Kazakhstan internet shutdown highlights bitcoin’s reliance on fossil fuels

7 Jan 2022

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Events this week have pushed energy-intensive bitcoin mining into the spotlight.

An internet shutdown in Kazakhstan has had a large impact on the bitcoin mining industry and shed light on the cryptocurrency’s reliance on environmentally damaging fossil fuels like coal.

Last year, the central Asian country became the world’s second-largest hub for bitcoin mining after China launched a full crackdown on crypto mining within its borders.

Bitcoin miners likely relocated their activities to Kazakhstan not only for its neighbouring location to China, but also for its abundance of cheap fossil fuel energy. Kazakhstan is home to many coal mines and plants and was the world’s ninth-largest coal producer in 2019, according to the International Energy Agency.

Bitcoin and other cryptocurrencies are created or ‘mined’ by high-powered computers, which require large amounts of energy to make a new coin.

But the recent internet shutdown amid national protests in Kazakhstan, spurred by surging fuel prices, has provided a blow to crypto miners and caused a sudden drop in the computing power of the bitcoin network.

An estimated 18pc of all bitcoin mining was taking place in Kazakhstan in August 2021, according to the Cambridge Centre for Alternative Finance’s Bitcoin Electricity Consumption Index.

Bitcoin’s environmental impact has been a cause for concern due to the amount of power cryptocurrency mining uses around the world. Bitcoin mining consumes around 91 terawatt-hours of electricity annually, which is more electricity than all of Finland, according to a New York Times analysis last year.

The heavy energy use was previously noted by the Kazakhstan government, which estimated that bitcoin mining accounted for 8pc of its total energy generation capacity, according to Reuters.

“These miners don’t just need cheap energy, but a stable source of power because their machines need to run 24/7, and fossil fuel sources are best suited for it,” Dutch economist Alex de Vries told NBC last year. “Miners are reviving gas plants and idle coal mines in places like New York and Montana.”

China had long been the epicentre for global bitcoin mining, with more than 70pc estimated to take place there in January 2020. The country is also the largest coal producer in the world, generating roughly half the world’s coal power in 2020.

Kosovo announced a ban on cryptocurrency mining this week as the country deals with an energy crisis. Like Kazakhstan, most of its energy comes from coal plants.

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Leigh Mc Gowran is a journalist with Silicon Republic