[조인디 Week&]Bitcoin mining, what about the carbon emission problem

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Bitcoin (BTC) is currently trading for more than $58,000 per piece. In theory, only 21 million bitcoins can be mined, and the number is very limited. As a result, more and more individuals and institutions are spending enormous amounts of energy to mine this’digital gold’.

The process of mining Bitcoin is similar to mining gold. Bitcoin miners and mines use cryptocurrency miners (actually countless computers) to continuously mine and acquire bitcoins throughout the year. However, the power consumption of bitcoin miners is very surprising. According to the Bitcoin Power Consumption Index released by Cambridge University researchers, if Bitcoin is regarded as a country, electricity consumption is about to rank in the top 30 in the world. Currently, the annual power consumption from mining activities is about 121.36 TWh (TWh). , 1 terawatt hour is equivalent to 1 billion KWh of electricity). As long as the bitcoin price does not drop sharply, power consumption is expected to continue to increase.

Regarding the operation of the Bitcoin blockchain and the carbon emission problem due to mining, a team of experts from the Chinese Academy of Sciences and the Department of Earth System Science and Tsinghua University recently conducted a modeling analysis and published a related paper on April 6, an international scientific journal called’Nature Communications. (Nature Communications)’. The following is a summary of what CC Value reported on April 7.

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# 13,5 billion tons of carbon emissions in China alone through bitcoin mining in 2024

As a result of the study, without the intervention of the policy authorities, the annual energy consumption of the Bitcoin blockchain in China alone will peak in 2024, recording about 296.59 terawatt hours (TWh) of electricity, resulting in 13.35 billion tons of carbon emissions. It was predicted. It ranks in the top 10 among 182 cities and 42 industrial sectors in China. Researchers also conducted research on policies and measures to control the level of carbon emission from bitcoin mining.

# Bitcoin mining = process of accumulating wealth… what about carbon emission?

In recent years, systems dynamics (SD)-based models have been widely used to estimate carbon emissions in specific sectors or industries. Based on this, the researchers developed the’Bitcoin Blockchain Carbon Emission Model (BBCE)’ that measures the carbon emission level of the Bitcoin network in China in various scenarios.

The researchers set the system boundary and feedback loop of the Bitcoin blockchain carbon emission system as a theoretical framework to study the Bitcoin blockchain carbon emission mechanism. In general, the BBCE model consists of three subsystems: Bitcoin blockchain mining, transaction subsystem, energy consumption subsystem and carbon emission how system.

Bitcoin blockchain rewards are halved every four years. In other words, in 2140, the reward for mining new blocks in the Bitcoin blockchain will be ‘0’. Therefore, due to the half-life mechanism of the Bitcoin blockchain, the market price of Bitcoin will rise periodically. On the other hand, at some point, the total cost of mining bitcoin plus carbon and energy costs will reverse the miner’s margin. If the mining profit becomes negative, miners will stop mining or move to another area. Bitcoin mining in China ranks in the top 10 out of 182 cities and 42 major industrial sectors. China’s carbon emissions account for 5.41% of total power generation emissions.

Although the Bitcoin blockchain can operate in a relatively stable manner through the Proof of Work (PoW) consensus algorithm, competition among professional miners is heating up due to the mining reward system that can accumulate wealth. However, the increase in bitcoin mining activities and mining machines has resulted in enormous energy consumption. The annual energy consumption level is that of small and medium-sized countries such as Denmark, Ireland and Bangladesh. It is estimated that between January 1, 2016 and June 30, 2018, the amount of carbon emissions from the Bitcoin blockchain reached 13 million tons.

In particular, in China, a large part of bitcoin mining is done in China due to the professional miner manufacturer and cheap power supply, and the computing power of the Chinese mining pool has once accounted for more than 75% of the total bitcoin network. However, China, one of the world’s largest energy consumers, is also a major signatory to the Paris Climate Agreement. Therefore, this paper points out that without appropriate authorities’ intervention and actionable policies, bitcoin mining activity could be a source of new pressure on China and a factor that hinders China’s efforts to reduce carbon emissions.

# Energy consumption in 2024 is projected to reach the highest of 296.59TWh per year

After considering the three major Bitcoin policies implemented at different stages of the Bitcoin mining industry, the researchers conducted a four-scenario evaluation of Bitcoin’s carbon footprint.

The bottom line is that without policy intervention, the Bitcoin blockchain’s carbon emission model will be a non-negligible obstacle to China’s sustainable development efforts. The annual energy consumption and carbon emissions of the Bitcoin blockchain in China are expected to exceed the highest levels in some countries, such as Italy, the Netherlands, Spain and the Czech Republic.

In the scenario assuming that 40% of miners are in the thermal power generation area, the annual energy consumption of the Bitcoin blockchain in China is expected to increase gradually, reaching the highest in 2024, 296.59 TWh per year. This indicates that the operation of the Bitcoin industry will continue to consume huge amounts of energy.

The benchmark scenario, based on the scenario results of the BBCE model, shows that as long as bitcoin mining remains profitable in China, the energy consumption and carbon emissions arising from bitcoin industry operations will continue to increase. This is mainly due to the proof-of-work competition mechanism, and Bitcoin miners may have higher quality miners to increase block rewards. To tackle this problem, the researchers suggested that policy makers create separate regulations for the bitcoin industry to better manage and control carbon emissions in China.

# Bitcoin is a carbon-intensive industry

Through scenario analysis, the researchers found that policies that change the energy consumption structure of mining activities could be more effective than imposing fines or taxes directly. Overall, the Bitcoin industry’s per capita GDP carbon emissions far exceeded China’s average industrial carbon intensity, demonstrating that Bitcoin blockchain operation is a carbon-intensive industry.

According to the scenario, bitcoin miners’ margins are expected to drop to zero in April 2024, meaning that bitcoin miners will gradually stop mining in China and move their business elsewhere. However, it should be noted that the entire relocation process does not occur immediately. Miners with high sunk costs will operate longer than miners with low sunk costs. So, by the end of 2030, the overall energy consumption associated with Bitcoin mining is still positive and almost all miners will slowly move elsewhere by then.

Carbon tax policies are generally recognized as the most effective and widely implemented carbon emission reduction policies. However, simulation results predict that the effect of the carbon tax on the bitcoin industry will be limited.

# Blockchain technology is innocent

In general, even with various policy interventions such as restrictions on bitcoin mining permits, changes in the structure of miners’ energy consumption, and enforcement of carbon emission taxes, the carbon emission intensity of the Bitcoin blockchain still far exceeds the average emission intensity of the Chinese industry. These results show that Bitcoin, a typical example of blockchain technology, is a carbon-intensive industry that cannot be viewed only lightly in the future.

However, the blockchain technology represented by bitcoin, the decentralization characteristic and the consensus algorithm model as a trust mechanism still provide useful and innovative new solutions for various industrial developments and remote transactions. In recent years, blockchain technology has also been adopted and adopted by traditional industries with the aim of optimizing processes such as fintech, smart contracts, international commerce and trade, and manufacturing operations.

Central banks in each country are planning and designing a central bank digital currency (CBDC), that is, digital money electronic payment (DCEP), based on blockchain technology, which is expected to gradually replace the current banknote-based cash (M0). do. As blockchain technology is widely used and applied, new protocols must be designed and controlled in an environmentally friendly way. These changes are essential to ensure the sustainability of the network. No one would like to see disruptive and promising technologies become carbon-intensive technologies that hinder global carbon emission reduction efforts. The exploration and research on how to compromise this is therefore worthwhile.

On the other hand, unlike existing industries, the carbon emissions of industries such as Bitcoin blockchain operation are not included in the calculation of GDP and carbon emissions at present.

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