The cryptocurrency mining industry continues to grow daily, supported by a continuous stream of new and more than efficient hardware. China is at the forefront of the industry, just equally environmental concerns loom, the sustainability of their success is coming into question.

Mining chip manufacturers, the nearly prolific of which are based in Mainland china, piece of work tirelessly to develop ever-more-powerful processors. With each new iteration, these high-capacity chips require more than and more than energy to operate. Newer mining machines render old ones obsolete, resulting in an increasing flow of electrical waste, the majority of which goes unrecycled.

Where to mine?

Fiddling doubt remains that proof-of-work blockchain networks, like Bitcoin, are environmentally unsustainable in their electric current country. Figurer scientist Hal Finney — believed to be one of Bitcoin's original developers — noted the potential trouble of CO2 emissions resulting from widespread Bitcoin implementation dorsum in 2009, just was unable to offer a solution before his death in 2022.

Nowadays, the Bitcoin network has an estimated annual electricity consumption of 73.12 TWh, equivalent to that of Austria or the amount of electricity required to power six.seven 1000000 households in the U.s.. The annual carbon footprint this creates is almost 35,000 kilotonnes of CO2 — or 308 kilograms for each individual transaction.

As an illustration, 1 kg of uncompressed CO2 fills approximately 2 standard bathtubs, and Bitcoin completes vii transactions per second on average — that'south over 4000 bathtubs worth of CO2 created every second past the Bitcoin network.

The second Annual Cryptoasset Benchmarking Study released past Cambridge University estimates that only 28% of crypto mining energy comes from renewable sources (as of December 2022).

Since Chinese mining farms contribute to approximately lx to 70% of this energy consumption (and resultant pollution), the state is a key talking point in any discussion regarding the sustainability of cryptocurrency mining.

What makes Red china so attractive for crypto mining?

Bitmain and Canaan Creative are the main mining bit manufacturers in China, with Bitmain producing 75% of all cryptocurrency mining hardware. Equally mining has become more expensive over time, Bitmain has launched the Globe Digital Mining Map to assist mining firms around the earth find the most affordable areas to operate. Canaan Creative recently filed for an IPO that will go ahead this month, aiming to get the company listed on Nasdaq under the ticker Tin. Similarly, Bitmain is as well planning an IPO.

Related: Bitmain'south New IPO Attempt in Jeopardy as In-Fighting Goes Public

Cathay's affordable free energy is the main reason the country has go a become-to destination for industrial-scale cryptocurrency mining facilities. Unfortunately, equally the Cambridge report outlines, much of the country's depression-cost and affordable electricity still comes from coal ability, making it one of the more environmentally unfriendly places to mine.

Improvements are being made, however, with the Chinese province of Sichuan beingness promoted for its cheap, environmentally friendly hydroelectric ability. The heavy rainfall that the province usually receives helped it to produce 78.2 gigawatts of power terminal year — enough to power almost 65 million Chinese households. The excess power means Sichuan province can sell electricity for five times less than what major cities similar Guangzhou and Beijing charge.

"Sichuan should study farther well-nigh how the province's cheap hydropower resource can attract digital currency-related businesses," said former Securities Regulatory Commission vice-chair Jiang Yang, speaking at a meeting in Beijing final calendar month.

Is crypto mining in China sustainable?

In April this year, the National Development and Reform Commission of People's republic of china released a draft paper listing cryptocurrency mining equally ane of several potential activities to stage out due to a lack of regulation and environmental concerns.

As a effect, major Chinese mining firms began looking abroad for countries that offered similarly affordable electricity, with industry leader Bitmain recently launching a 50MW Bitcoin mining farm in Texas, dubbed the largest in the world.

All the same, last calendar week, the NDRC decided to remove crypto mining from the potential ban list following a call by Chinese President Xi Jinping for the country to embrace blockchain technology. The regime fabricated information technology articulate that this does not indicate support for Bitcoin or other cryptocurrencies and trading in the land remains illegal.

While the news is undoubtedly a positive boost for the crypto mining manufacture, it alone does non promise a bright futurity. In order for miners to remain incentivized to continue mining, they don't just need permission — they need profit. As the global climate crunch becomes an increasingly hot topic, pressure is being placed on China to reduce its carbon emissions and develop greener free energy — free energy which is often less affordable.

Can cryptocurrency mining in Communist china remain profitable while also befitting to environmentally sustainable energy requirements?

Professor Klaus Hubacek, of the University of Maryland'due south Geographical Sciences department, told Cointelegraph that profitability and environmentally sustainable energy use are mutually exclusive:

"No, it's nowhere near sustainable. The energy mix is highly coal-dependent although that has improved somewhat over the last couple of years and is predicted to farther reject from its tiptop in 2007 (80% of electricity was from coal) to currently nigh 2/3 being coal to predicted twoscore% in 2040 (which is still pretty loftier — east.k. comparable to the energy mix of Deutschland today; which is also pretty bad as some countries are entirely or close to renewable electricity.)"

The toll of mining Bitcoin

In Adam Hayes' 2022 paper, "A Cost of Production Model for Bitcoin," the author equates Bitcoin production to a competitive marketplace, noting that miners will (in theory) "produce until their marginal costs equal their marginal product." Electricity costs make upward nearly all of these marginal costs once the initial infrastructure and equipment have been paid off. Any change to the cost of electricity necessitates a reassessment of profitability.

Considering that Bitcoin'south hash rate has increased well-nigh every year since its cosmos and electricity costs have remained largely unchanged, one tin surmise that mining equipment is becoming increasingly more powerful and efficient.

However, this growth correlates with a stable cost of energy, and there is piddling testify to suggest information technology can maintain profitability if energy costs increase significantly. In the event that free energy becomes unavoidably more than expensive, several factors tin can be changed to amend profitability.

Changing the Bitcoin algorithm

Various ways to meliorate efficiency past changing the core Bitcoin algorithm have been suggested in unlike forms over the years. If the number of transactions per 2nd could be increased to a level closer to that of the Visa network's 1700 TPS, and then the required energy would drop considerably. On paper, if the time taken to generate a cake can be reduced or the block size can be increased, then the network becomes more energy efficient.

Withal, despite much discussion regarding these changes and several attempts to implement an altered version of Bitcoin, nobody has managed to discover an effective solution. This is mostly due to the nature of a decentralized peer-to-peer network, which takes a long time to relay new data to Bitcoin's 10,000+ nodes effectually the world.

Improvements in solar and current of air power

The costs associated with using renewable energy similar solar and current of air ability take been decreasing steadily over the past decade. In early on November this twelvemonth, the Financial Times reported that these forms of renewable energy had "reached parity with average wholesale prices in California, Red china, and parts of Europe." Furthermore, past the cease of adjacent year, renewable energy costs across most of western Europe are expected to fall beneath wholesale market prices.

Falling cost of solar wind power

Communist china is the earth's largest market for solar farms, known as photovoltaic (PV) power plants, just experienced an 11% reduction in capital expenditure over the by six months due to final twelvemonth'south cutback on public solar subsidies.

At the beginning of 2022, in a bid to improve its solar energy parity, the NDRC, in collaboration with the National Energy Agency, unveiled plans to drive investment into subsidy-free PV projects. In many cases, land use fees have been waived to incentivize development and grid operators accept been ordered to prioritize dispatch for PV projects.

Despite its efforts, Mainland china still remains the world's largest coal user and its imports increased by almost 10% this year, partially prompted by the ongoing China–U.S. trade war, which has forced China to investigate cheaper fuel prices abroad.

Nonetheless, a study from the International Energy Agency predicts that solar and wind will be almost entirely responsible for a fifty% increase in global renewable energy capacity past 2024. Dr. Fatih Birol, Executive Director at the IEA, said:

"Renewables are already the world'due south second-largest source of electricity, but their deployment still needs to advance if nosotros are to accomplish long-term climate, air quality, and energy admission goals."

While meaning steps are beingness made to reduce costs associated with solar and wind power, these toll reductions are slowing down while the cost of mining Bitcoin continues to increase. Professor Hubacek believes that, "further investment and policy support for decarbonization of the electricity sector and the overall economy" is required, including "an increase in energy efficiency and reduction of consumption (e.g. lifestyle changes)."

Bitcoin halvening

Mining Bitcoin could get less profitable later next year's "halvening," a predetermined event that occurs roughly every iv years in order to manage inflation. Sometime effectually mid-May 2022, the block reward for mining Bitcoin volition be automatically reduced from 12.v BTC to six.25 BTC, decreasing the profits associated with mining.

Related: BTC Miners: No More Basement Rigs, Greater Profits to Come

Historically, these events have resulted in a drop in hashrate as modest miners close downward unprofitable operations, which, in plow, results in a reduction in mining difficulty that eventually draws back old and new miners alike. The system is specifically designed to financially self-regulate in this manner, merely unfortunately, was never designed to self-regulate for free energy efficiency.

Is in that location a time to come for the industry?

Sustainable or non, cryptocurrency is not going anywhere — whether governments similar it or non. The Bitcoin network in particular presents a problem, considering not only is it unsustainable, merely information technology is at present so big that it has become difficult to control or replace. However, so long every bit affordable electricity is available, mining of Bitcoin will continue unabated — whether in Red china or elsewhere.

Over the next few years, further pressure volition exist placed on governments and corporations to adhere to stricter environmental regulations, which will stretch their budgets to the limit. For Bitcoin to emerge unscathed, both mining equipment and energy sources in China will need to get greener and more efficient. Fortunately, these areas are beginning to show promise.