Banking & Finance A gleam of light, deep in the murky crypto mines By Harry Clynch September 14, 2022 NASA The Belgian city of Liege, photographed from the International Space Station in December 2012. Bitcoin mining consumes more energy each year than all the domestic electricity users in Belgium Bitcoin mining consumes more energy each year than some countries Ethereum about to switch to system expected to slash energy use A shift to greener mining practices will attract investors to crypto Bitcoin is “fuelling the climate crisis,” says Greenpeace. And it’s not just environmental groups that think so. The White House has just published a report on crypto mining – the energy-hungry computing process that makes cryptocurrencies – that calls on the industry to do better. The global mining operations of bitcoin consume around 96.5 terawatt-hours per year, according to Cambridge University’s Bitcoin Electricity Consumption Index – more than the annual domestic electricity consumption of Belgium; slightly less than the consumption of Pakistan. These eye-catching statistics have prompted debate over whether digital currencies are sustainable in an era when companies are expected to comply with more stringent environmental standards and governments all over the world are setting net-zero targets. The beginner’s guide to cryptoCentral banks go digital, bit by bitDeFi could go mainstream, with a little help from Gulf regulatorsShould your business jump on the bandwagon? Regardless of the benefits of digital currencies, how can one advocate widespread adoption when the Digiconomist website suggests that a single bitcoin transaction has the same carbon footprint as 1.7 million Visa transactions? Some crypto players have taken these criticisms on board – and are trying to do something about it. This month, the blockchain of the world’s second-largest cryptocurrency, ethereum, will be upgraded as part of an initiative called the Merge. Like bitcoin, ethereum has a huge carbon footprint: the company itself quotes a figure that suggests it consumes roughly the same amount of energy each year as the Netherlands. The Merge will shift the ethereum network from an energy-intensive digital ledger system known as “proof of work” – also used by bitcoin – to a more efficient “proof of stake” model. According to the Ethereum Foundation, this will reduce the amount of energy the network uses by around 99.95 percent. The White House has also pointed out that proof of stake “could dramatically reduce overall power usage to less than 1 percent of today’s levels”. Abdulla Al Ameri, a crypto specialist who founded a blockchain-focused venture capital fund in the United Arab Emirates, believes the Merge could be a turning point for the industry. He told AGBI that “crypto mining is evolving day-by-day”. Cargo containers housing computer servers are seen at a bitcoin facility near a power station in Gldani, Georgia. Crypto mining can consume large amounts of energy. Picture: Thomson Reuters Foundation/Umberto Bacchi He believes the industry does recognise the need to shift to more sustainable models, suggesting that the Merge is prompting a wider reconsideration of crypto mining practices. “People are turning to greener forms of energy,” Al Ameri said. “There’s lots of innovation in solar and wind. Last month, there was even a small entity trying to use manure [to power their crypto mining farm]. The innovation is amazing.” One solar innovator is Bijan Ali Zadeh Bijan, co-founder of Phoenix Technology in Dubai. Phoenix has operational mining farms in Russia, Canada and the US – and is now building one of the largest farms in the UAE, which will be entirely powered by solar energy. He argues that crypto companies have to shift to greener practices if they want to grow. “When you go to the big financial firms and you want to raise money on a corporate level, ESG [environmental, social and governance standards] is a mandate,” Bijan said. “If you’re not ESG compliant, you cannot get investment from the big firms.” He estimates that about three-quarters of professional bitcoin miners – those operating as part of a medium or large-scale enterprise – are already using some renewable energy. The key is ensuring that green technology becomes widely available to smaller companies and individuals, something that could happen as competition increases and costs come down. “We believe the industry is going in a direction [such] that everybody in the next five years will have to be ESG compliant,” Bijan said. “The crypto space is going further and further with its push on ESG and the climate.” In its current form, crypto clearly raises difficulties for banks and investment companies. Candriam, a global asset management firm, said last year that exposure to crypto could cause “severe damage” to investors’ ESG credibility. The net-zero targets set by governments in the Middle East and elsewhere could even be deterring public authorities from supporting the crypto industry’s development. If the ethereum upgrade is as transformative as promised – and crypto firms continue to shift to greener mining practices for bitcoin and other currencies – this may pave the way for a much greener industry. In turn, this could facilitate greater institutional investment in a sector that has been limited by its poor environmental credentials.