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Bitcoin miners make US an industry leader after China crackdown as climate fears weigh

Yahoo! Finance logo Yahoo! Finance 10/15/2021 David Hollerith

The U.S. now leads the world in Bitcoin mining, according to data from the Cambridge Bitcoin Electricity Consumption Index (CBECI), which tracks Bitcoin’s energy consumption by geography.

According to data added to the index, the United States currently makes up 42.7% of the Bitcoin network’s "hashrate," a metric unit that measures how much power the Bitcoin network consumes. Up 14%, the growth in America's hashrate — also known as hashpower — reflects the changing geopolitical environment of Bitcoin mining, at a time when rising concerns about the environmental impact of such activity are dogging the industry.

The industry shift follows the Chinese government’s crypto mining ban back in May, which sent shockwaves across the cryptocurrency industry and put temporary pressure on Bitcoin (BTC-USD). Mining operators located in China were forced to exit the country as a consequence.

For relative crypto veterans like Josh Goodbody, the move of Bitcoin miner operators from China to the U.S. is “an overwhelmingly positive development for the future of Bitcoin.”

A year ago, mainland China dominated Bitcoin’s total hashrate, making up 89% according to CBECI figures. That proved a worry for Bitcoin companies and investors according to Goodbody, a financial markets and derivatives lawyer who serves as COO of the decentralized finance (DeFi) infrastructure protocol Qredo. 

“In many ways this has been a swift resolution to the long-standing concern that China contains an excessively large concentration of Bitcoin’s hashpower that is fully exposed to national and local governments with hostile attitudes towards crypto assets,” said Goodbody, who's worked in the past for crypto exchanges like Huobi and Binance.

Within China, Bitcoin mining a year ago relied on a mix of cheap renewable power available below hydroelectric dams — especially in its Sichuan province — in addition to fossil fuels in Northern provinces. That proved problematic, when the country’s dry season caused hydroelectricity to work less profitably.

Also measured by the hashprice, profitability for a bitcoin miner can be measured by the Hashprice Index, a figure tracked by the crypto mining pool and analytics firm, Luxor Mining. While the metric dwindled in September, it has since rebounded as Bitcoin inches closer to its 2021 highs near $65,000.

Since Bitcoin’s price has recovered from its mid-July bottom, less intense competition meant higher profitability for remaining miners, due mainly to the slow relocation of Chinese mining operators. In North America, industry professionals dubbed this period as the “golden age” for Bitcoin mining

Bitcoin and the environment

SpaceX founder and Tesla CEO Elon Musk looks on as he visits the construction site of Tesla's gigafactory in Gruenheide, near Berlin, Germany, May 17, 2021. REUTERS/Michele Tantussi © Provided by Yahoo! Finance SpaceX founder and Tesla CEO Elon Musk looks on as he visits the construction site of Tesla's gigafactory in Gruenheide, near Berlin, Germany, May 17, 2021. REUTERS/Michele Tantussi

Video: Crypto Corner: How bitcoin mining works (Yahoo! Finance)

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But energy consumption remains one of the most hot-button issues surrounding Bitcoin, a highly volatile cryptocurrency with a market capitalization that's currently more than $1 trillion.

The currency's current total energy consumption is 99 TeraWatt hours (TWh) per year, which is nearly as much as gold mining (131 TWh per year). By comparison, refrigerators eat up 104 TWh per year, and TVs in the U.S. consumer 60 TWh per year.

With the world becoming more environmentally conscious because of climate change, Bitcoin's energy consumption has come under increased scrutiny. 

Earlier this year, billionaire entrepreneur and Tesla (TSLA) CEO Elon Musk momentarily sparked a furor after he reversed a decision to let his electric vehicle company accept BTC as payment. At the time, Musk cited environmental concerns over the amount of fossil fuels the Bitcoin mining industry uses. That same month, China also used environmental fears to ban crypto mining.

A September 2020 survey from the University of Cambridge found that 39% of Bitcoin mining is powered by renewable energy — significantly better than the 12% of renewable energy that makes up total energy usage in the U.S. for the same period, according to data compiled by the U.S. Energy Administration.

But the specialized nature of mining, in addition to a legitimate request for more transparent data, has made the discussion of Bitcoin’s climate impact both opaque and polarizing. 

Observers say that because miners compete for profit, they are incentivized to seek the cheapest and most reliable energy source available. The contingent point is whether the energy source available to mining operators comes from renewables, or fossil fuels.

Over the past two years, a number of energy producers with slowing profitability that burn fossil fuels have struck deals with Bitcoin mining companies.

These include Greenridge Generation, a power plant in New York’s Finger Lake region which emits methane as a byproduct of natural gas, and now hosts over 15,000 Bitcoin mining computers, also called ASICs. Like other nonrenewable energy producers, the plant purchases carbon credits to offset its emissions.

However, market players like Ayesha Kiani, VP of Business Development at the crypto-focused quant investment firm, LedgerPrime, told Yahoo Finance that more mining coming to the U.S. is a good thing. For comparison, Kiani pointed out, other countries might not have the technology and existing infrastructure to make Bitcoin mining more renewable.

“The US government is also actively working on the climate crisis, and this also helps in coming up with a renewable solution sooner than later,” said Kiani.

In August, BlackRock (BLK), the world’s largest asset manager, which also has taken a proactive move into making ESG investing a critical part of its $9 trillion portfolio, put $44 million into the publicly traded crypto mining companies Marathon Digital Holdings (MARA) and RIOT Blockchain (RIOT). 

The crypto sector has also initiated two U.S. focused initiatives: the Bitcoin Mining Council and Crypto Climate Accords, which aim to improve the transparency and environmental impact from crypto mining.

All Markets Summit © Provided by Yahoo! Finance All Markets Summit

David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.

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