How do we solve bitcoin’s carbon problem?

When bitcoin mining company Bit Digital started shipping its energy-intensive computers out of China in early 2021, eyebrows were raised. "A lot of people thought we were being overly paranoid," says chief strategy officer Sam Tabar, who helped relocate all of the company's machines to the US and Canada.

But the company's paranoia paid off. China's bitcoin mining ban last summer, driven partly by environmental concerns, sent the industry spinning into chaos. The announcement sparked a fire sale of the computers used to power bitcoin, with mining companies scrambling to ship more than 2m of the machines out of China. They arrived by the crateload in countries like the US, Russia and Kazakhstan.

China was home to about 65% of global bitcoin production in 2020, according to an estimate by the University of Cambridge. Although the country banned bitcoin mining for a number of reasons, one was the massive energy consumption bitcoin required and the impediment that posed to China's goal of carbon neutrality by 2060.

Chinese regulators aren't the only ones concerned by bitcoin mining's environmental impact. The latest calculation from Cambridge University's bitcoin electricity consumption index estimates that bitcoin mining consumes 133.63 terawatt hours a year of electricity - more than the entire countries of Ukraine and Norway. This figure keeps growing: bitcoin mining currently uses 66 times more electricity than in 2015.

Bitcoiners like to say that China's ban proved the resilience of the network. Although the "hashrate" - a measure of the global computing power dedicated to mining bitcoin - plummeted around the time of the crackdown, it had recovered by the end of the year. But bitcoin's energy consumption now poses an existential threat to the mining industry, with a growing number of lawmakers around the world eager to follow China's lead.

Kazakhstan initially welcomed China's stranded bitcoin miners as a potential boon to the economy. ​​Lured by the promise of lax regulation and cheap coal power, an estimated fifth of global bitcoin mining production migrated there. But bitcoin's rapacious energy demand created intense pressure on Kazakhstan's ageing energy grid this winter. The threat of emergency blackouts soon led the government to permit grid operators to limit power supply to miners, leaving some facilities without power.

In theory, a greener bitcoin is possible. The digital coin's energy consumption is tied to its underlying "proof-of-work" protocol (PoW). This is the decentralised consensus mechanism that secures the currency and prevents fraud or hacking, in the absence of oversight from banks or another centralised body. The role of bitcoin miners is essentially to verify transactions on the blockchain.