Energy Consumption

‘Don’t Mess with Texas Innovation’ — Advocates criticize bill removing crypto mining incentives

Lawmakers in a Texas Senate committee moved forward on Senate Bill 1751 on April 4, paving the way for a floor vote for the legislation some have labeled as against crypto miners.

Three crypto advocacy groups have launched a campaign in response to proposed legislation that would remove many incentives for miners operating in Texas.

In an April 10 announcement, the Texas Blockchain Council, Chamber of Digital Commerce, and Satoshi Action Fund called on Texas residents to reach out to lawmakers in opposition to the state’s Senate Bill 1751. The legislation, if passed, would amend sections of Texas’ utilities and tax code to add restrictions for crypto mining facilities.

The campaign, named “Don’t Mess With Texas Innovation” — a play on the state’s anti-littering slogan, which has been used by many lawmakers to describe government overreach — claimed many aspects of the mining bill were antithetical to free market principles. Currently, some crypto mining firms are allowed to participate in a program organized by the Electric Reliability Council of Texas (ERCOT), which compensates them for adjusting their load on the state’s power grid during periods of high demand.

“We need to send a strong message to policymakers that the people do not want protectionist policies that push innovation out of the market,” said Chamber of Digital Commerce founder and CEO Perianne Boring. “At a time when folks here are concerned with the economy, jobs, and a reliable energy grid headed into summer, this bill is the wrong proposal at the wrong time.”

Operations concerning Texas’ power grid have been under increased scrutiny from federal and state lawmakers and regulators since a massive winter storm in February 2021 left millions of residents without power — as well as running water — for days. Such conditions have also contributed to damage to certain miners due to burst water pipes.

Many experts said that it was unlikely crypto firms contributed to the energy crisis in Texas in 2021 due to them temporarily shutting down or scaling back operations as part of the ERCOT program. Some lawmakers, including Massachusetts Senator Elizabeth Warren, have probed ERCOT on the energy usage and potential environmental impact of crypto mining companies.

“Bitcoin mining companies were able to curtail 50,000 megawatt hours of electricity in July 2022 alone to respond to record heat and energy demand, ensuring that Texans could continue to cool their homes,” said the campaign. “No other industry can perform the same service as efficiently or effectively.”

Related: Texas lawmakers propose a gold-backed state digital currency

According to the three crypto advocacy groups, more than 22,000 people in Texas are employed by Bitcoin (BTC) miners. Some of the largest companies include Core Scientific, Riot Platforms, White Rock Management and Argo Blockchain — though Argo announced in December that it would be selling its Texas facility to Galaxy Digital.

Magazine: Crypto City: Guide to Austin

How Irish farmers turn cow dung into digital gold (Bitcoin)

Tom Campbell, an Irish dairy farmer who runs a farm in County Armagh, is using excess energy from his farm to mine Bitcoin.

An Irish dairy farmer has found an unusual way to make use of the excess energy produced on his farm — by turning to Bitcoin (BTC) mining. Tom Campbell, who runs a farm in County Armagh, Northern Ireland, produces renewable energy using a method called anaerobic digestion. This involves breaking down biodegradable material to a point where it creates methane gas, which can be used to produce electricity.

Campbell primarily uses the electricity to power his farm, but when there is excess energy that cannot be exported to the grid, he uses it to mine Bitcoin. Mining involves using specialized computers to solve complex mathematical equations, with successful miners rewarded with BTC. Bitcoin mining requires a lot of energy, and Campbell’s farm produces up to 700 kilowatts of electrical output, equivalent to powering nearly 12,000 households.

The Irish government has set a goal to decrease greenhouse gas emissions by 25% by 2030. However, the agricultural sector in Ireland is responsible for over 35% of these emissions, with cows being the primary source. With 7.3 million cows in the country, managing their waste in an eco-friendly manner is crucial. Anaerobic digestion is a promising solution, potentially generating enough electricity for every home in Ireland if 41% of farms adopted the technology. This could make a significant contribution to achieving the country’s greenhouse gas emission targets.

Campbell’s decision to mine Bitcoin may seem unusual, but it makes sense from an economic perspective. When grid demand is low, miners can use the excess clean energy. By doing this, Campbell can sell the excess electricity to the grid as renewable, green electricity while profiting from Bitcoin mining.

While some farmers have raised concerns that meeting greenhouse gas emission targets could drive them into bankruptcy, Campbell’s approach shows that it is possible to find innovative solutions that benefit both the environment and the farmer’s bottom line. With renewable energy sources such as anaerobic digestion becoming increasingly popular, more farmers could turn to Bitcoin mining in the future to make use of their excess energy.

Click below to watch Campbell’s exclusive interview with Cointelegraph to learn how he’s transforming cow dung into digital gold. 

Bitcoin mining advocate is going state-to-state to educate US lawmakers

The legislatures in Mississippi and Missouri have separately introduced bills aimed at protecting certain activities of Bitcoin miners following visits from the Satoshi Action Fund.

Dennis Porter, CEO of the Satoshi Action Fund, is taking the fight for hearts and minds on Bitcoin mining to Washington, D.C., and beyond in an effort to support friendly legislation.

Porter, who first discovered Bitcoin (BTC) in 2017, told Cointelegraph his path advocating the benefits of mining has taken him to support bills in at least six U.S. states, with federal lawmakers also in his crosshairs. The Satoshi Action Fund CEO met with U.S. senators and representatives on Jan. 25 in support of proposed legislation aimed at eliminating discrimination against miners.

According to Porter, the Lummis-Gillibrand Responsible Financial Innovation Act — a bill introduced in June aimed at addressing the roles of the U.S. Commodity Futures Trading Commission and Securities and Exchange Commission on crypto regulation — has a provision addressing taxation for BTC mining rewards. He said the legislation could close a loophole allowing the Internal Revenue Service to have two bites of the apple on miners’ revenue.

“We believe that Bitcoin mining is being unfairly targeted and double taxed by the IRS currently,“ said Porter.

The conversations between Porter and members of Congress — including Senators Ron Wyden, Cynthia Lummis and Ted Budd — marked the first time the Satoshi Action Fund had stepped up in person to the national stage in defense of BTC miners. However, the organization has also stood behind bills being considered in New Hampshire, Montana, Mississippi, Missouri and Oklahoma.

Crypto mining operations in the United States have many critics among lawmakers and citizens alike, with complaints about the energy consumption of proof-of-work cryptocurrencies like Bitcoin as well as the noise pollution from crypto-mining machines. In November, New York Governor Kathy Hochul signed into law a two-year moratorium on PoW mining.

Related: Bitcoin mining revenue jumps up 50% to $23M in one month

Porter added leaders in Montana have attempted to push miners out using zoning laws and considered policies including higher electricity rates. The legislatures in Mississippi and Missouri have separately introduced bills aimed at protecting certain activities of miners following visits from the Satoshi Action Fund, while Texas is home to many major blockchain firms following a crackdown in China.

“We’re just going to keep pushing hard until we get actual policy passed,” said Porter.

1.5M houses could be powered by the energy Texas miners returned

Bitcoin miners appeared to be the model consumers for the ancillary services in the state.

During the winter storm in Texas in December 2022, Bitcoin (BTC) mining operators returned up to 1,500 megawatts of energy to the distressed local grid. It became possible due to the flexibility of mining operations and the ancillary services, provided by the state authorities. 

In his commentary to Satoshi Action Fund, Texas Blockchain Council president Lee Bratcher stated that miners returned up to 1,500 megawatts to the Texas grid. This amount of energy would be enough to heat “over 1.5 million small homes or keep 300 large hospitals fully operational,” according to the calculations from the Bitcoin advocacy group.

While there’s no specification regarding the exact time period in which miners have accumulated such an amount of power, the global Bitcoin mining hash rate dropped by 30% on Dec. 24-25, 2022. Miners appeared to be the model participants of ancillary services in the state, which stimulates customers to reduce their consumption during peak demand in order to stabilize the grid.

Related: Public Bitcoin mining companies plagued with $4B of collective debt

The winter storm in North America was so severe that it shut down Binance’s cloud mining products from Dec. 24-26. During the days leading up to Christmas, a “bomb cyclone” unleashed extreme temperatures across the United States, leaving millions without electricity and claiming dozens of lives.

Back in March 2022, the Electric Reliability Council of Texas (ERCOT) established an interim process to ensure that new large loads, such as Bitcoin miners, can be connected to the ERCOT grid. Software providers have also begun working with miners to ensure they have the tools needed to properly enable grid balancing.

With its 14% share in Bitcoin hash rate, Texas is among the top states for Bitcoin mining in the United States, along with New York (19.9%), Kentucky (18.7%) and Georgia (17.3%).

Decentralized solutions for climate change are key as COP disappoints

Climate change initiatives led by politicians and sponsored by some of the biggest polluters demand a change in initiatives — Decentralized tech could play a key role.

Climate change has become one of the most pressing issues in the modern world with mounting pressure on companies to develop and implement climate strategies. Politicians around the globe have also been actively involved, with several nations pledging to go carbon-neutral in the next couple of decades.

Amid all the initiatives and conferences led by politicians and billion-dollar companies over the years, the threat of global warming and the carbon emissions spilling into the atmosphere have only risen.

The 2022 United Nations Climate Change Conference, or Conference of the Parties of the UNFCCC, was the 27th United Nations climate change conference. More commonly referred to as COP, the conference is one of the largest of its kind that sees attendance from top policymakers and tech CEOs.

COP27 ultimately resulted in minimal progress on loss and damage, with high-emission countries agreeing to compensate those countries enduring the brunt of the climate mayhem that they played a negligible role in causing. But, once again, no promise was made to stop the emissions fueling this disaster.

Politician-led conferences such as COP27 have become a glaring example of everything that is wrong with such initiatives. COP27 was host to more than 600 representatives of fossil fuel companies and many others who were there to prevent rather than support progress and action. Above all, the event was sponsored by the largest polluter of plastic in the world — Coca-Cola.

The annual climate carnival concept was probably not the best way to encourage meaningful action on global warming. The presence of the fossil fuel industry and continued failure to fulfill their intended purpose means the problem of climate change needs a modern solution, and for many, decentralized tech is the key that can benefit climate initiatives in the long run.

Decentralized solutions

Decentralized tech has proven revolutionary in data management for many industries apart from the financial sector. Climate change initiatives are already integrating blockchain tech to their benefit including an increasing number of projects at COP held yearly conferences. 

KPMG U.S. climate data and technology principal Arun Ghosh told Cointelegraph:

“One of the major outcomes of COP27 was landing on the loss and damage set of agreements enabling wealthier nations to help provision and plan for the recovery of people and livelihoods in under-resourced nations. Blockchain not only provides the trust and transparency set of enablers but with the introduction of CBDC pilots as well as the adoption of BTC as a recognized medium of exchange in countries like El Salvador, there are accelerated investments and plans emerging to integrate and transact between organizations, countries and citizens.”

Blockchain tech can be implemented in many ways to make climate change-related initiatives more efficient.

Recycling is one sector where blockchain can encourage participation by giving a financial reward for depositing recyclables like plastic containers, cans, or bottles. Similar setups already exist in several places around the world.

Recent: Gensler’s approach toward crypto appears skewed as criticisms mount

Plastiks is a nonfungible token (NFT) marketplace that sponsors initiatives to cut down on plastic waste. Plastiks partners with recycling firms and certifies their plastic recycling using NFTs that can become an additional source of income for the recycling firms. The project claims that recycling data, once recorded on the blockchain, also becomes a hard receipt of how much plastic has been removed.

Due to its ability to transparently track crucial environmental data and demonstrate whether obligations were reached, blockchain technology can also deter businesses and governments from breaking their environmental commitments or falsely claiming progress. 

For example, Regen Network offers blockchain-based fintech solutions for ecological claims and data. Some of their offerings include a public ecological accounting system and the Regen Registry, which allows land stewards to sell their ecosystem services directly to buyers around the world.

EarthFund DAO is another environmental initiative that organizes a decentralized community looking to tackle humanity’s environmental problems. The platform enables tokenholders to vote for and crowdfund “world-changing projects” such as the EarthFund Carbon capture project.

Crypto Climate Accord is a private sector-led initiative focused on decarbonizing the cryptocurrency and blockchain industry. To date, more than 250 companies and individuals in crypto, finance, NGOs and more have joined the movement.

Amid all the major use cases of blockchain tech, its progression in aiding the very complex carbon credit market has been most talked about — for both good and bad reasons.

Carbon markets and how they work

A carbon credit represents one metric ton of carbon dioxide, which can be bought, sold or retired. If a business is subject to cap-and-trade regulation (such as the California Cap and Trade Program), it probably has a set number of credits that it can apply to its cap. The company may trade, sell or store the extra carbon credits if it emits fewer tons of carbon dioxide than it is allowed.

An emission allowance from the seller is bought when a credit is sold. Despite the fact that emissions reduction is the result of an action, a credit becomes tradeable as a result of a genuine reduction in emissions.

Carbon markets aim to reduce greenhouse gas emissions, enabling the trading of emission units (carbon credits), which are certificates representing emission reductions. Trading enables entities that can reduce emissions at a lower cost to be paid to do so by higher-cost emitters. By putting a price on carbon emissions, carbon market mechanisms raise awareness of the environmental and social costs of carbon pollution, encouraging investors and consumers to choose lower-carbon paths.

There are two main categories of carbon markets: cap-and-trade and voluntary. Cap-and-trade sets a mandatory limit (cap) on greenhouse gas emissions and organizations that exceed these limits can purchase excess allowances to fill the gap or pay a fine. As its name suggests, the mandatory market is used by companies and governments that are legally mandated to offset their emissions. The voluntary carbon market, on the other hand, operates outside the compliance markets but in parallel, allowing private companies and individuals to purchase carbon credits on a voluntary basis.

Problems with carbon credits

Carbon credits have been touted as a market-based fix to help curb carbon emissions, but they come with a slew of problems. Carbon credit markets are ridden by poor offset quality, where certain credits might not be of the same quality as marketed and some are outdated and no longer meet the standards of top carbon offset certification organizations.

Some organizations offering such carbon offsets don’t do what they say they will. Voluntary carbon markets are largely unregulated and companies often get away with false advertising called greenwashing. These businesses either invest in non-verified credits or double-count the same credit. All of these actions trick buyers into believing they are reducing their emissions when they are actually not.

For example, according to Yale Environmental 360, a total of one billion tons of CO2 worth of credits have been made available for purchase so far on the voluntary carbon market. However, there are roughly 600–700 million tons more sellers than purchasers. Consequently, only roughly 300–400 million tons of CO2 offsets are actually achieved. This indicates that somewhere between 600 and 700 million tons of CO2 are produced without being offset.

How blockchain can help

There have been significant advances in computational technology within the blockchain realm that can enhance the efficiency of these carbon markets. Blockchain tech can aid in the process of credit creation and validation. R.A. Wilson, chief technology officer at digital carbon offset trading platform 1GCX, told Cointelegraph:

“Blockchain can vastly improve existing bottlenecks within the current carbon credits market, including issues surrounding fraud and misrepresentation and duplication of credits. While these improvements will be key to scaling the carbon credits market and building greater trust within the industry, blockchain is only one part of the solution. To scale the tokenized carbon credits market to its full potential, the industry will also require participation by trusted and established carbon credit providers, as well as collaboration with regulators and government agencies.”

KLIMA DAO is driving the development of the voluntary carbon market by building a decentralized infrastructure that makes the market more transparent and accessible. It sells bonds and distributes rewards to KLIMA tokenholders. Every bond sale adds to an ever-growing green treasury or improves liquidity for key environmental assets.

Nori is another blockchain-based carbon credit market built with farmers in focus. This project supports farmers adopting regenerative agriculture projects to remove CO2 from the atmosphere.

Tegan Keele, KPMG U.S. climate data and technology leader, told Cointelegraph that blockchain, along with other technologies, certainly has the ability to help carbon credit markets in terms of traceability:

“A credit can be traceable but not high quality — blockchain won’t inherently solve the quality problem, but it can help validate when a credited producer makes statements regarding origin or quality.”

Still, not everyone is convinced. Dan Stein, director of the Giving Green earth climate initiative, believes the problem is much bigger than double counting or traceability.

Recent: NFTs could help solve diamond certification fraud

Stein told Cointelegraph that blockchain-based climate solutions are hot air and that the real problem with carbon credits is offset quality:

“If anything, chain-based carbon credits exacerbate this problem by creating a credit as a commodity when it is instead a differentiated product. In fact, I’ve heard stories of companies ‘laundering’ old offsets that they couldn’t sell any other way onto these chain-based solutions.”

He added that by making transactions easier, “it turns credits into more of a commodity, and everyone treats them as the same. What has happened in practice is that project developers have taken old low-additionality credits that they can’t sell in a normal market and loaded them ‘on-chain,’ where suddenly they have found new buyers.”

The use of blockchain technology in the climate change fight has faced appreciation and criticism alike. On one hand, decentralized tech is being actively integrated for new solutions at a global level to make certain aspects more transparent and streamlined. On the other, climate activists believe that current blockchain solutions aren’t as helpful and only focus on tokenization.

Looking ahead, it will be interesting to see which projects catch on and scale to meet the challenges of climate change.

Why banking uses at least 56x more energy than Bitcoin

“Bitcoin uses 0.5% of world energy consumption. Banking uses 56 times more energy than Bitcoin,” Michel Khazzaka, a cybersecurity engineer and cryptographer, told Cointelegraph.

The next time Bitcoin (BTC) comes under fire for energy consumption, remember this statistic: the banking industry uses at least 56 times more energy. That’s according to cryptographer and founder of Valuechain, Michel Khazzaka: 

“I’m not saying it uses less or the same, just know it uses 56 times more than Bitcoin.”

The statistic, first shared by Michel Khazzaka in the summer, caused a stir in the Bitcoin and wider crypto community. He published his estimates in a Valuechain report, a company he founded to investigate the world of crypto payments.

In an exclusive Cointelegraph Crypto Story interview, Khazzaka talks viewers through the extensive research that led to striking conclusions. In short, Bitcoin might not be as bad for the environment as the mainstream media lead people to think.

Khazzaka, who describes Bitcoin as “money with a memory,” sought to refute the claim that Bitcoin is worse for the environment than fiat money. He spent four years toiling away, compiling data and crunching numbers. He built out a model, or estimate, to understand just how much energy the banking industry consumes.

Speaking from his home in Paris, Khazzaka told Cointelegraph that he looked at commute times, data centers, servers, and even ATMs for the calculations. He didn’t, however, take into account the energy put into “banks, buildings or ATMs; to manufacture to bring the metal, etc. Let’s compare the operations.” Khazzaka admits this oversight is intentional:

“That’s why all my numbers are underestimated for banking and extremely accurate for Bitcoin.”

For Bitcoin, Khazzaka concluded that it consumes 88.95 TWh per year, considerably less than the Cambridge Centre for Alternative Finance estimates. Nonetheless, Khazzaka admits that Bitcoin uses an “extraordinary amount of energy.” However, in return, users receive “an extraordinary amount of security for an extraordinarily important service.”

He compares Bitcoin to space travel, explaining that even if people don’t care about going to the moon, it’s a right, “even if it consumes more [energy] than a car.”

Related: Bitcoin mining to cost less than 0.5% of global energy if BTC hits $2M: Arcane

Finally, in a nod to the layer-2 Bitcoin Lightning Network, Khazzaka concludes that, as a payments network, it shows tremendous promise. It just needs to prove itself.

Why banking uses at least 56 times more energy than Bitcoin

“Bitcoin uses 0.05% of world energy consumption. Banking uses 56 times more energy than Bitcoin,” Michel Khazzaka, a cybersecurity engineer and cryptographer, told Cointelegraph.

The next time Bitcoin (BTC) comes under fire for energy consumption, remember this statistic: the banking industry uses at least 56 times more energy. That’s according to cryptographer and founder of Valuechain, Michel Khazzaka: 

“I’m not saying it uses less or the same, just know it uses 56 times more than Bitcoin.”

The statistic, first shared by Michel Khazzaka in the summer, caused a stir in the Bitcoin and wider crypto community. He published his estimates in a Valuechain report, a company he founded to investigate the world of crypto payments.

In an exclusive Cointelegraph Crypto Story interview, Khazzaka talks viewers through the extensive research that led to striking conclusions. In short, Bitcoin might not be as bad for the environment as the mainstream media lead people to think.

Khazzaka, who describes Bitcoin as “money with a memory,” sought to refute the claim that Bitcoin is worse for the environment than fiat money. He spent four years toiling away, compiling data and crunching numbers. He built out a model, or estimate, to understand just how much energy the banking industry consumes.

Speaking from his home in Paris, Khazzaka told Cointelegraph that he looked at commute times, data centers, servers, and even ATMs for the calculations. He didn’t, however, take into account the energy put into “banks, buildings or ATMs; to manufacture to bring the metal, etc. Let’s compare the operations.” Khazzaka admits this oversight is intentional:

“That’s why all my numbers are underestimated for banking and extremely accurate for Bitcoin.”

For Bitcoin, Khazzaka concluded that it consumes 88.95 TWh per year, considerably less than the Cambridge Centre for Alternative Finance estimates. Nonetheless, Khazzaka admits that Bitcoin uses an “extraordinary amount of energy.” However, in return, users receive “an extraordinary amount of security for an extraordinarily important service.”

He compares Bitcoin to space travel, explaining that even if people don’t care about going to the moon, it’s a right, “even if it consumes more [energy] than a car.”

Related: Bitcoin mining to cost less than 0.5% of global energy if BTC hits $2M: Arcane

Finally, in a nod to the layer-2 Bitcoin Lightning Network, Khazzaka concludes that, as a payments network, it shows tremendous promise. It just needs to prove itself.

Quebec’s energy manager to seek government approval to stop powering crypto miners

Energy provider Hydro-Québec cited the high energy demands anticipated in the Canadian winter in its reasons to reallocate 270 megawatts from crypto mining firms.

Hydro-Québec, the firm managing electricity across the Canadian province of Quebec, plans to reallocate energy supplied to crypto mining firms. 

According to a Nov. 3 tweet from Canadian lawmaker Pierre Fitzgibbon, the government will request a decree from the energy board to release the company from its obligation to power crypto miners in the province. Hydro-Québec allocated 270 megawatts toward the mining firms, but electricity demand in Québec is expected to grow to a point that powering crypto will put pressure on the energy supplier.

The report Hydro-Québec filed with the government’s energy board on Nov. 1 said temporarily reducing the power provided to mining firms could help prevent threats to the “reliability and security” of energy for Québec residents. The distributor reported it took into account the demand for electricity from green hydrogen, cryptocurrencies and greenhouse farming.

“The additional energy needs in winter are high, and this, without the addition of the load related to the balance of the block reserved for cryptographic use applied to blockchains,” said Hydro-Québec. “There are anticipated energy purchases of nearly 3 [terawatt-hours] in winter from 2025 and even exceeding 3 TWh in 2027.”

As part of the energy manager’s plan for 2023 to 2032, crypto firms were expected to grow by 0.7 TWh, reaching a maximum power demand in 2028. Crypto miners in Québec have been the subject of additional tariffs since March 2021, and also gave the province options to scale their operations so as to reduce the load on the power grid.

Related: The blockchain projects making renewable energy a reality

Energy consumption is one of many factors crypto mining firms weigh when setting up shop, which has contributed to more than one U.S. state considering tax breaks for companies. Crypto adoption also seems to be growing across Canada, according to the Ontario Securities Commission. OSC CEO Grant Vingoe said in October that “more than 30% of Canadians plan to buy crypto assets in the next year.”

The Merge brings down Ethereum’s network power consumption by over 99.9%

Before the Merge upgrade, in 2022, the energy consumption of Ethereum ranged between 46.31 terawatt hour (TWh) per year to 93.98 TWh per year.

The Merge, which is considered one of the most significant blockchain upgrades on Ethereum to date, brought down the network’s energy consumption by 99.9% immediately.

On Sept. 15, the Ethereum blockchain migrated from proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism in an effort to transition into a green blockchain. What followed was an immediate and steep drop in total energy consumption of the Ethereum network.

The Ethereum Energy Consumption Index. Source: digiconomist.net

Before the Merge upgrade, in 2022, the energy consumption of Ethereum ranged between 46.31 terawatt hour (TWh) per year to 93.98 TWh per year. The lowest energy consumption for Ethereum was recorded on Dec. 26, 2019, at 4.75 TWh per year.

The estimated annual energy consumption in TWh/yr for various industries. Source: ethereum.org

Starting from Sept. 15, the day of the Ethereum Merge, Ethereum’s energy dropped down by over 99.9% and continues to maintain low energy usage. As a result, the network’s carbon footprint currently stands at 0.1 million tonnes of CO2 (MtCO2) per year.

When translated to single Ethereum transactions, the electrical consumption is as low as 0.03-kilowatt hour (kWh) and the carbon footprint stands at 0.01 kgCO2, which, according to digiconomist, is equivalent to the energy used when watching two hours of YouTube.

Related: Ethereum sets record ETH short liquidations, wiping out $500 billion in 2 days

Despite the celebrations around Ethereum’s transition to PoS, community members raised concerns related to the blockchain’s centralization and higher regulatory scrutiny.

The centralization aspect became evident right after the Merge, as 46.15% of the nodes for storing data, processing transactions and adding new blockchain blocks could be attributed to just two addresses.

While Ethereum proponents claim that anyone with 32 Ether (ETH) can become a validator, it is important to note that 32 ETH, or around $41,416, is not a small amount for a newbie or common trader.

What does the global energy crisis mean for crypto markets?

While miners stand to be significantly affected by the current power crisis, there is still some hope that the prevailing macro conditions could work in favor of the crypto industry.

There’s no denying that the world is currently facing an unprecedented energy crisis, one that has compounded severely in the aftermath of the COVID-19 pandemic so much so that countries across the globe — especially across Europe and North America — are witnessing severe shortages and steep spikes in the price of oil, gas and electricity.

Limited gas supplies, in particular, stemming from the ongoing Russia-Ukraine conflict, have caused the price of essential commodities like fertilizer to shoot up dramatically. Not only that, but it has also resulted in the heightened use of coal and other natural resources. Coal consumption within Europe alone surged by 14% last year and is expected to rise by another 17% by the end of 2022.

To expound on the matter further, it is worth noting that European gas prices are now about 10 times higher than their average level over the past decade, reaching a record high of approximately $335 per megawatt-hour during late August.

Similarly, the United States Energy Information Administration’s recently published winter fuel outlook for 2022 suggests that the average cost of fuel for Americans will increase by a whopping 28% as compared to last year, rising up to a staggering $931.

With such eye-opening data out in the open, it is worth delving into the question of how this ongoing energy shortage can potentially affect the crypto sector and whether its adverse effects will recede anytime soon.

The experts weigh in on the matter

Matthijs de Vries, founder and chief technical officer for AllianceBlock — a blockchain firm bridging the gap between decentralized finance (DeFi) and traditional finance — told Cointelegraph that the global economy is in bad shape thanks to a multitude of factors including the power crisis, looming recession, surging inflation and rising geopolitical tensions. He added:

“These issues are interlinked, primarily in the way that capital flows in and out of impactful industries. The worse the macroeconomic climate, the lower the capital (liquidity) that flows in and out of the digital asset industry. This liquidity is what enables the incentivization mechanisms of blockchain to continue working. So, for miners, if there is a shortage of liquidity, this means fewer transactions for them to confirm, lesser fees and decreased incentives.”

Moreover, de Vries believes that rising energy costs could provide additional incentives for miners to move toward the validator ecosystem of Ethereum 2.0 that relies on a far more energy-efficient proof-of-stake (PoS) mechanism.

Recent: The Madeira Bitcoin adoption experiment takes flight

A somewhat similar sentiment is echoed by Yuriy Snigur, CEO of Extrachain — an infrastructure provider for distributed applications, blockchains and decentralized autonomous organization (DAO) platforms — who believes that the ongoing energy price surge will impact proof-of-work (PoW) blockchains the most.

“They are the most dependent on the energy sector. In my opinion, the value of a blockchain should not come from the meaningless burning of energy, which is why PoW is doomed eventually,” he noted.

Worsening macroeconomic climate will hurt crypto in near term

Nero Jay, founder of the crypto YouTube channel Dapp Centre, told Cointelegraph that the challenges being witnessed will continue to have an overall negative impact on the crypto market, as a result of which most investors will continue to look at this yet nascent sector as being speculative and risky, at least for the foreseeable future.

However, as a silver lining, he noted that the aforementioned challenges could serve as an opportunity for increased crypto adoption, especially as many countries like Venezuela, Turkey, Argentina, Zimbabwe and Sudan continue to be ravaged by hyperinflation and sanctions, which may give crypto assets more utility and use cases.

Lastly, Jay believes that the worsening energy situation could result in increased scrutiny of the mining sector, especially since proponents of the zero carbon emission campaign will now have more fuel to criticize the space.

“Many are questioning the impact that crypto mining may have on the environment. The great news is we are already seeing many cryptocurrency projects, including Ethereum, that are making their blockchain platforms very efficient and low carbon emission based,” he said.

Bitcoin’s price and its relationship with the energy market 

From the outside looking in, increased energy prices will raise costs for miners, which in turn could force them to sell their held Bitcoin (BTC), thereby pushing down prices. Furthermore, heightened production can result in miners demanding higher prices to cover their daily operational costs and, in some cases, even forcing them to shut down their operations entirely or sell their equipment.

Also, even if miners continue to go out of business, the total volume of BTC being mined will remain the same. However, the block rewards will be distributed among fewer individuals. This suggests that miners who can stave off the bearish pressure induced by rising energy costs stand to make massive profits. Andrew Weiner, vice president for cryptocurrency exchange MEXC, told Cointelegraph:

“Electricity shortages can lead to higher electricity prices, raising the cost of Bitcoin mining substantially. In the event of a regional long-term power shortage, it will cause the migration of miners to other jurisdictions where relatively cheap electricity prices offer safety and stability.”

Hope still remains for a trend reversal

Weiner said that, while the energy crisis could put pressure on Bitcoin’s price, the poor lackluster state of the global economy could potentially counter this.

In Weiner’s view, the U.S. Federal Reserve’s monetary policy in the current global economic environment has had the most significant influence on the cryptocurrency market, adding:

“Beginning with the implementation of loose monetary policy by the Federal Reserve in 2020, institutions have digitally transformed their back-offices and accelerated their purchases of Bitcoin. When fiat depreciates, institutions adjust their strategy to allocate bitcoin as value-preserving assets.”

He further noted that the cryptocurrency market, especially Bitcoin, is becoming increasingly correlated with Nasdaq and the S&P 500, while its correlation with energy, oil and electricity will not be significant unless BTC mining becomes affected by a future global electricity shortage.

Moreover, the ongoing energy crisis can potentially trigger more government spending programs resulting the them “printing” more money to get themselves out of trouble. This can potentially result in a loss of confidence in fiat assets and more demand for digital currencies. This trend is not beyond the realm of possibilities since it is already being witnessed across several third-world nations and could even permeate into certain larger economies as well.

Recent: Ethereum at the center of centralization debate as SEC lays claim

Just a couple of months ago, inflation in the eurozone scaled up to an all-time high of 8.9%, a situation that was also witnessed in the United States, where inflation surged to a forty-year high of 8.5% back in August. And, while many individuals continue to be divided on the positive/negative impact of the stimulus packages on the global economy, the fear of increased inflation alone stands to raise the demand for cryptocurrencies.

Therefore, as we head into a future plagued by potential energy shortages and price surges, it will be interesting to see how the future of the digital asset market continues to play out, especially as rising geopolitical tensions and worsening market conditions continue to make matters worse.