Can Bitcoin’s latest halving usher in a greener future for mining?

Among people who own and trade Bitcoin, the halving event is generally seen through the lens of market dynamics—speculation about how reducing the block reward will affect the cryptocurrency’s price. Yet, the true significance of this event may lie elsewhere.

This year’s halving could mark a pivotal shift towards environmentally sustainable practices within the Bitcoin mining community, which has previously taken a lot of flak for its high energy demands fueled by dirty fossil fuels.

Bitcoin halvings and cycle highs

In April, the Bitcoin network executed its fourth-ever “halving,” slashing the rewards given to miners from 6.25 to 3.125 Bitcoins. Historically, halvings tend to be followed by substantial price increases. After the 2012, 2016, and 2020 halvings, the price at which people could buy Bitcoin increased by approximately 93, 30, and 8 times, respectively. This pattern has left many investors hopeful for future gains.

Bitcoin halving is an event that occurs approximately every four years, where the reward that Bitcoin miners receive for verifying and adding new transactions to the blockchain is cut in half. This is a built-in feature of the Bitcoin protocol to control inflation and extend the distribution of new bitcoins over time. Originally, miners received 50 bitcoins per block; however, after each halving, this reward decreases by 50%, ensuring that the total supply of bitcoins caps at 21 million. Halving influences the Bitcoin economy by potentially increasing scarcity as the reward for mining decreases, which some believe can lead to an increase in Bitcoin’s price, assuming demand remains steady or increases.

However, the reduction in mining rewards poses a significant challenge for mining operations.

“All else equal, the halving will cut industry revenues in half, triggering a wave of consolidation and business closures, while (hopefully) rationalizing the network hashrate and industry capex, which is ultimately good for the remaining operators,” JPMorgan analyst Reginald Smith said in a recent note to investors.

The Shift Toward Renewable Energy

The latest Bitcoin halving puts a lot of financial pressure on miners, incentivizing efficiency to maintain profitability. But what’s bad for crypto miners may be a boon for the environment. That’s because pressure is fostering a significant shift towards renewable energy sources among miners, which are generally cheaper in most countries. Despite the persistent use of fossil fuels, a growing number of mining operations are turning to alternatives such as solar, wind, and geothermal energy.

Keeping Bitcoin running currently consumes as much energy as Argentina, a country of 45 million people. If it were a country, Bitcoin mining would be ranked 27th in energy use globally.

Crypto mining is the process where a network of computers runs code work to ensure that transactions are legitimate and added correctly to the blockchain. Mining is also how crypto is entered into circulation. Computers compete to be the first ones to validate a series of transactions called a block and add it to the blockchain. This process is highly energy-intensive.

Overall, Bitcoin consumed about 173 terawatt hours of electricity in 2020 and 2021, about 60% more than the energy used in 2018 and 2019. To make matters even worse, much of this mining happens in countries that have abundant, cheap, fossil fuel resources. Bitcoin mining emitted about 86 megatons of carbon due to the use of fossil fuels in Bitcoin-mining countries.

A Green Opportunity

Renewable energy not only mitigates the environmental impact but also aligns with the economic imperatives of mining. The high initial costs of renewables are offset by the low ongoing expenses, as natural forces like sunlight and wind bear little operational cost, apart from maintenance work.

Last year, researchers released a paper indicating that Bitcoin mining could be profitable for renewable energy initiatives under certain conditions. Specifically, the research highlighted scenarios where mining utilizes excess renewable energy from new solar and wind projects that are pending grid connection.

Despite the promising shift to renewables, challenges remain. The intermittent nature of sources like solar and wind can pose grid-balancing issues. However, in regions rich in renewable resources, Bitcoin mining is proving to be a surprisingly flexible solution.

As the industry progresses, the environmental and economic benefits of renewable energy are becoming increasingly apparent. With continued advancements and increasing adoption of renewable energy, the future of Bitcoin mining may make a U-turn towards sustainability.

However, it all depends on the price of Bitcoin. The current price is around $70,000 today. If it keeps surging, then miners could be incentivized to mine Bitcoin with little regard for energy costs, which means also using fossil fuel energy.

So while the price of Bitcoin often captures the most attention during halving events, the real story may be the transformative shift towards sustainable mining practices. We can only hope this is the case.