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Muaath Alaraj
January 11, 2018
Industry Analysis Paper
CST300

Crypto Mining & the Environment: Will Pressure Lead to a Collapse?

Bitcoin has taken this decade by storm and it is here to stay. The benefits of both the

stock market style exchanges and decentralization have made this an option for both the wealthy

and the average joe. Anyone can set up a mining farm in their home and benefit from passive

income. Mining, however, has come at a major cost to the environment, consuming as much

electric energy as 159 countries. This steep energy consumption is adding pressure on nations to

quickly invest in renewable energy resources. Miners seek large profits and more efficiency from

machines, which pushes the market in the direction of higher energy consumption. In this

analysis, we will explore possible solutions to the unsustainable levels of energy consumption

caused by mining. Can bitcoin lead to job growth and will the industry continue to grow, or is it

doomed for inevitable failure? Will the anticipated growth also lead to a bright future for

computer programmers in the bitcoin industry as well?

Bitcoin was launched in 2009 and rumored to have been invented by a man named

Satoshi Nakamoto. Bitcoin is a peer to peer coin which is digital and does not have a physical

form. In his comprehensive Bitcoin handbook, otherwise known as “white paper,” Nakamoto

explains that a “a purely peer-to-peer version of electronic cash would allow online payments to

be sent directly from one party to another without going through a financial institution,”

(Nakamoto, 2009). Bitcoin’s goal is to avoid centralized institutions such as banks and

governments. The currency seeks to empower individuals rather than continuously feeding

already powerful institutions. Every transaction goes through a network of miners who take a
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small fee for completing the transaction. Instead of walking into a store and paying a tax to the

government or corporation when purchasing a product, you instead pay a much smaller fee to a

miner. The first bitcoin transaction in the form of a payment of one dollar took place in 2009,

which at the time was the equivalent of 1309 bitcoins, (Malviya, 2017). Today, those bitcoins

together are worth over 10 million dollars. Nobody expected the value of crypto currencies to

rise so sharply. Every transaction goes through a network of nodes, otherwise known as a

blockchain. There is proof of work and a timestamp on every transaction, which is stored and

secured for later use if necessary. Proof of work refers to the timestamp and confirmations

received from miners on the validity of the transaction. Every transaction can be traversed and

viewed at a later time.

As the prices of varying cryptocurrencies rose, people saw promise for what was once a

highly doubtful currency, and the market quickly grew. Prices were calculated via each

currency’s “white paper,” which stated that the price was controlled by usage of the coin and the

difficulty of mining the coin. Difficulty is calculated by the overall network hashrate. There are

three main factors that lead to an increase in the mining difficulty of any given coin. When more

machines mine in the network, the hashrate increases, thereby increasing the difficulty.

Difficulty can also rise if a better and more efficient miner is introduced into the market. The

difficulty continuously increases every 3 months, making the job of a miner an uncertain risk.

This puts pressure on manufacturers to continue to manufacture more efficient machines with

higher hashrates. Miners are rewarded for completing a block of transactions; the current reward

is 25 Bitcoins per block. Every few years, a halving event takes place, in where the reward per

block is decreased by a half. The next halving event is set for 2020 and the reward per block will

be set to 6.25 Bitcoins per block, half of the current reward of Bitcoins per block (Kar, 2016).
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This can force many people out of the bitcoin mining network. The cost of mining stays

relatively the same because it is dependent on cost of electricity, but the profitability drops over

the life cycle of every mining machine. This further increases the demand for more efficient

machines that will continue to consume more and more energy. This cycle can worsen the

environmental footprint of mining on our planet.

When more people join the mining network it becomes increasingly difficult to mine

bitcoin. So devices are manufactured to out-mine another device and the competitiveness is

cut-throat. If a certain mining device is more efficient at mining bitcoin and it floods the market,

all other devices slowly begin to mine less and less. The key term is more efficient but that

doesn't mean a reduction in power usage. Miners want to mine as much cryptocurrencies as

possible and are less concerned with power consumption. So with each generation of

ASIC(application-specific integrated circuit) miners there seems to be a trend of increased power

consumption and increased algorithm hashing power; ASIC is just the term used for

technological chips that can only mine one specific algorithm. Currently there are dozens of

algorithms to mine and in order to mine a certain currency, you need a machine that can mine

that algorithm. Currently the most used mining machine manufactured by Bitmain uses about the

same amount of electricity as 12 modern refrigerators; upon further research investigated at

home with my mining machines. The modern fridge consumes about 350kwh a year, (Bluejay,

2012); the Bitmain Antminer S9 ASIC machine consumes over 4000kwh a year. "By July 2019,

the bitcoin network will require more electricity than the entire United States currently uses. By

February 2020, it will use as much electricity as the entire world does today,"(Griffin, 2017).

Mining is about to use as much electricity as the entire world, which could be a problem if we
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don’t invest in renewable energy resources. This could be the tipping point of cryptocurrencies

because both the halving event and energy consumption pressure could lead to a bursting bubble.

China is the first nation to begin responding to electricity consumption of bitcoin miners.

Many regions in China pay a meager price for electricity because it is heavily subsidized; as

expected, the largest mining facilities in the world are in China. The country, however, is

attempting to crackdown on miners because of their increased power consumption. In a country

heavily dependant on coal to provide electricity, the global warming effect is becoming of

paramount importance. Pollution and an increase of energy consumption is quickly deteriorating

the environment. “The country accounts for more than two-thirds of the world’s processing

power devoted to bitcoin mining. It’s also home to some of the world’s leading creators of

mining hardware,”(Huang, 2018). Present day China accounts for more than 60% of the miners

today and when china crackdown on bitcoin mining as a whole, it could dramatically reduce the

price of bitcoin and cause a major crash. Bitcoin is dependant on its miners to complete

transactions. If the network of miners shrinks, it could cause the currency to be obsolete in its

usage. While miners may move elsewhere in the future, a short term crash seems very likely.

“Already, the Chinese government has effectively killed bitcoin trading in a country that once

dominated the global market. Soon, bitcoin mining could be the next to fall,”(Huang, 2018).

When bitcoin trading was banned in China, there was a crash in the entire market. The same can

happen if there is a crackdown on the mining industry as well.

In order to address climate change, we need to slow down emissions of CO2 which

bitcoin is increasing at a multiplying rate. There are multiple options such as hydroelectricity as

well as solar and nuclear energy. Currently, countries like China are forced to pollute in order to

provide energy because it is really expensive to do so otherwise. However, we are at a desperate

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point of no return and must invest in renewable resources on a much larger scale. When and if

China bans mining, many miners will be moving to other countries with cheaper electricity rates.

Canada seems to be the next hot destination for bitcoin mining. As a nation that has already

invested a lot of its resources on renewable energy, they could see a lot of pressure to continue to

push for renewable energy sources. If Canada solves this energy crisis correctly, they could be a

shining example of how to run electricity with a huge demand for bitcoin mining. We must

consider also that it can go the other direction and be another crash for bitcoin. Canada’s cooler

climates heavily reduce the cost of mining as they forgo the need to constantly cool the mining

rooms. This is another factor that points to Canada as a potential crypto mining hotspot in the

near future.

Mining electricity consumption can be reduced at the individual level. Many go to colder

climates to mine and use the miners themselves as heating devices instead of using an actual

heater. On the individual level, many miners attempt to cut costs and consumption of electricity

this way. Some companies even opted to manufacture a bitcoin miner that heats your water. In

areas that use electricity to heat water, that is a very plausible option, (Donelley, 2016). Miners

often invent better ways to improve airflow within the rooms they operate. For example, they

may put miners in an outdoor shed that has very good airflow. Many set up tubes to lead hot air

outdoors and bring in cooler air from the outside. These miners are incentivized to cut costs and

energy consumption that way.

The biggest hurdle for cryptocurrencies as a whole is the energy consumption and it

could be the end of it. The concept has already won the hearts of many, and investors are always

ready to trade on the market. However, the most essential part of the currency are the miners and

without them the market will not see growth or stability. IOTA is a currency seeking to resolve
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this blistering issue by using a technology called tangle. Tangle might get rid of miners as a

whole but could be the key aspect to the survival of cryptocurrencies. “The transactions issued

by nodes constitute the site set of the tangle graph, which is the ledger for storing transactions.

The edge set of the tangle is obtained in the following way: when a new transaction arrives, it

must approve two previous transactions,” (Popov, 2017). IOTA’s tangle ledger assures that as

someone’s device uses the currency, it must confirm two other transactions before its own

transaction is complete. That way we completely avoid the use of mining at all and there are no

fees when using this currency. An individual's phone or laptop will assist the transactions in

being completed while they use the currency. If this technology succeeds, miners would be out

of work but the carbon footprint on the planet would be greatly reduced. The thought of that is

very scary to miners which is why they would never adopt such a currency.

If cryptocurrencies survive this energy epidemic, it will be here to stay. There are

thousands of cryptocurrencies at the moment all with their own vision and projects. Ripple, one

of the top cryptocurrency companies, seeks to cooperate with central banks and is trying to sell

its technology to centralized companies. Ripple has already teamed up with American Express

and is pitching that cryptocurrencies are the future of payment methods, (Kotas, 2017). Many in

the community do not agree with this and are working towards independence from centralized

banks. Litecoin is focused on the speed of its transactions and small fees. Ethereum is focusing

on open source technology; Ethereum is ASIC resistant so the average person can benefit from

Ethereum by using the video card in their computer.

If these cryptocurrencies survive the job outlook looks really good. Companies like

coinbase who sell cryptocurrencies from actual fiat currency like the US Dollar continue to

employ workers. These exchanges need server maintenance and customer service
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representatives. Computer programmers design the websites and maintain the currency code.

Computer programmers release currencies that have certain goals and projects. Chinese

manufacturing of miners is also a booming business. All the ASIC mining machines are being

manufactured in China. If China were to crackdown on mining would that mean they would

crackdown on the manufacturing? Likely not, even if China were to crackdown the demand for

these machines are really high and they would continue to manufacture these machines for sure.

It seems that electricity and trading are China’s two main concerns with cryptocurrencies.

I would love to start my own mining farm one day. Currently I do mine Bitcoin and

Bitcoin Cash. I am seeking to expand into Siacoin in the near future. I want to own a warehouse

of these miners that will be powered by solar energy. It won't be my main focus but it will be a

side thing. If I were to expand on that Idea, I may even expand the farm into a cloud mining

platform for people. They would rent the machines and not have to worry about the cost of

electricity or the cost of expanding the infrastructure to handle it. I can use some web

development skills to design the website to be user friendly. I could even create a mining pool

and charge a small mining fee for using the pool. Many ASIC machines are programmed for

efficiency using hashing algorithms. This is a potential market for computer scientists and

computer programmers alike. Many companies are looking for a team to help improve their

algorithms. It seems however, that these jobs are likely to stay in China. Great opportunity for

programmers willing to live there and those understanding the languages spoken.

The industry has a ton of options for programmers. A programmer can work for

exchanges to help ensure that the services that traders depend on are continuously up. A

programmer can also design a cryptocurrency wallet that holds many different cryptocurrencies.

They can also work on platforms that withdraw and deposit money into banks. There are many
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companies that provide these services to a thriving community of many backgrounds. Whenever

there is a high volume of traffic, these sites tend to shut down and cant seem to handle the traffic.

“Similarly, when the price of Bitcoin fell 20% a week ago, users found themselves unable to buy

and sell due to what ​appeared to be technical errors​. ​Addressing the issue​ earlier this month,

Coinbase CEO Brian Armstrong wasn’t concerned. The company will continue “to invest

heavily to scale our platform,” (Shen, 2017). These companies are currently scaling at a higher

rate and this provides a lot of job opportunities for programmers. Any programmer who is

capable of writing code for front-end or back-end web development technologies should be able

to land a job with these companies. Many of these companies also support desktop and mobile

applications.

A programmer can literally get hired in almost any industry health, law, education,

business and even crypto. With the help of a computer science program at California State

Monterey Bay, I am presented with a chance into the behind the scenes action of

cryptocurrencies. The crypto market however, is very risky and has many obstacles in order to

solidify itself for the years to come. If we get past the energy consumption problem, the

cryptocurrency market will replicate the stock market and will last a very long time. These

currencies need to work on being more convenient and more available to purchase goods that

people desire. They need to be easily tradable into fiat currencies and continue to see their usage

rise. The technology has proven itself and it is time that our societies to prove they are ready for

such a radical change. Will nations respond to the increase in energy consumption with

renewable energy resources or will they stick with status quo? We can keep crypto only if we

can reduce its environmental footprint on our planet.

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References

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Bitmain Technologies Ltd. Antminer S9 Installation Guide. (2017, January). Retrieved from

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de.pd​f

Kroll, J., Davey, I., & Felton, E. (n.d.). The Economics of Bitcoin Mining or, Bitcoin in the

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