kazakhstan, another hub for cryptocurrency production.
Warren points out that 91% of the energy that powers Gem’s bitcoin farms comes from renewable sources. In the case of Foundry, the company claims that number is 71% while the rest of the grid’s energy comes from oil, natural gas and coal.
Even if the energy mix of bitcoin mining in North America is considerably cleaner than elsewhere, it is unlikely that the fact that dirty fuels like coal they are fueling crypto operations goes unnoticed by environmentalists.
In fact, a fossil fuel operation on Seneca Lake in New York generated negative headlines around the world.
The Foundry’s claim that bitcoin mining is accelerating a transition to renewables may alleviate some of these concerns. But not everyone is convinced that this theory holds up.
Balancing profits and protecting the environment
Alex de Vries is a researcher at the University of Amsterdam whose website Digiconomist has become an influential voice in the debate over the environmental impact of cryptocurrencies.
In an interview with Decrypt, he said the “bridge to renewable energy” thesis put forward by Foundry and others is not persuasive.
According to de Vries, the miners’ “balance the load” argument (that it doesn’t overload electrical grids by getting power primarily off-peak hours) is unlikely, given the economics involved in operating a bitcoin mining farm.
He points out that miners are in a race against time since chips in a machine become obsolete in less than 18 months, meaning miners have a strong incentive to operate farms 24 hours a day.
“If you own any of these machines, the last thing you want to do is turn them off,” he explained. “You need to secure your profit before that happens.”
And de Vries doesn’t believe bitcoin miners can significantly promote the development of new renewable energy stations.
The problem, he says, is that building a new power plant takes time, something miners rushing to implement their machines can’t wait.
More generally, de Vries says he and others (including environmentalists pushing for a ban on bitcoin mining in Sweden) question whether the benefits of Bitcoin are adequate to justify the expansion of Bitcoin. any renewable energy.
Others raising this issue include Steve Wright, who manages hydropower plants in the Pacific Northwest.
“When you have a clean supply of energy and you have a world full of carbon, people were asking if this is the best use of that energy,” he said Wright em 2020.
For the Foundry and millions of other bitcoin boosters around the world, the answer to Wright’s question is clearly a “yes”.
For them, bitcoin mining not only provides benefits in terms of the financial network it offers, but also acts as an important catalyst for expanding the total supply of renewables.
“Bitcoin mining is the future path to a renewable future,” according to Kevin Zhang, vice president at Foundry. “It’s the perfect battery.”
Foundry executives are convinced their argument is the best. It remains to be seen whether US lawmakers will agree.
*Translated and edited by Daniela Pereira do Nascimento with permission from the Decrypt.co.