In a nation that's long been fascinated by rags-to-riches stories, it's no surprise that we seem captivated by people who are turning bytes to bucks.
Cryptocurrency is one of our biggest buzzwords these days. But what is it? Where does it come from? What are governments in the U.S. and worldwide doing to regulate this burgeoning industry? And what is it costing us in environmental terms?
Untangling the Blockchain
Cryptocurrencies are a digital asset that can circulate without a centralized monetary authority like a bank. Bitcoin is the world’s largest cryptocurrency and perhaps the most well-known.
Cryptocurrencies, or “crypto,” are distributed across the internet and may be used either for investment or to buy goods and services. Cryptocurrencies are digital and encrypted assets, unregulated in terms of an authority, such as a bank, that guarantees their value. Therefore, cryptocurrencies can be a risky, volatile acquisition. Nevertheless, many people enjoy researching, buying, and utilizing these currencies.
Cryptocurrencies are supported by blockchain, a database that stores secure, decentralized crypto records. Blockchains help maintain the security and legitimacy of digital currency; for example, people are unable to make copies of their holdings and spend them more than one time. Data is collected in groups (“blocks”) that maintain a certain amount of storage. Once a block is full, it is closed and linked to the last block that was previously filled. This information linkage is known as the blockchain. The blockchain keeps an unmodifiable timeline of information and enables tracking of data on crypto ownership and transactions.
Cryptocurrency “mining” is the process by which new crypto units, or "virtual tokens," are virtually minted and entered into circulation. Crypto “miners” use sophisticated computer hardware that solves complex mathematical equations. Once solved, transaction blocks are entered into the blockchain. Miners receive tokens in exchange for monitoring and legitimizing transactions.
North Carolina's blanket sales/use tax exemption makes it an appealing frontier for crypto miners. We currently have at least five operational cryptocurrency mines, with at least four new facilities being planned for construction and operation. They're popping up across the state, from Greenville and Wilson to Boone and Murphy.
But communities and residents have mixed feelings about having crypto miners move in. Economic/business development groups tend to be in favor because they anticipate economic growth and jobs. Some citizens are protesting crypto mining projects over concerns about environmental disruption, noise, and increased energy use.
Just like traditional mining, crypto mining takes a toll on our planet.
The masses of computer equipment required for crypto mining need fans to keep them cool. These can generate significant noise pollution that can be disruptive to nearby communities. What’s more, cryptocurrency equipment generates nearly 34,000 tons per year of electronic waste worldwide, and much of it isn't recycled. Once in a landfill, the heavy metals and other components present environmental risks for our air and water.
Perhaps most significant is the impact on our climate. Crypto mining operations require enormous amounts of energy. As long as much of the world continues to generate electricity primarily from fossil fuels, an increase in crypto mining operations will inevitably lead to more and more emissions of climate-harming greenhouse gases. Bitcoin alone requires an estimated 110 terawatt hours per year - around 0.65 percent of global electricity production.
Crypto's energy demands may serve to extend the life of fossil power plants because few mining operations use clean energy, and few have pledged to do so. Governments could help by demanding that they turn to clean power sources.
Regulators Haven’t Caught Up
With so many issues on the table, what is being done to monitor and regulate cryptocurrency and crypto mining? Not much yet.
The federal government has taken some steps around consumer protection and security, with new requirements for crypto tax reporting included in the Infrastructure Investment and Jobs Act.
But it's only recently that the folks in charge have begun eying crypto’s environmental footprint. Some members of Congress sent letters of concern to crypto mining companies, and the House Committee on Energy and Commerce held a “Cleaning Up Cryptocurrency” hearing early this year. U.S. senators introduced a bipartisan bill for a regulatory framework for cryptocurrency, which would not limit cryptocurrency mining, but would encourage miners to use clean energy.
For now, most action on crypto regulation is at the state and local level. At least 31 states have considered crypto-related legislation, though most are focused on encouraging development rather than protecting the environment.
● New York has abundant nuclear and hydroelectric power resources and thus is the largest crypto mining state (Washington Analysis, 2022). It also hosts crypto mining companies that have repurposed old fossil fueled power plants for their energy needs. If states like New York block crypto mining permits, others may follow.
○ The New York Department of Environmental Conservation held hearings on crypto mines’ permitting and, given a history of being tough on fossil energy, may deny further mining action.
○ The state issued multimillion-dollar fines against crypto companies for financial misconduct.
○ Utility commissions can play a role in regulating cryptocurrency. For example, the New York Public Service Commission has looked at potentially blocking crypto companies from acquiring more fossil-fired plants.
○ A member of the New York legislature proposed a moratorium on proof-of-work mining, which requires massive processing power. This passed through the Assembly Environmental Conservation Committee in late March and may curtail energy-intensive operations.
● Texas is a rapidly-growing cryptocurrency hub. Crypto’s demand for power in Texas will require two times more than the amount of energy consumed in Austin, a city with nearly one million residents.
○ In June 2021 Texas passed the Texas Virtual Currency Act, which legitimizes the legal status of cryptocurrency. Many lawmakers in Texas welcome crypto, and Gov. Greg Abbott proclaimed that the state will soon be number one for crypto.
● The Idaho Utilities Commission is considering a new classification for large-scale crypto miners. This would set a special utility rate for industrial crypto miners under 20 megawatts.
● Washington state upheld a utility rate case which will allow special, heightened rates for volatile industries like crypto. This is meant to protect other ratepayers.
● In Kentucky, crypto mining qualifies for an alternative energy tax credit that will enable Kentucky “to become a national leader in emerging industries which use substantial amounts of energy.” Proponents argue that mining will improve the electricity grid.
● Wyoming and Colorado enacted pro-crypto legislation and are trying to attract crypto investors.
○ The Wyoming Utility Token Act defines crypto as a new asset class and exempts cryptocurrencies from state money transmission laws.
○ Colorado has passed similar legislation and conducted working groups around blockchain-based banking.
Many parts of the United States are embracing crypto as a currency of the future. But the future is grim if the industry's massive appetite for energy isn't steered toward clean fuel sources. Our climate can’t handle reviving fossil-fueled power plants that should be retired.
Other countries have banned or restricted crypto mining. China was previously the crypto mining center of the world but in June 2021, the country banned all domestic crypto mining operations because of the massive energy demands.
We've made headway on retiring dirty coal plants, we're building our wind power resources on and offshore, and we're encouraging citizens to work individually and in communities to tap solar power. We must assure that crypto companies prove their full value by using and helping to drive demand for clean energy.
Originally posted in partnership with the N.C. Sierra Club here.