By Maria Callewier
In the first week of January massive protests erupted in Kazakhstan over rising fuel prices. Government buildings were set ablaze and dozens of protestors have reportedly been killed, in what seems to be the first major sign of instability in decades. After requesting aid from Russia, president Kassym-Jomart Tokayev has ordered a nation-wide telecom shutdown. The shutdown has prevented Kazakhstan-based bitcoin miners from accessing the telecom network. This gave the coal-powered energy grid a much needed break, as rising energy needs from the cryptocurrency industry strained the country’s energy supply.
Why does Bitcoin require so much energy?
Bitcoin is a virtual currency, and has no physical counterpart in coins or bills. Unlike other currencies, crypto is not regulated by any bank or government. This has the advantage of not needing a middle-man to execute transactions, which means there are no transaction costs, and it simplifies sending money across national borders. The person behind the transaction also remains anonymous, making it easier to use for criminals, terrorists, or tax evaders, for example. Every transaction is registered on a decentralized network through the use of ‘blockchain’ technology. Through this digital ledger system it is ensured that no same token can be spent twice.
New Bitcoins are released through ‘Bitcoin mining’. This is the process of adding a record of a new transaction to the public ledger. It is said that new batches of transactions or blocks are released roughly every 10 minutes. Miners compete to be the first to solve a maths problem. The first to succeed receives a number of bitcoins and will create a new block that is linked together with previous ones.
However, as more competitors enter the market, the harder the puzzles become. As such, trying to solve these puzzles on a personal computer has become close to impossible. Most miners now use specialized hardware to keep making a profit. Nevertheless, they bear the constant cost of high electricity bills to keep the power-hungry machines up and running.
What does this have to do with Kazakhstan and the Environment?
After the crackdown that started in May on Bitcoin mines in China, many miners had to look for a new location with low energy prices to sustain their operations. Their eye fell on Kazakhstan and by Fall of 2021, the country had become the second-biggest contributor to the Bitcoin network, to the dismay of the Ministry of Energy.
In September 2021 the energy minister pointed the finger at the crypto-mining boom as the cause of power shortages the country was experiencing. This is not unthinkable, as the energy needed to keep the computers running is estimated at a 707 kwH per transaction. To put this in perspective, an analysis by the University of Cambridge suggested that bitcoin mining consumes 121 terawatt hours a year. This is more than the entirety of Argentina or the Netherlands utilize in a year. This is especially worrying when the miners are making use of electricity produced by fossil fuels, such as in Kazakhstan.
As the crypto industry keeps growing and the miners keep upgrading to more energy-intensive equipment, it is impossible to say how much energy the sector will require in the coming years. Preliminary research has suggested that Bitcoin CO2 emissions alone could push global warming above the 2 degrees threshold in the next three decades. Nevertheless, there is hope as initiatives such as ‘The Crypto Climate Accord’ are working towards the goal of making the entire cryptocurrency industry achieve net zero emission by 2040.