30 September 2022
Last March, President Joe Biden called on multiple government agencies to research the role of crypto assets in the American financial system with an executive order. An often discussed point is the energy usage of this sector. The Office of Science and Technology Policy (OSTP) is one of the agencies that is conducting this research, and they shared their first results last week.
According to the OSTP, crypto assets can endanger American climate goals, depending on the underlying technology. The researchers conclude that 0.9% to 1.7% of total American electricity is being used by the crypto industry. They also state that average electricity costs are rising because of crypto mining.
The OSTP makes a number of suggestions based on these findings, among which recommendations to lower the impact on the electricity grid and to reduce the emission of greenhouse gases. Transparency from the industry on how it can contribute to a more climate and environmentally friendly crypto domain should also be encouraged. Next to that, more data is required to more clearly map the industry’s impact.
The OSTP report hints at bitcoin’s Proof of Work (PoW) consensus mechanism having such a significant impact on the environment, that a ban should not be ruled out when other measures don’t reduce its footprint enough. However, in the last chapter of the report the authors also highlight that bitcoin mining can have a positive impact on reaching climate goals. There are bitcoin miners that use methane to generate electricity, which lowers the climate impact of this greenhouse gas. These miners aid in improving the environment, rather than damaging it.
It’s not the first time that PoW is being swept up in climate-related policy. The European Parliament has recently enacted the MiCA regulation, which almost included a ban on the PoW consensus algorithm. Climate change remains one of the most important political themes of the moment, and expectations are that it will remain so for the foreseeable future. The OSTP research is one of many being conducted on behalf of the Biden administration, and is not (yet) a good indication of what the final regulatory framework around crypto assets in the US will be.
Image: Unsplash/Joshua Hoehne