Today in Norilsk, the world’s largest northerly city, the weather is minus 32 degrees celsius, about average for the region where conditions can reach 50 below.
The Russian city within the Arctic circle is known for its heavily polluting nickel mines, and acid rain and smog are common.
But now, a new kind of mining is in town. Bitcluster, a Russian cryptocurrency start-up, has erected a giant scrap metal B — for Bitcoin — above a set of warehouses packed full of 5,000 digital coin mining rigs.
The benefit of being this far north, according to Bitcluster, is energy is cheap, around 0.03 cents per kilowatt hour since the city has its own power supply. It is also deathly cold, which cuts the cost of ventilating and cooling its mining kit as it heats up.
“We delved into the study of electricity tariffs in this Arctic region and decided to do it,” says Sergey Arestov, co-founder of Bitcluster. “We devoted the entire year 2020 to the active construction of the data center, and despite the pandemic, we managed.”
While it may seem like an extreme way to ensure cost-efficient cryptocurrency, it also exposes the vast energy demands needed to mint new Bitcoin — and the growing environmental cost.
Bitcoin miners use increasingly powerful, specially-designed computer equipment, or rigs, to verify bitcoin transactions in a process which produces newly minted bitcoins.
“If you are using Bitcoin you do not see the environmental cost,” says Alex de Vires, founder of Digiconomist which tracks Bitcoin emissions. “There are 319kg of carbon emissions per transaction, equivalent to watching over 50,000 hours of YouTube or 700,000 Visa transactions. It is an insane amount.”
Cryptocurrency mining is the hidden process that powers the transactions that keep accounts on cryptocurrency apps such as Coinbase ticking along. The process is built into the very fabric of digital currencies such as Bitcoin.
In its simplest terms, Bitcoin transactions are verified by a huge network of independent computers. They perform complex calculations in a process called Bitcoin mining. Once the calculation is complete, the network is rewarded by new Bitcoin.
“You can compare it to a lottery. Every ten minutes a ticket is drawn, and lucky miners will have the winning ticket,” says, Michel Rauchs, of the Cambridge Centre for Alternative Finance.
At first, mining was easy. It could be done in a bedroom with a graphics-processing computer. There were almost no Bitcoin miners out there, so early miners were able to mint thousands of coins.
Now, there are thousands of miners and very few Bitcoins left. This makes the calculations vastly more difficult. The more difficult the transaction, the more computing power is needed, with factories filled with graphics processors and “Antminer” rigs crunching numbers and burning through power.
All this takes electricity. According to Digiconomist, around 77 terawatt hours of electricity annually are needed by the Bitcoin network, roughly the electricity used by Chile, emitting 37 megatons of carbon, the same as New Zealand.
Miners have turned to wind or geothermal energy power to avoid traditional power costs.
Peter Wall, of London-listed miner Argo Blockchain, says its own operations rely on hydroelectric power in Canada and the US. He says: “The sector is still maturing and I expect we will see a lot of miners follow our lead.”
In Iceland, meanwhile, Genesis Mining, led by chief executive Marco Streng, has been harnessing the northern nation’s geothermal energy to power its data centres.
“Electricity consumption plays an immense role,” says Streng. “Iceland and the nordic countries are perfect in this regard. It is a cool climate and we can get close to renewable energy sources.”
However, most of Bitcoin’s mining power is believed to come from fossil fuel sources. China-based Bitcoin miners control more than 60pc of all Bitcoin processing power, and coal accounts for half of Chinese energy consumption.
Bitcoin mining has even been blamed for blackouts in Iran, where the power consumption of cryptocurrency mining firms has increased demands on its electricity network. Winter smog blanketing its capital city Tehran has become a major issue, with most power coming from natural gas or oil.
While Bitcoin’s carbon emissions may be troubling now, they are likely to get worse, says De Vires.
Every time the price of Bitcoin spikes — the coin hit $42,000 earlier in January — demand for mining goes up. If its price is higher, miners stand to make more profit and so can bring more processing machines online.
In fact, the most popular Bitcoin processors, Antminers made by China’s Bitmain, are expected to be out of stock until August due to demand and are now selling for more than $3,700 each having doubled in price. Such hardware could ultimately become a problem of its own as e-waste mounts, says De Vires.
Cambridge’s Rauchs adds that as more traditional funds invest in Bitcoin they are going to have a trouble explaining its environmental problems to investors. “This could become a problem that might push Bitcoin more towards renewables. Some Bitcoin proponents claim it is driving innovations in renewables, but I find that a bit farfetched.”
Rauchs adds: “On the one hand, proponents of Bitcoin say it could save the world, but on the other there are those who say it has no utility and is contributing to climate change. Both are quite extreme, but the truth is probably somewhere in the middle.
“My personal view is Bitcoin’s network certainly has value. And if you look at its carbon emissions, they seem enormous, but in the US, home appliances just left on standby consume twice as much as Bitcoin in a year.”
Streng says he believes mining can be used for energy innovations, since mining kit can easily be moved close to renewable plants. Genesis, for instance, has been working on a renewables project in Sweden that can recycle waste data centre energy to warm greenhouses for crops.
De Vires, meanwhile, believe that although the problem with dirty Bitcoin production is mounting, there could be alternatives. Its “proof of work” system requires huge amounts of power, but there are other decentralised technologies being developed.
While would require “broad consensus” from the network to change, “it is still, in the end, software”.
For now, however, such change is unlikely. De Vires conservatively estimates the energy demands of Bitcoin could double in 2021. As the cryptocurrency provokes more mainstream interest, its miners are going to be digging deeper.
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