Bitcoin (BTC) mining is a topic that has always sparked controversy. The proof-of-work (PoW) model that Bitcoin operates on is now drawing more attention from senior decision-makers and investors who are focusing on environmental, social, and governance factors.
To address these concerns, many crypto miners are emphasizing their environmentally friendly practices by purchasing carbon offsets. However, some argue that relying solely on carbon offsets may not be sufficient to ensure green Bitcoin mining and that there may be other risk factors associated with carbon credits.
For example, Kevin O’Leary, the Canadian entrepreneur known as “Mr. Wonderful” from his role on Shark Tank, mentioned that public mining companies like Marathon Digital Holdings and Riot Blockchain Inc. saw significant stock drops once they claimed carbon neutrality through carbon offsets. O’Leary expressed his apprehension, suggesting that the United States Securities and Exchange Commission (SEC) could potentially audit carbon credits soon:
“Carbon offsets are unauditable. So indexers like me dumped those shares – we had to sell. The only way institutions will now invest in Bitcoin mining is for those companies to claim there is no carbon involved at all.”
Bitcoin mining in conjunction with data centers
To achieve zero carbon mining, O’Leary proposed that Bitcoin miners should establish operations near data centers. This setup would enable mining companies to utilize excess energy from data centers for Bitcoin mining, leading to a process known as “zero carbon displacement” that produces no carbon emissions.
Bitcoin mining firm Bitzero adopted this approach two years ago in Norway. Akbar Shamji, Bitzero’s CEO and founder, explained that the company forged an infrastructure partnership with the local government in Norway to access unused hydroelectric power for Bitcoin mining:
“This was the perfect opportunity for us to test this idea. At the same time, big data companies started to use renewable energy sources in places like Norway, but this wasn’t profitable for the region. We’ve built a long-term, low-cost 100% zero carbon displacement power source to have an edge over the market. We hit revenue when we mined our first Bitcoin in December 2021.”
Shamji highlighted the importance of harnessing electricity from data centers effectively and referred to this as the “Norway model.” Bitzero leverages surplus capacity at local hydro plants directly for power, resulting in zero carbon displacement. Additionally, Bitzero employs sustainable and locally sourced materials for its fixed data centers, equipped with heat capture technology to minimize energy waste.
Argo Blockchain, another crypto mining company, is set to open a data center in West Texas for mining operations. While Argo does not strictly follow a zero carbon displacement strategy, the company’s CEO, Peter Wall, aims for carbon neutrality:
“There’s an enormous amount of renewable power in West Texas, and Argo’s mission is to mine Bitcoin in the most eco-friendly way possible. We chose Dickens County in particular because there is a substation that is adjacent to the property we chose to build Helios, which is our new flagship mining facility.”
Similar to Bitzero’s approach, Argo seeks to optimize clean power resources available at the substation in Dickens County, Texas, to support environmentally conscious mining operations.
Efforts towards zero carbon emissions
Although the concept of green Bitcoin mining has been a trending topic, the initiatives such as zero carbon displacement are becoming increasingly crucial for mining operators seeking to ensure sustainability in their operations.
Some lawmakers are contemplating legislation to outright ban non-green cryptocurrency mining activities. This legislative trend was exemplified by the State of New York, where efforts are underway to restrict non-green Bitcoin mining operations with a proposed bill.
Meanwhile, Kazakhstan’s government is proposing regulations that would require cryptocurrency mining operators to disclose electricity consumption and technical specifications for connecting to the power grid before commencing operations.
While initiatives like the Crypto Climate Accord aim to achieve net-zero emissions from electricity consumption in the crypto industry by 2025, considerations arise regarding the methods to achieve this goal. Some have suggested altering Bitcoin’s code to switch to a less energy-intensive consensus mechanism called proof-of-stake, but this shift could compromise the network’s resilience and security provided by the current proof-of-work model.
From an investor’s perspective, O’Leary emphasized the importance of only investing in Bitcoin mining firms and data centers that demonstrate sustainability in their energy sources:
“Private capital must be compliant with environmental, social, and governance factors. ESG was once a marketing term, but now it’s a real thing. I can’t be subject to an SEC audit, and can’t find an auditor who will sign these statements anyway. The crypto industry is at an interesting inflection point.”
While regulatory clarity remains uncertain, mining operators are indeed at a critical juncture. Tapscott, CEO of CarbonX, noted that the SEC’s proposed disclosures align with existing frameworks like the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol. He emphasized the importance of emissions reporting, which could help companies mitigate future carbon costs by investing in carbon credits based on their emission levels.
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