Renewable energy’s role in cryptocurrency mining is increasingly significant, particularly through the use of hydroelectric power, as highlighted by a study from the Cambridge Centre for Alternative Finance (CCAF). However, the region’s low-cost coal energy differentiates the Asia-Pacific (APAC) area from others.
The CCAF’s research reveals that 76% of cryptocurrency miners utilize renewable energy sources, with hydropower being the predominant choice at 62%. Wind and solar energy follow, utilized by 17% and 15% of miners, respectively. This aligns with earlier findings indicating that approximately 74% of Bitcoin mining is powered by renewable energy. Importantly, the CCAF notes that while a significant portion of miners tap into renewables, only 39% of the total energy consumed in hashing comes from these sources. The most favored energy sources after hydroelectricity are coal (38%) and natural gas (36%).
The term “hashers” is employed by CCAF to refer specifically to individuals operating mining equipment to generate hashes necessary for valid proof-of-work.
The dominance of hydropower raises critical discussions. Although hydroelectricity provides more reliability than solar or wind energy, its scalability is hampered by geographic limitations, necessitating specific topographical conditions for infrastructure like reservoirs and dams. Additionally, the availability of hydropower varies seasonally; during China’s rainy season, regions like Sichuan and Yunnan experience an oversupply of electricity, resulting in significantly lower costs for miners. According to Apolline Blandin, CCAF’s lead for cryptocurrency and blockchain, electricity costs can be approximately 30% cheaper during this time. When the rainy season concludes, miners often shift to areas with coal-based electricity in Inner Mongolia or Xinjiang, where energy remains inexpensive.
China remains a dominant player in Bitcoin mining, with estimates suggesting 65% of the total mining occurs there, and Xinjiang alone is responsible for around 35.76%. The CCAF’s findings suggest a balance between renewable and non-renewable energy sources is crucial in this landscape. Notably, an equal percentage of hashers in APAC report using hydropower and coal, both at 65%. Elsewhere, hydropower usage is also significant, with figures at 60% in Europe, 67% in Latin America and the Caribbean, and 61% in North America. However, coal’s prevalence is notably lower in these regions, with only 20% in Europe, 28% in North America, and none in Latin America.
Mining is integral to proof-of-work cryptocurrencies, where users earn coins by adding new blocks to the blockchain. In contrast, proof-of-stake cryptocurrencies are gaining traction, allowing users to support the blockchain’s operation by holding funds. For instance, Ethereum is transitioning to Ethereum 2.0, adopting a staking model.
Regarding regulation, Dr. Robert Wardrop, the director and co-founder of CCAF, states that ongoing issues related to compliance and security must be resolved for the cryptocurrency industry to achieve mainstream acceptance. Blandin describes cryptoassets as fundamentally different and requiring unique infrastructures for custody services, posing challenges for entities not steeped in the crypto sector.
Greater regulatory clarity and harmonization across jurisdictions may lead to improved compliance within the industry. CCAF’s research shows that a growing number of firms are complying with obligations related to anti-money laundering (AML) and combating the financing of terrorism (CFT), with a 67% increase in compliance since 2018.
The rise in providers supporting fiat currencies correlates with this trend, as about 30% of those previously offering only crypto now also handle fiat transactions. Additionally, the number of crypto-only companies neglecting Know Your Customer (KYC) checks has dropped from 48% to 13%. CCAF attributes these shifts to the efforts of organizations like the Financial Action Task Force (FATF) in standardizing regulations.
However, challenges remain, as the study reveals only 54% of firms report being insured, highlighting a gap in market-specific insurance solutions for the crypto industry. Moreover, the proportion of firms that had undergone independent audits in the last year has decreased by 24% since 2018, reflecting ongoing issues in regulatory compliance.