With the global mining shift, a new era for cryptocurrency has begun

Climate change is the most pressing issue of our time. Every one of us, from policymakers to individuals, has a responsibility to do our part to ensure that sustainability and green practices are implemented throughout society.

Indeed, governments around the world, from the United States to China, are increasingly taking a proactive stance on climate change, with COP26, the recent United Nations Climate Change Conference in 2021, serving as a driving impetus toward the Paris Agreement’s goals of inspiring climate action.

Corporations are also taking more responsibility, with many investors no longer viewing financial performance as a sufficient measure of success — ESG measures, i.e., negative externalities, are increasingly being considered to determine the true value of business activity for society.

In this context, the process of revitalizing our financial infrastructure is receiving increased attention. How well do Bitcoin and other digital assets meet environmental, social, and governance (ESG) criteria? This question is becoming increasingly important as cryptocurrency adoption spreads. Multiple Bitcoin futures ETFs have now been approved and are trading in the United States, and institutional adoption is also at an all-time high, with many of the world’s largest financial institutions, including Standard Chartered, State Street, and Citibank, quietly developing capabilities in the space.

Growing regulatory clarity is also allowing a broader range of participants around the world to accelerate their digital asset strategies. The EU’s comprehensive Market in Crypto-assets (MiCA) framework is still being debated in the European Parliament. While in the United States, Gary Gensler’s Securities and Exchange Commission has indicated an intention to clarify a framework for stablecoins and decentralized finance (DeFi).

To truly cement their place in the mainstream and in the portfolios of investors around the world, digital assets must adhere to the same stringent ESG standards that every government and corporation must now address. Significantly, the industry has gradually accepted this need and has accelerated a process of environmental self-regulation in response to increased adoption.

Organizations such as the Bitcoin Mining Council are working to improve industry transparency by requiring higher reporting standards. Many crypto-native organizations have also signed on to the Crypto Climate Accord, pledging to achieve net-zero emissions from crypto-related electricity consumption by 2030.

Despite all of this activity, perhaps the single most significant contribution to the energy efficiency of digital assets has been a decision entirely outside of the industry’s control. The State Council of China prohibited cryptocurrency mining and trading in May. Previously the global leader in crypto mining activity, with 44 percent of the global Bitcoin mining hashrate, the decision prompted a mass exodus of miners to other jurisdictions.

The shift has been significant for the energy efficiency of the Bitcoin mining industry, shifting away from the Chinese economy’s coal-heavy energy production and toward more renewable forms of energy in other jurisdictions.

North America has reaped the most benefits from this shift, with the United States’ share of mining hashrate increasing from 17 percent in April to 35 percent in August. With the addition of a 9.5 percent mining hashrate in Canada, North America now controls nearly half of the global mining hashrate supply.

While energy production in the United States varies by state, the shift has been a significant boon to the long-term viability of Bitcoin mining. The United States is abundant in renewable energy sources; add to that the fact that large mining companies are essentially competing in a low-margin industry, where the primary variable cost is energy, and the incentive is to migrate to the cheapest sources of power — which are mostly renewable.

For example, New York, one of the states with the highest share of Bitcoin hashrate, according to Foundry USA data, generates one-third of its in-state energy from renewable sources. Texas, another significant state for Bitcoin mining hashrate, is rapidly increasing its share of renewable energy production, with wind accounting for 20% of its power in 2019.

Furthermore, the Bitcoin mining industry has a distinct feature set that incentivizes the use of trapped renewable energy sources that are not yet connected to the national grid. Mining can help to accelerate the development of renewable energy capabilities by acting as a means of monetizing renewable energy production.

This shift toward renewable energy sources has already begun to show critics that Bitcoin and the broader digital asset industry can succeed with a sustainable ethos. It will take time for large mining operations to reestablish themselves in new jurisdictions, and such a transition will not be instantaneous. This transition, however, is well underway.

Finally, it is up to digital asset service providers to demonstrate that the value provided by crypto is worth the energy consumed. Significant progress has been made in reducing the carbon footprint of digital assets this year alone, and as crypto’s sustainability journey continues, corporate and institutional adoption will follow suit.