The Social Impact of Mining Digital Assets
By: Jack Zwick
Tags: Bitcoin, Cryptocurrency Mining, Bitcoin Mining, Cryptocurrency

While the jury is still out on the long term success of cryptocurrencies so too are arguments about the environmental impact of cryptocurrency mining. The sustainability of cryptocurrencies has been called into question countless times by cryptocurrency mining skeptics.

With media highlighting the energy intensive process known as proof of work that stands behind Bitcoin and the blockchains of other cryptocurrencies, the potential gains in environmental sustainability caused by an overhaul of our financial infrastructure are overlooked. In isolation cryptocurrency mining demand adds to global energy consumption, but even in the short term, this footprint is minimized as cost conscious miners locate their operations in oversupplied energy markets. Cryptocurrency mining skeptics rarely mention that the geographic dispersion of cryptocurrency networks has minimized energy costs.

Data shows that competition in cryptocurrency mining causes efficiency seeking miners to disperse operations to remote areas with abundant, sometimes sustainable, energy sources. The location of Bitcoin mines in China (2016), compared to regional power market oversupply from BitMEX research below illustrates that most miners are drawing power from oversupplied markets, not from cities facing more demand on energy than natural power sources can provide.

​​Whether the power consumption of mining is a waste is also dependent on one’s long term outlook in regards to the penetration of cryptocurrency into global financial infrastructure. In a world of non centrally banked currency, the short term environmental cost of decentralized proof of work systems is an energy investment in the future efficiency of global financial infrastructure in the form of a bearer unit of account.

Energy investment in cryptocurrency is also capped by the decreasingly inflationary cryptocurrency supplies that are deterministically tapered with the finite supply mechanics that govern Bitcoin, crypto’s behemoth digital cash. If Bitcoin is a bubble that eventually fades from use, then mining is a deadweight environmental and economic loss for society, there is no way around that. But historically, as adoption of cryptocurrency has followed an increasing curve, the vast majority of Bitcoin and other cryptocurrencies were mined when marginal prices and costs were but a fraction of the attainable market price that cryptos have reached. If prices are fair measure, on average the marginal energy cost of the cryptocurrencies currently in circulation are far lower than the indicated marginal value to society on average. And so at least for the short term, crypto mining has been a productive industry for society if we use prices to measure overall economic utility.

Should prices of Bitcoins rise over the long term, production costs will continue to lag the utility the market places on crypto, yielding a consistently positive gain in social welfare. Efficiency gains could also be manifested as the transportability of currency is streamlined. Reducing transportation costs of cash and demand for the mining of precious metals would overtime significantly reduce our environmental footprint in ways that have not been included in the calculus of the environmental impact of crypto mining.

Energy sustainability is a problem that has to be addressed on the supply side. Demand for energy will continue to increase, but if we can meet that demand with clean energy from hydro-electric, wind, solar, and other renewable energy sources then society can live more sustainably. The solution to our energy problem is not to reduce or restrict demand, but rather to find renewable supply. Many cryptocurrency miners use renewable energy sources and are providing the incentives needed to monetize clean energy production.

Only time will tell whether cryptocurrencies will reduce our environmental footprint, but most arguments that it is an environmental disaster are not well researched.