The Major Changes in Bitcoin Mining: The Dual Shift of Energy and Computing Power Landscape

This article is an original piece by Chain Catcher, authored by Hu Tao.

After months of a bullish market frenzy, Bitcoin mining has recently fallen into a whirlpool of public opinion and regulatory scrutiny, bringing more uncertainty to the crypto market.

In terms of public opinion, the carbon emissions generated by Bitcoin mining have drawn significant criticism from outside the industry, especially after Musk suspended Tesla's Bitcoin payment feature. The mining sector has begun large-scale discussions on energy and environmental issues related to mining, attempting to fundamentally change the external perception of the industry.

On the regulatory front, the State Council of China and several local governments have clearly stated their intention to crack down on Bitcoin mining, with some regions already starting to shut down Bitcoin mining farms, further accelerating the "de-China" trend of Bitcoin's computing power.

Amid these challenges, Bitcoin mining is facing one of the most complex development situations in its history, forcing most Bitcoin miners to make various adjustments and responses, such as changing the type of energy used for mining and shutting down or relocating mining farms, which fundamentally impacts the industry's computing power structure and energy consumption emissions.

1. Carbon Neutrality and Bitcoin Mining

As is well known, the process of Bitcoin mining is essentially the process of solving mathematical problems, which requires specialized hardware and consumes a large amount of energy. The more miners there are and the more intense the competition for bookkeeping, the higher the energy consumption and carbon emissions.

Because of this, Bitcoin mining has long faced significant criticism for causing excessive energy consumption, being seen as wasteful and having a considerable negative impact on climate change. As the carbon neutrality strategy gains increasing prominence globally, these criticisms have become even more intense.

Carbon neutrality refers to the calculation by specific countries, enterprises, or institutions to offset their direct or indirect carbon dioxide emissions through energy conservation and emission reduction measures within a certain period, achieving "zero emissions" of carbon dioxide. In simple terms, it means balancing carbon dioxide emissions.

In recent years, the global climate change caused by carbon dioxide emissions has become increasingly significant and is still being effectively controlled. The United Nations Environment Programme stated in its latest "Emissions Gap Report" released in 2020 that despite a temporary decrease in carbon dioxide emissions due to the COVID-19 pandemic, the world is still on track to warm by more than 3°C by the end of this century, far exceeding the levels set by the Paris Agreement to "limit the global temperature rise to within 2°C and strive to achieve the 1.5°C temperature control target."

At the same time, discussions within the international community regarding carbon neutrality strategies have noticeably increased since last year, with several countries, including France, proposing clear timelines for achieving carbon neutrality. On his first day in office, Biden announced the U.S. would rejoin the Paris Agreement and plans to achieve carbon neutrality by 2050, committing $2 trillion to promote the research and use of clean energy.

Against this backdrop, the Bitcoin mining industry, which relies heavily on fossil fuels, has become a primary target for many environmentalists. According to a previous study by the Cambridge Centre for Alternative Finance (CCAF), the total energy consumption of the Bitcoin network ranges from 40 to 445 terawatt-hours (TWh), with a median estimate of about 130 TWh, equivalent to the entire electricity consumption of Argentina. Meanwhile, approximately two-thirds of Bitcoin miners globally are using fossil fuels for mining.

For a long time, the crypto industry has rebutted external criticisms regarding Bitcoin's excessive energy consumption. For example, Galaxy Digital released a quantitative research report indicating that the energy consumed by the traditional banking system is more than twice that consumed by Bitcoin; Coinbase argued that the reasonableness of energy use largely depends on the value derived from resource use, and Bitcoin is much more efficient in resource use than many industries; crypto researcher Gianmarco Guazzo also pointed out that the energy consumed by Bitcoin is necessary to protect cryptocurrencies from network attacks and data tampering within protocols.

However, these viewpoints are mostly based on the recognition of Bitcoin's value, making it difficult for researchers who originally questioned Bitcoin's value to accept them. Thus, there has been a long-standing debate within and outside the industry, but with Musk, a prominent figure for Bitcoin, turning against it and criticizing Bitcoin's energy consumption, the Bitcoin mining industry and even the crypto market have begun to re-examine this topic.

Currently, the crypto industry's response can be articulated from two aspects. On one hand, mining companies and miners directly engaged in mining activities have not made direct statements due to the increased costs of changing mining energy sources, coupled with the recent fluctuations in Bitcoin prices and the time required to adopt clean energy.

Among them, Mike Colyer, founder of Foundry, a mining company under Grayscale, expressed a negative view: "We have not yet found anyone truly willing to pay a premium for clean energy Bitcoin. Therefore, to me, it seems more like a marketing tactic. Mining Bitcoin with clean energy is meaningless."

However, under the organization of Musk and Michael Saylor, several major North American Bitcoin mining companies, including Hive Blockchain, Hut 8 Mining, Marathon Digital, and Riot Blockchain, have formed a Bitcoin Mining Council and agreed to increase transparency in energy usage globally and accelerate sustainable development plans.

At the same time, many mining companies have already been trying to use renewable energy sources such as hydropower, solar energy, wind energy, and natural gas for mining. Notably, Argo Blockchain announced in March this year the launch of a Bitcoin mining pool powered entirely by clean energy, Terra Pool. Neptune Digital Assets and Link Global also announced the launch of a Bitcoin mining pool powered by solar, wind, and natural gas in Canada in the same month.

On the other hand, many companies using the Bitcoin network have stated they will purchase carbon credits or donate to carbon offset organizations to offset the carbon emissions generated by their business operations.

On May 20, the two major exchanges FTX and BitMEX announced their commitment to carbon neutrality, with FTX stating it would donate $1 million to offset the blockchain resources it uses, while BitMEX promised to donate $0.0026 for every $1 in blockchain fees generated to offset its carbon footprint.

Additionally, companies like OSL, Greenidge, and GSR have announced the purchase of carbon credits, which are primarily supported by specific energy improvement projects, with the funds paid for purchases being used for environmental protection projects. For example, the carbon credit products purchased by OSL are issued by Verra, an organization that develops and manages verified carbon standards, generated by the Ghani renewable solar project in India, which replaces electricity generated by oil-powered plants, thereby avoiding carbon dioxide emissions.

Although Musk's suspension of Tesla's acceptance of Bitcoin payments had a destructive impact on the crypto market at the time, and he faced significant criticism for it, it must be acknowledged that Musk's tweets have pushed environmental issues back to the forefront of the crypto industry. Subsequently, many mining farms and companies responded by planning to adopt more environmentally friendly mining methods, which has played a certain role in promoting the sustainable development of Bitcoin mining and gaining recognition from mainstream society.

2. Bitcoin Computing Power Moves Towards Decentralization

Unlike other countries that primarily criticize Bitcoin mining through public opinion, China has directly implemented severe crackdowns. Since April, clear policies have been issued in provinces such as Xinjiang, Inner Mongolia, and Yunnan to shut down Bitcoin mining farms, reflecting the Chinese government's heightened attention to the issue of Bitcoin mining, which is also under pressure from the carbon neutrality strategy.

In late September 2020, China announced its goal to peak carbon emissions before 2030 and achieve carbon neutrality by 2060. Subsequent meetings, including the Central Economic Work Conference in December 2020 and this year's government work report during the Two Sessions, have listed achieving carbon peak and carbon neutrality as key tasks for the year.

On March 15 of this year, General Secretary Xi emphasized at the ninth meeting of the Central Financial and Economic Committee: "Achieving carbon peak and carbon neutrality is a broad and profound systemic transformation of the economy and society. We must incorporate carbon peak and carbon neutrality into the overall layout of ecological civilization construction and adopt a determined approach to achieve the goals of peaking carbon emissions before 2030 and achieving carbon neutrality before 2060."

Under this goal, the Bitcoin mining industry is one of the main obstacles. As China is the primary location for Bitcoin mining activities globally, and most mining activities in regions like Xinjiang and Inner Mongolia use fossil fuels, China can be said to be the country with the highest carbon emissions from Bitcoin mining.

In early April this year, several scholars from institutions such as the University of Chinese Academy of Sciences and Tsinghua University published a paper in a sub-journal of Nature, stating that China's energy consumption and carbon emissions related to Bitcoin mining are rapidly increasing. Based on a simulated carbon emission model, if not controlled, China's Bitcoin mining energy consumption is expected to peak at about 297 trillion watt-hours by 2024, generating approximately 130 million metric tons of carbon emissions. This figure exceeds the annual greenhouse gas emissions of all medium-sized countries in Europe (such as Italy or the Czech Republic).

As a result, local governments in China have changed their previously ambiguous attitudes towards Bitcoin mining farms, issuing documents demanding the shutdown of these farms. The earliest was Inner Mongolia, which announced in February this year in the "Several Guarantee Measures to Ensure Completion of the '14th Five-Year' Energy Consumption Double Control Target (Draft for Comments)" that it planned to comprehensively clean up and shut down virtual currency mining projects by the end of April 2021. Subsequently, regions such as Xinjiang, Qinghai, and Yunnan have also issued documents clearly stating the shutdown of Bitcoin mining farms, while Sichuan Province, which primarily relies on hydropower, has not yet made a clear statement.

In this policy context, Bitcoin mining farms in the aforementioned regions face a severe survival crisis. Many miners have reported that their mining farms have been shut down and plan to sell their mining machines, while others have indicated plans to transport their machines overseas to continue mining. As a result, the average daily hash rate of the Bitcoin network dropped to 114 EH/s on June 10, a decrease of about 42% from the peak in May.

On one hand, several companies, including Huobi, Renren Mining, and Mint Mining, have announced the cessation of Bitcoin computing power or mining machine hosting services; on the other hand, many Chinese mining companies have recently announced overseas mining investment plans. On May 26, Shenzhen mining company Bit Mining invested $9.33 million to build a mining farm in Kazakhstan, and on June 5, The9 announced the acquisition of the Canadian mining farm Montcrypto and investment in another mining farm, Skychain.

It is foreseeable that under the crackdown from local governments, the number of Bitcoin mining farms and miners in China will continue to shrink, and its share of global computing power will also continue to decline. For many Chinese miners, it seems that China is once again losing its dominance in Bitcoin computing power after losing its pricing power.

However, for the Bitcoin network, this still holds special significance. Due to low electricity costs, China has long been a major hub for Bitcoin mining activities, with over 60% of the Bitcoin network's computing power located in China, which is considered to have a negative impact on the decentralization of the Bitcoin network.

With China's further crackdown on Bitcoin mining farms and the rise of the miner exodus movement, the share of Bitcoin computing power located in China is bound to decrease further. Coupled with the increased investment from several mining companies in the U.S., the complete decentralization of Bitcoin computing power may likely be indirectly achieved.

In this process, the interests of some Chinese Bitcoin miners may be sacrificed, but the narrative integrity and fundamentals of the entire Bitcoin network may benefit from it.

Looking ahead, the Bitcoin mining industry is likely to enter a prolonged period of growing pains, with both public opinion and regulatory pressures continuing to exist. However, for mainstream society, after undergoing these adjustments, Bitcoin mining can fundamentally address past shortcomings and even remove some barriers to the acceptance of cryptocurrencies represented by Bitcoin.