As Europe remains in the grips of an energy crisis caused by sky-high demand for liquefied natural gas, a tight global energy supply, and Putin keeping the pipelines at low capacity as gas-rich Russia gains political ground, another sleeping giant has emerged to become a huge and surprising hindrance to the continent’s energy security: crypto-mining. As miners producing cryptocurrencies like Bitcoin and Etherium suck up massive amounts of energy to perform the complex proof-of-work computing necessary to create new crypto-assets, some European countries are starting to clamp down on and even ban the practice altogether.
The energy footprint of Bitcoin alone is now hovering at 137.4 Terawatt hours per year, ranking between the annual consumption rates of Ukraine and Egypt – countries of over 40 and 100 million people, respectively. “Mining” cryptocurrencies requires more and more energy all the time, in order to keep the system secure through the use of the blockchain, which requires complex computations, and in order to keep the rate of production (and thereby, hopefully, the value of the currency) stable. In order to achieve this, the problems that “miners” solve become more and more complex as more people start to mine, meaning that producing one Bitcoin requires more and more energy every time.
For these reasons, the proliferation of crypto-mining operations in some of Europe’s poorest countries is putting a huge strain on entire nations’ energy grids and economies as energy prices skyrocket. In Kazakhstan, where energy prices are kept artificially low by the government in order to keep power affordable for its citizens, crypto-miners from other countries, most notably China, were pouring over the border and taking advantage of the cheap power source and sucking the grids dry, hugely exacerbating the nation’s already serious energy crisis and implausibly turning the country into the world’s second-largest Bitcoin mining hub. Now, however, the crypto-sector in the former soviet republic is starting to dry up as political unrest has led to sweeping internet shutdowns in recent weeks, “caus[ing] bitcoin's global computing power to drop around 13% as data centres used to produce the cryptocurrency were knocked offline,” according to recent reporting from Reuters.
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Crypto-mining operations are now receiving another blow from the republic of Kosovo, one of the poorest nations in Europe. At the end of 2020, the government declared an immediate temporary ban on all crypto-mining activity within Kosovan borders as part of emergency measures to mitigate the ongoing energy crunch. Similar to Kazakhstan, Kosovo offers its residents sharply subsidized energy rates and cheap energy produced by burning plentiful domestic low-grade coal. And then there are some other little local quirks, shall we call them, that make this country a crypto goldmine. “The largest-scale crypto mining is thought to be taking place in the north of the country, where the Serb-majority population refuse to recognise Kosovo as an independent state and have consequently not paid for electricity for more than two decades,” the Guardian reported this week.
Now, with the new temporary ban in effect, Kosovan crypto-miners are trying to sell off their equipment in a hurry. “There’s a lot of panic and they’re selling it or trying to move it to neighbouring countries,” cryptoKapo, a crypto investor and online crypto community administrator, was quoted by the Guardian. These kinds of groups (like Albanian Crypto Amateurs on Facebook and Crypto Eagles on Telegram) have exploded in popularity in recent years, suggesting a huge spike in crypto mining in Kosovo – although the exact numbers are hard to pin down.
The struggles in Kosovo and Kazakhstan highlight some of the biggest challenges presented by and faced by cryptocurrencies. While the number of people engaged in mining and trading are still relatively small, the energy footprint of these currencies already rivals mid-sized countries, and regulation is all but impossible as the entire point of these ventures is anonymity and decentralization. This is particularly true for cash-strapped countries such as these that have extremely low capacities to combat the crypto-miners sapping their grids dry. While a temporary ban like Kosovo’s may have an equally temporary effect, any real fix is yet to be discovered.
By Haley Zaremba for Oilprice.com
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