Stop Bitcoin mining threatens the future of cryptocurrencies
Here we are again… Kosovo is banning Bitcoin producers. It’s just the latest in a long list of sites that… exil the branch. China’s crackdown on Bitcoin mining last year, culminating in a complete ban in September, led a number of producers to search for new… House. Many flocked to green sources in Scandinavian countries, while others exploited coal and gas in Kazakhstan, Iran, Kosovo and tiny Abkhazia – until last fall, more than a quarter of all Bitcoin currencies were produced exclusively in Kazakhstan and Iran.
But in recent months, these officially welcoming places have massively driven out producers. New entrants are absorbing gigantic amounts of electricity, creating shortages that are spreading power outages from Tehran to Almaty. This trend is particularly bad news for enthusiasts who predict that the Bitcoin industry will soon solve the problem of pollution, operating mainly with renewable energy sources. In a new turn, Scandinavian nations claim that they cannot achieve their clean energy targets if crypto occupies such a huge and growing share of their wind, energy and geothermal resources.
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It’s also a warning to the places where the … refugee producers, often after they were expelled from China and then disembarked in Kazakhstan or Iran, only to be expelled again. A typical example is Texas, perhaps the biggest attraction for displaced persons and newcomers. “The idea in Texas is that you can fix the vulnerable grid by adding new demand,” says Alex de Vries, a Dutch economist whose Digiconomist website tracks Bitcoin’s energy use. “It’s the most absurd thing I’ve heard. When demand peaks in winter and summer and Bitcoin mining makes supplies even smaller than before, the result will not be pretty.”
What happened to the growing list of countries that … sour with Bitcoin mining is a warning to Texas, New York and Kentucky, as well as to European states like Germany and Ireland that still welcome the industry. Let’s review the list of states that have recently turned against the world’s leading cryptocurrency – starting with Kosovo, the … grumpy that hit on New Year’s Eve.
The Kosovo crisis
In recent years, cheap electricity produced by Kosovo’s coal plants has attracted a plethora of producers. Industry is particularly strong in the northern part of the Balkan state of 1.8 million inhabitants. There, Bitcoin is very popular among young Serbs. Serbs do not recognise Kosovo as a state and refuse to pay for electricity. In recent months, damage to coal plants has forced the government to import large quantities of expensive natural gas from its European neighbours. Today, about 40% of Kosovo’s energy comes from abroad. The nation has imposed a 60-day state of emergency, during which it plans to implement energy cuts to homes and businesses. The ban on Bitcoin mining is a central point of its campaign to address this energy crisis.
On December 31, the government announced “a ban on the production of cryptocurrencies nation-wide.” Let us hope that the release of the energy used by the producers will help Kosovo to get through the cold winter months. But the message is clear: Energy is becoming scarcer around the world, and more and more countries are questioning whether it makes sense to allocate a large share to a currency with few or no practical uses.
Iran turns against bitcoin… again!
In May, Iran’s cities suffered rolling power outages. To reduce pressure on power plants and maintain more electricity for households, the government imposed a four-month moratorium on Bitcoin mining. But after briefly lifting the shutdown, Tehran imposed a second close on December 28th, three days before Kosovo made its move. According to official estimates, Bitcoin mining drained 3% to 4% of all energy transported through the country’s network. The ban will last until mid-March. Until then, the government could reinstate mining, which produces the much-needed foreign exchange for its regime. The problem: Over 60% of all Bitcoin production is illegally produced in kitchens and even in industrial-sized businesses that manage to circumvent the law. Former President Hassan Rouhani acknowledged that unlicensed mining is difficult to contain and could continue to extract large amounts of energy from homes and businesses. Iran is clearly becoming negative on Bitcoin. Therefore, the future of mining even after the end of the ban is highly doubtful.
Kazakhstan pulls the rug of … Welcome
Along with the US, Kazakhstan has been a “golden destination” for the displaced Chinese. Last fall, the University of Cambridge found that the central Asian state was home to an incredible 22% of the world’s production. It is estimated that 90,000 rigs that operate 24 hours a day, producing the “hashes” or random codes that earn Bitcoin, moved from China to Kazakhstan within a few months. In Almaty, its largest city, mining doubled from May to mid-November. In a typical year, the country’s electricity consumption would increase by 1% to 2%. But in 2021, the influx from China, as well as newcomers looking for huge gains as the price of Bitcoin skyrocketed, pushed up the usage by 8%.
Kazakhstan is home to huge oil reserves and early last year boasted of many additional power generation capabilities. But within a few months, the … Bitcoin fever has driven the nation from abundance to poverty. In mid-July, power outages swept the nation. In response, the government imposed in September a regime that distributes the energy to 50 registered bitcoin producers. Two months later, it enacted legislation that limits the validity for each new producer and limits the quantity available to all new entrants combined at extremely low levels. The Bitcoin boom in Kazakhstan is quickly deflating.
Iceland says no to newcomers
Iceland benefits from an abundance of cheap geothermal energy. This has made it a magnet for miners in recent years. Producers of Genesis and Bitfury from Hong Kong, as well as Hive from Canada, have extensive activities in the island nation. But Iceland is also home to aluminum foundries and data centers that share the same great thirst for electricity as miners. At the moment, Iceland is beset by shortages in energy supply. The Bitcoin industry is contributing greatly to the current electricity shortage. The crisis has forced the government to cut off supplies to its key industries. On December 7, national energy company Landsvirkjun announced that it would no longer accept applications for electricity from new cryptocurrency producers.
Sweden wants to ban mining, inside the country and across the EU
On November 12, two top Swedish officials wrote an open letter to their country’s regulators and a request to the EU that could jeopardize Bitcoin’s hopes of becoming eco-friendly — the vision for followers like Elon Musk and Jack Dorsey. The head of the country’s financial supervisory authority called on the country’s leaders to stop all Bitcoin mining. They also argued that the entire EU of 27 member states should impose a general ban on the sector. The reason was a new one: The immediate concern was not Bitcoin’s infamous carbon footprint, but the large use of renewable energy that is necessary to make traditional industries ecological. Sweden generates well over 50% of its electricity from wind, solar and hydropower, one of the highest “green” shares in the world, and its electricity has attracted various Chinese producers. The authors report that from April to August, the energy flowing into Bitcoin jumped several hundred percent.
Sweden will need the electricity that Bitcoin is now devouring to provide projects such as charging stations for electric cars. “If we allowed cryptocurrency mining in Sweden, there is a risk that the renewable energy we would have at our disposal would be insufficient to implement the required climate transition we need to make,” including the transition to building fossil-free steel and batteries, the officials write. In their view, the rejection of Bitcoin is necessary to achieve the strict goals of the Paris climate agreement. They revealed some revealing examples, claiming that mining within Sweden’s borders consumes as much electricity as 200,000 households and that “today it is possible to drive a medium-sized electric car of 1.8 million kilometers using the same energy needed to extract a Bitcoin.” Their conclusion is blunt: Bitcoin “is not a reasonable use of our renewable energy.”
As Sweden leaves, Norway can also leave
A few days after Swedish officials unfathored their manifesto, a leading Norwegian appeared to join their race. “By studying the solutions proposed by Swedish regulators, Norway is currently considering policy measures to address the challenges related to cryptocurrency mining,” said Bjorn Arild Gram, minister of local government and regional development. Gram went on to say that it is difficult to justify supplying Bitcoin with renewable energy. Like Sweden, Norway faces a serious challenge in producing enough green energy to completely de-dependence on fossil fuels for the aluminium and steel industry. Aluminium prices are soaring, as is the sector’s appetite for energy. Norway has also recently built cables that will allow it to export its renewable energy across Europe, earning large revenues, but reducing production to a quantity that is only sufficient for its domestic uses – Bitcoin is not included in them. We don’t know if Norway will follow Sweden, but the question of whether Europe can feed Bitcoin and achieve its over-aggressive climate goals is now “hot”.
Don’t forget tiny Abkhazia
This piece of land in the Black Sea that was detached from Georgia in the mid-1990s experienced the negative side of Bitcoin before Iran and Kazakhstan. In 2020, about 625 mining “farms” appeared throughout the territory of 250,000 inhabitants, many of them in kitchens and bedrooms. In 2020, bitcoin’s invasion increased electricity consumption by about 20%, and by mid-November of that year, homes and factories across Abkhazia… they were darkening. The government officially banned the industry at the end of the year. He then raided homes and businesses, smashing doors and cutting wires. A kingdom of terror was transferred to Bitcoin.
The more states close the door to Bitcoin, the fewer hospitable spaces will remain. And the greater the pressure will be on their networks. This is the challenge that places like Texas, Kentucky and the province of Alberta, some of the most popular, will soon face. You hear a lot of talk about how producers will enter into partnerships with utilities that will increase overall power generation capacity and that producers will close in peak periods, providing even more electricity for homes and businesses.
Perhaps the chief executive of Iceland’s national electricity company summed up the situation best of all: “No one would build a power plant for Bitcoin. There is a lot of uncertainty about his future.” As de Vries points out, Bitcoin producers earn the most money when they run their expensive machines 24 hours a day. “They have absolutely no incentive to close in peak periods or not at all,” he says.
Bitcoin’s problem is that it increases the demand for energy when the world simply doesn’t have enough energy.
