By Sascha Brodsky
For decades, the Mechanicville hydroelectric plant generated power from New York’s Hudson River, converting the flowing waters into energy that fueled General Electric. But last year, the long brick building became the home of a crypto mining operation, forging a very different role as part of a vast network of sites around the world pumping out algorithms that make virtual currency viable.
Opened in 1898, the antiquated hydroelectric plant was an unlikely candidate to combine with the modern technology that is the cryptocurrency industry. And after less than a year in operation, the crypto mining work there has been halted amid turmoil and controversy roiling the cryptocurrency market and higher prices for electricity.
“Right now the price of power is sufficiently high that we don’t have to bother doing Bitcoin,” said James Bescha, CEO of Albany Engineering Corp., which owns the Mechanicsville plant.
Environmentalists are harshly critical of crypto mining operations that they say use outsized amounts of energy that should be used for powering homes and businesses and other activities. The excesses created by crypto mining contribute to global warming, critics charge.
The soaring popularity of cryptocurrency in recent years has spurred an expanse of crypto mining operations, and with that growth has come a battle now being waged across the country over mining operations.
A crypto mining technique called “proof of work” (PoW), which is used for validating transactions and mining new cryptocurrency tokens, is at the heart of the fight.
New York is one of many states seeking action on the issue and New York Gov. Kathy Hochul is currently considering signing a statewide moratorium on certain mining operations that run on carbon-based power sources.
“If all of the proposed proof-of-work crypto mining operations were to come online, the power that entered those energy needs would be the equivalent of powering 750,000 homes, which is twice the size of the city of Buffalo,” said Elizabeth Moran, a policy analyst for the environmental group Earthjustice.
“That’s huge. You know that energy demand can really cause problems for making sure we get enough renewables online to meet New York’s energy demands.”
Moran said the Mechanicsville plant was actually a more environmentally friendly crypto mining operation due to its use of water to power its work.
Staggering energy needs
At its simplest level, cryptocurrency is a digital currency designed to work through a computer network. The process relies on mathematical formulas to validate currency transactions. Crypto miners race to validate the transactions and the fastest are rewarded with cryptocurrency.
Mining is a competitive process and the greater the computing power, the greater the chances of validating new blocks of the currency.
Some mining operations set up large stretches of powerful computers on mining “farms” as big as a football field, said Igor Zakharov, the CEO of the crypto firm DBX Digital Ecosystem.
The specialized mining computers require staggering amounts of energy.
The mining of a type of cryptocurrency called Bitcoin, for instance, requires more electricity than the usage of some entire countries including Norway, Malaysia, and Sweden. And since most of this energy is generated using coal and gas, carbon emissions are high. According to reports, in 2020, Bitcoin mining, with its proof of work protocol, was responsible for almost 40 billion pounds of carbon dioxide emissions in the U.S.
For years Bitcoin’s electricity use was relatively small, said Rolf Skar, a special projects manager at Greenpeace USA. As the value of Bitcoin increased and as faster, specialized machines took over the mining process, its electricity consumption has sky-rocketed.
“In too many cases, that electricity is being generated by burning climate-polluting fossil fuels,” Skar added. “If this trend continues, this big problem for our climate could become a lot worse. As climate scientists have been telling us for years, we need to rapidly phase out the use of fossil fuels, but we are seeing many Bitcoin mining operations do the exact opposite.”
A different technique called proof of stake is much more environmentally friendly, said technology analyst Chris Skinner.
“Originally, it wasn’t a big issue but, in order to mine Bitcoins, more and more computing power is required,” said Skinner. “It’s now requiring almost as much computing power to generate one bitcoin that is the equivalent of the electricity requirements of a small country; it used to be that it was just the power of boiling a kettle of water. The difference is that this was built into the structures of Bitcoin – to always make it more difficult to crack the code to mine a coin – but it’s not true of all crypto.”
Zaven Nahapetyan, the co-founder of the software development firm Niche, said one problem with switching to proof of stake is convincing the miners that a switch is in their interest.
“Crypto mining requires expensive equipment, so they’re already heavily invested in the way things are, and change would mean cutting their losses.”
Industry On the Defense
Crypto mining industry executives defended their environmental record. Tim Sandau, the CEO of Verakari, which specializes in locating, building, and operating data-mining centers, said in an interview that cryptocurrency mining does not carry more risk to the environment than any other traditional store of value.
“All cryptocurrency mining combined consumes less than 50 percent of the traditional banking systems in place today,” Sandau added. “Additionally, crypto mines have the ability to geographically locate to the most energy advantageous and least environmentally impactful locations, such as adjacent to hydro dams and solar farms.”
Will Szamosszegi, the CEO of Sazmining, which claims to be the world’s first Bitcoin mining platform created to connect individual retail miners with green Bitcoin mining facilities, said claims that crypto mining is bad for the environment are misleading. “Any action people take has the potential to affect the environment,” he added. “Plus, the environment isn’t capable of suffering or prospering; people are. So the environment is the wrong yardstick to gauge whether an activity is good or bad. If someone says that crypto mining is bad for the environment, then they’d have to say that driving, cooking, bathing, and breathing are, too.”
Some crypto mining experts say that the industry is moving toward more environmentally friendly models. Vasily Kudrin, principal investment officer of the Lybrion digital financial asset management company, said that solutions include the development of a segment of ecosystem proof-of-stake consensus or the transformation of existing proof of work systems into proof of stake.
Ethereum, a type of cryptocurrency that has relied on proof of work crypto mining, has been shifting to a more efficient protocol, Skar noted. He said the process has not been completed but should advance significantly in the coming months.
The price of cryptocurrency plummeted in June and financial market conditions might help drive changes in the cryptocurrency market toward more environmentally friendly models, said Alex Stoewer, co-founder of Digital Power Optimization. He said that crypto mining will always be incentivized to move to the cheapest power source, as power is over 80% of the cost of running a crypto mine.
“Crypto miners are now looking to set up shop on renewable power assets which make their operations much more profitable,” he said.
In New York, the impact of the proposed moratorium on new proof of work crypto mining hinges on Governor Hochul’s pending decision to sign the bill. If it passes, the state’s new legislation could lead to a growing wave of regulation on the crypto mining industry.
“Policymakers and regulators around the world have expressed concern about the problems posed by Bitcoin mining for electric grids, local air and water, and the climate crisis,” Skar said. “So, New York legislators are already not alone. If it becomes law, this common-sense moratorium would give New York a chance to take stock of the impacts of Bitcoin mining and chart a way forward. Given how quickly Bitcoin mining has grown in the US after China banned it, many other states – from Pennsylvania and Kentucky to Montana and Texas – could benefit from a similar approach.”
Earthjustice’s Moran said there is an urgent need to rein in the high energy usage of crypto mining.
“It’s a very basic tenant of addressing the climate crisis; you reduce energy consumption,” Moran said. “This is something that the government is going to have to look into and make sure to put some brakes on this energy usage.”
(Photo of Elizabeth Moran, policy analyst for Earthjustice; photo credit Sascha Brodsky)