David Canellis

<div id="highlights-block_6273bfd289c6a" class="highlights">
 <ul>
 <li>The Bitcoin industry has railed against a letter signed by nearly two dozen members of Congress requesting the EPA closely regulate crypto mining</li>
 <li>Crypto proponents cite flaws in critics&#8217; data and a misunderstanding of the industry&#8217;s future energy demands</li>
 </ul>
 
</div>



Bitcoin industry advocates responded this week to <a href="https://cms.blockworks.co/cryptocurrency-mining-is-poisoning-our-communities-us-rep-says/" target="_blank" rel="noreferrer noopener">a letter submitted to the Environmental Protection Agency</a> by Rep. Jared Huffman, D-Calif., and signed by a total of 23 Democratic members of Congress.



The extensive rebuttal sent by the Bitcoin Mining Council, a group representing bitcoin miners, is co-signed by nearly 50 industry figures, including Castle Island Ventures’ Nic Carter — who contributed much of the essay — as well as Block’s Jack Dorsey and Galaxy Digital’s Mike Novogratz.



“I had wanted to write a response, there were a whole bunch of key stakeholders who thought a response was warranted based on how misleading the Huffman letter was and how critical it could be,” Carter told Blockworks, noting the EPA could make it more difficult for crypto mining companies to acquire their own energy-production sources.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“If you have 23 members of Congress signed onto this thing, it could get messy.”</blockquote>



Carter claimed the original Huffman letter held several inaccuracies. For one, he noted Huffman highlighted the EPA’s <a href="https://www.fingerlakes1.com/2022/01/12/epa-denies-greenidge-permit-extension-to-operate-coal-ash-pond/" target="_blank" rel="noreferrer noopener">denial</a> of a Greenidge application to keep open its coal ash ponds — large dirt <a href="https://edition.cnn.com/2021/12/07/us/coal-ash-explained/index.html" target="_blank" rel="noreferrer noopener">ditches</a> used to dispose of harmful coal byproducts that are not biodegradable.



But Greenidge is now a gas-only operation that mines bitcoin. The firm uses those ponds to continue mitigating waste associated with its past life as a coal plant. So celebrating the EPA’s move against Greenidge’s coal ash ponds isn’t at all relevant to crypto mining, Carter said.



Another sticking point was Huffman’s claim that “a single Bitcoin transaction could power the average US household for a month.” This calculation relies on taking average transaction counts and simply dividing it by the estimated energy usage of the network.



The Bitcoin Mining Council’s response labeled the per-transaction energy cost analysis as a “deeply flawed way to reason about Bitcoin, since projecting future energy growth is not a function of transaction count, but instead of value of Bitcoin issuance (which is a function of price and supply growth), together with the fees users are willing to pay to transact.”



The crux of Carter’s response sought to separate data centers (read: crypto mining farms) from their energy sources. To Carter, crypto miners are just another flavor of data center such as those run by Microsoft and Amazon: large warehouses packed with servers in support of our modern internet infrastructure.



“It’s not really the EPA’s mandate to say what you’re doing with this data center is environmentally damaging, because it’s not the data center activity causing damage, it’s the generation of power and that’s already regulated,” Carter said. 



He noted that some vertically-integrated crypto mining operations — those that control the data center and its energy source — are already sanctioned by the EPA and some state regulators. Just 2% of Bitcoin’s hashrate comes from such mining operations, according to the council’s response to the EPA.



“It’s a myth to say that the EPA is not aware of these things. They’re very much aware of them, and in some cases they’re supported,” Carter added. However, he did note that noise pollution caused by bitcoin miners is unnecessary, and that he’d actively discourage industry participants from setting up in residential areas.



<h3 class="wp-block-heading">Bitcoin runs on a global secondary market for ASICs</h3>



Bitcoin is mined using a proof-of-work (PoW) algorithm, which is often criticized for its energy usage and electronic waste — it has been <a href="https://www.bbc.com/news/technology-58572385" target="_blank" rel="noreferrer noopener">suggested</a> that mining rigs last on average just 1.29 years before being discarded.



Carter questioned whether environmentalists are interested in the truth or whether they’re simply using the concept as a cudgel to attack Bitcoin.



Veteran mining consultant and <a href="https://proofofwork.energy/" target="_blank" rel="noreferrer noopener">proofofwork.energy</a> founder Alejandro de la Torre agreed. Having spent the past five years assisting and building mining operations around the world, he expressed disbelief that any industry participant would simply discard miners after less than two years of use.



He explained that in his experience, once a machine has some sort of error — say a board burns or a part is faulty — miners almost always fix it rather than pay for a brand new rig. In fact, the entire crypto mining industry relies heavily on a lively secondary market for used ASICs, computers specifically designed to mine cryptocurrency.



De la Torre described a global market for ASICs that allowed smaller mining outfits to acquire used rigs from more established mining powerhouses. Richer crypto mining companies know they can eventually sell their top-of-the-line mining rigs as more efficient tech develops.



This creates a symbiotic relationship between small and large operations that benefits both sides: Smaller ones can buy cheaper hardware from bigger ones looking to offset costs associated with state-of-the-art machines. Every mining operation in the ecosystem makes use of this secondary market, De la Torre said.



“Right now, there’s miners all over who are paying next to nothing for their electricity, sometimes even zero,” De la Torre told Blockworks. “Those in Venezuela, or off-grid miners who own their own hydroplants and those that use flared gas.



“They don’t mind buying a machine that’s four years old because they have free electricity — so they run their machines until they die.”



Once ASICs finally fail — often after multiple repairs and numerous owners — they can be repurposed. Much of the circuitry and aluminum can be sold for scrap and otherwise recycled. De la Torre estimated the average lifespan of an ASIC is closer to six years, far longer than the 1.29 years often cited by environmentalists.



“That’s why the economics of bitcoin mining work so well,” De la Torre said. “You buy a machine for, as an example, $10,000. You run it for two years, then you sell it for $6,000. You’ve only lost $4,000 on the machine, while you’ve generated lots of bitcoin with it.”



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Bitcoiners Protest Democrats’ ‘Misleading’ Letter Sent to EPA

<div id="highlights-block_6273bc0e0f8e1" class="highlights">
 <ul>
 <li>Democratic members of Congress have written to the EPA over the rise in energy use by the bitcoin mining industry</li>
 <li>Environmentalists claim Bitcoin’s energy mix is a red herring distracting from its estimated 20-fold increase in energy consumption over the last five years</li>
 </ul>
 
</div>



Rhetoric dividing crypto critics and proponents has been galvanized by <a href="https://cms.blockworks.co/bitcoiners-protest-democrats-misleading-letter-sent-to-epa/" target="_blank" rel="noreferrer noopener">dueling letters sent to the Environmental Protection Agency</a>, which put a spotlight on crypto mining.



On one side, 23 Democratic members of Congress co-signed a scathing <a href="https://huffman.house.gov/imo/media/doc/Crypto%20letter%20to%20EPA%20FINAL.pdf" target="_blank" rel="noreferrer noopener">rebuke</a> of the mining industry&#8217;s purported environmental and community impact.



Their letter, submitted last month by Rep. Jared Huffman, D-Calif., asked the EPA to ensure that crypto mining outfits across the US are operating within environmental regulations, particularly the clean air and water acts.



Huffman said the crypto-inspired reopening of gas and coal power plants, such as <a href="https://cms.blockworks.co/greenidge-joins-list-of-bitcoin-miners-diversifying-energy-sources/" target="_blank" rel="noreferrer noopener">Greenidge</a> in upstate New York and the <a href="https://cms.blockworks.co/crypto-miners-continue-raking-in-bitcoin-and-holding/" target="_blank" rel="noreferrer noopener">Hardin</a> plant in Montana, “undermine our battle to combat the climate crisis.”



“While some facilities claim to be ‘cleaner’ by creating energy from coal refuse, these coal-fired power plants still emit hazardous air pollutants and leak toxic contaminants into our waterways,&#8221; Huffman wrote. “Cryptocurrency mining is poisoning our communities.”



It sounds dramatic, but that &#8220;poisoning&#8221; doesn’t just relate to the potentially outsized greenhouse gas emissions of crypto mining outfits. Residents across the US (“from New York, Tennessee, to Georgia”) have complained about <a href="https://www.washingtonpost.com/business/2022/03/18/bitcoin-mining-noise-pollution-appalachia/" target="_blank" rel="noreferrer noopener">noise pollution</a> tied to new bitcoin mining facilities which house hundreds of raucous mining rigs.



Another crypto criticism from Huffman was <a href="https://cms.blockworks.co/proof-of-work-vs-proof-of-stake-whats-the-difference/" target="_blank" rel="noreferrer noopener">proof-of-work</a>’s (PoWs) supposed problem with electronic waste. The two most popular cryptocurrencies, bitcoin and ether, are mined using PoW algorithms, which rely heavily on spent electricity to distribute new cryptocurrency and process transactions.



It has been <a href="https://www.bbc.com/news/technology-58572385" target="_blank" rel="noreferrer noopener">suggested</a> that mining rigs last on average just 1.29 years due to intentional overuse. This leads bitcoin mining to produce 30,700 tons of electronic waste every year (about as much small IT equipment disposed of by the Netherlands), Huffman told the EPA, citing research from controversial figure Alex de Vries.



De Vries previously worked as a data scientist for the Dutch central bank, focusing on financial economic crime. He now runs <a href="https://digiconomist.net/" target="_blank" rel="noreferrer noopener">Digiconomist</a>, a website that models the environmental sustainability of cryptocurrencies such as bitcoin and ether.



“The industry needs to be held accountable for this waste and discouraged from creating it,” Huffman said.



<h3 class="wp-block-heading">Mining energy mix is a &#8220;red herring,&#8221; activist says</h3>



Huffman’s letter stated that Bitcoin annually produces carbon emissions similar to that of Greece. Proponents dispute this statistic, citing imperfect retroactive estimates of Bitcoin’s energy consumption.



And so, the Holy Grail for both crypto critics and advocates seems to be an industry that re-enforces robust energy grids powered by renewable energy. After all, Bitcoin may consume lots of energy (and even more in the future, if prices continue rising), but if the electricity consumed is renewable, then it should mitigate environmental concerns.



The Bitcoin industry responded earlier this week with <a href="https://bitcoinminingcouncil.com/wp-content/uploads/2022/05/Bitcoin_Letter_to_the_Environmental_Protection_Agency.pdf" target="_blank" rel="noreferrer noopener">its own letter</a> sent via the Bitcoin Mining Council, a group spearheaded by MicroStrategy CEO and famed bitcoin bull Michael Saylor. It was <a href="https://www.bloomberg.com/news/articles/2021-06-10/bitcoin-mining-council-makes-debut-as-energy-backlash-increases" target="_blank" rel="noreferrer noopener">formed</a> after Tesla stopped accepting bitcoin for payments, for which Elon Musk cited concerns over the network’s carbon footprint.



The group has tasked itself with tracking the energy mix consumed by the industry. Its most recent <a href="https://bitcoinminingcouncil.com/bitcoin-mining-council-survey-confirms-year-on-year-improvements-in-sustainable-power-mix-and-technological-efficiency/" target="_blank" rel="noreferrer noopener">report,</a> published in April, collated self-reported figures from entities contributing around half of Bitcoin’s hashrate and found the network was powered by nearly 60% sustainable energy sources — up from 37% in the first quarter of 2021.



With this in mind, is there cause for concern? Scott Faber, who spearheads government affairs at activist nonprofit Environmental Working Group, thinks so.



Faber highlighted recent warnings shared by the United Nations’ Intergovernmental Panel on Climate Change (IPCC) that explicitly cited the increasing electricity consumption of cryptocurrencies, such as bitcoin, as a “growing concern.”



IPCC’s recent Mitigation of Climate Change <a href="https://www.ipcc.ch/report/ar6/wg3/" target="_blank" rel="noreferrer noopener">report</a> did admit there was “uncertainty” surrounding the exact carbon footprint of blockchains and conceded that the crypto industry could mitigate damage by decarbonizing.&nbsp;



Still, Faber noted that crypto’s sharp rise in electricity consumption far outstrips other industries and has diverged from more traditional data centers. He described the climate impact of electricity generators as a red herring; the growing demand for electricity by digital currencies that rely on PoW is cause for alarm strictly among EWG, Greenpeace and the IPCC.



“When you look at electricity demand by data centers, the [International Energy Agency] found that demand has been flat even though internet traffic and data center workloads have increased significantly,” Faber said.



Other data transmission networks, such as mobile communications, are becoming more energy efficient, he explained. The exponential increase in electricity consumption needs to be curbed, and the energy mix powering that consumption is just a detail at this point.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“The really important point is the trend — the 20-fold increase in just five years — especially in contrast to other sectors,” Faber said.</blockquote>



While that sentiment does hold a certain amount of weight, especially among climate activists, moves made by the Bitcoin industry to decarbonize or otherwise go green shouldn’t be understated.&nbsp;



Swathes of mining outfits around the world have promised to go carbon neutral, with some going to great lengths to ensure they do not use energy grids powered by carbon. Their reliance on fossil fuels could hurt in the long run, should regulations be imposed that might mess with electricity supply, mining expert Alejandro de la Torre said. Uzbekistan recently <a href="https://cms.blockworks.co/uzbekistan-wants-bitcoin-miners-to-go-solar-pay-no-income-tax/" target="_blank" rel="noreferrer noopener">moved</a> to inspire miners to set up their own solar panels, for example, charging them double to plug into the standard grid.



In any case, there’s a problem: Faber doesn’t believe the claims of the Bitcoin Mining Council. “I think until a government body or a trusted third party is given the job of measuring, reporting, and verifying those claims, they are simply that,” he said.



Faber explained there are plenty of examples of government-required reporting, through legislation or other means. For example, the EPA requires manufacturers to annually report the volumes of toxic chemicals they release into the environment.



Is it realistic for the Bitcoin industry to accept operational interference from the government? De la Torre said the Texas power grid, ERCOT, already publishes such information, allowing third parties to verify energy mixes. He said that more avenues to verify the energy mixes powering a grid would be a good thing.



Castle Island Ventures’ Nic Carter was more pointed in his response: “Completely ludicrous and unrealistic, and an insane standard compared to every other industry.&#8221; 



“Buying electricity from the grid and doing computation isn&#8217;t exactly similar to producing toxic chemicals.” 



But if environmental activists get their way, it could very well be in the eyes of regulators.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



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‘Cryptocurrency Mining Is Poisoning Our Communities,’ US Rep. Says

Casey Wagner

<div id="highlights-block_6145019c02214" class="highlights">
 <ul>
 <li>DAS panelists agreed that miners are going to be at the forefront of innovation when it comes to sustainability.</li>
 <li>The industry must continue to innovate to insure that all miners are motivated to move to sustainable energy going forward</li>
 </ul>
 
</div>



Digital Asset Summit 2021, New York City — The sustainability of bitcoin mining has come under harsh criticism recently, but experts insist that the industry is on the right track toward sustainability.&nbsp;



“Miners are always going to go toward the lowest-cost energy, and that, long-term, is going to be sustainable,” Amanda Fabiano, head of mining at Galaxy Digital said during the mining panel at the Digital Asset Summit in New York City Wednesday.&nbsp;



A major misconception about the space, Fabinao said, is that mining energy is never renewable. She referenced a recent survey from the Bitcoin Mining Council, a joint group of leaders and miners committed to advancing the industry.&nbsp;



The <a href="https://www.hope.com/content/dam/hope-assets/collateral/Mining-Council-Press-Release-Q2_07-01-2021.pdf" target="_blank" rel="noreferrer noopener">survey</a>, released in August claimed that miners are currently utilizing electricity with a 67% sustainable power mix. The study has since been criticized for lack of transparency with regards to methods used and parties surveyed.&nbsp;



Other panelists largely agreed with Fabiano that there is a broader lack of understanding about where mining energy is sourced.&nbsp;



“I think it’s important to look at some comparables,” said Mason Jappa, CEO and founder of Blockware Solutions. “I assume that bitcoin mining is between 40% and 70% sustainable energy, and if you look at comparables of the US energy grid, the US energy grid is about 12% to 18% sustainable energy.”&nbsp;



The expectation that miners should reveal energy consumption and sourcing information is also flawed, Jappa said, although he agrees that further transparency would be helpful.&nbsp;



“I don’t think we have to share our energy consumption and sustainability, but I do believe in that, and I think we are headed in that direction,” said Jappa.&nbsp;



Miners, the panelists agreed, are going to be at the forefront of innovation when it comes to sustainability.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“I think miners are some of the most creative people in energy,” said Juri Bulovic, vice president of strategy at Foundry. “We&#8217;re creating new technologies and influxing billions of dollars in ecosystems and areas within our economy that were desolate.”&nbsp;</blockquote>



Bitcoin mining operations often use energy that would have otherwise been wasted, Bulovic said. Other groups are converting landfills into energy as a way to fuel mines while eliminating waste, he said.&nbsp;



“Bitcoin, at its finest, is monetizing energy,” Bulovic said. “For miners, 90% of your mining costs are associated with energy.”&nbsp;



Mining operations with more cash to devote to sustainable practices, or those with investors that are interested in being sustainable are more likely to devote capital to these efforts. The industry must continue to innovate to insure that all miners are motivated to move to sustainable energy going forward, Bulovic said.



<hr class="wp-block-separator"/>



Are you a UK or EU reader that can’t get enough investor-focused content on digital assets?<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Join us</a>&nbsp;in London on November 15th and 16th for the Digital Asset Summit (DAS) London. Use code ARTICLE for £75 off your ticket.&nbsp;<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Buy it now</a>.



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