China's bitcoin ban makes cryptocurrency even worse for the environment

Now, just one quarter of coins are mined using renewable energy.
Grant Currin
Chimneys at a coal-burning power plant.iStock / Drbouz

Last summer, 42 percent of the electricity powering the computers that create new Bitcoins came from renewable sources like hydropower.

By fall, that number plummeted to just 25 percent.

What changed? A study published today in the journal Joule says the shift was an unintended consequence of China's decision in August 2021 to ban Bitcoin mining.

"There was a lot of optimism that China banning Bitcoin mining would make mining more green," according to data scientist Alex de Vries, a co-author on the paper.

"[T]he fact is, it was already a dirty business, and it just got worse," he says.

Until the Bitcoin mining ban, China was a cryptocurrency powerhouse

China was home to the world's largest contingent of Bitcoin miners during the critical period when the cryptocurrency was morphing from a digital curiosity into the financial behemoth.

In September 2019, computers in China used three-quarters of all the electricity used to mine Bitcoins. That energy powered computers set to solve the complex mathematical puzzles that control the growth of the total Bitcoin supply. The incentive for Bitcoin miners was huge: the 19 million Bitcoins that already exist on the platform are collectively worth roughly three trillion dollars.

In some parts of the country, a combination of cheap hydroelectric power during the wet months and relatively cheap coal-powered electricity the rest of the year made it more profitable to mine Bitcoin in those places than it was almost anywhere else. At its peak in 2020, the country was responsible for 65 percent of total mining activity globally.

Last year's ban sent miners out of the country — and away from renewable energy

China's government has long been suspicious of Bitcoin. In 2009, the country banned virtual currencies to pay for physical goods and services. A few years later, its central bank instituted severe restrictions on converting Bitcoin into yen. Then, last September, the country issued an all-out ban on mining and trading cryptocurrency.

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Many of those miners — or their equipment — ended up across the border in Kazakhstan or across the world in the United States. For those that stayed in Asia, coal became a year-round energy source. In the United States, it's more common for such systems to use energy generated by burning natural gas.

In the U.S., miners often set up shop in states that use less renewable energy than the national average, de Vries says. Texas, Kentucky, and Georgia are popular destinations. Kentucky offers tax breaks to attract miners and supports its coal companies.

Experts think Bitcoin miners are collectively responsible for releasing an extra 65 megatons of carbon dioxide per year. Just one-quarter of the world's roughly 200 countries produce more CO2.

According to de Vries, the study is a story of unintended consequences that shows international cooperation is essential if governments are to control the environmental impact of Bitcoin.

But that doesn't seem likely.

"A rapid solution to Bitcoin's carbon footprint is not within sight," the authors say in the study.