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When crypto was just starting out, you could easily mine some using a decent laptop or
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desktop computer.
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But as digital currency prices have soared over the years, a flood of large-scale
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crypto mining operations like the one behind me have piled in, hoping to cash in on the boom.
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Crypto mining requires a lot of power.
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So much so that bitcoin, the world's biggest cryptocurrency, now uses up as much energy
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as entire countries.
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That has led to concern from policymakers about the environmental toll of cryptocurrencies,
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with some countries, such as China, even moving to ban crypto mining.
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So how did we get here exactly, and can the crypto industry clean up its dirty image?
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To find out, I've come to Boden, a small military town in northern Sweden.
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It's also home to a huge crypto mine run by Canadian firm Hive Blockchain.
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That's where I met Johan Eriksson, an advisor at Hive.
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He's seen first-hand how much power it takes to mine crypto around the clock.
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30 megawatts of installed hardware.
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That's approximately in excess of 120,000 GPUs running 24/7.
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Hive's machines use chips called GPUs to mine ethereum, the world's second-biggest cryptocurrency.
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And, as you can hear, they're pretty loud.
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So why does mining crypto use up so much electricity?
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Well, it all comes down to three little words: proof of work.
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Unlike traditional currencies, cryptocurrencies are decentralized.
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That means the work of recording transactions and minting new units of currency is handled
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by a distributed network of computers, rather than banks and other intermediaries.
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To facilitate a payment on a crypto network, all of the participants, known as miners,
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need to agree that the transaction is valid.
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In bitcoin's case, the method of reaching this consensus is known as proof of work.
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The reason that bitcoin, in particular, uses quite significant amounts of electricity is
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because of the consensus protocol that Bitcoin runs on.
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Kirsteen Harrison is a climate policy advisor for the crypto exchange, Zumo.
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What that means is that essentially, a number of computers need to compete to solve cryptographic puzzles,
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and that is what creates the bitcoin.
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When someone finds a solution to a puzzle, the rest of the network checks to see if that
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miner put in the required amount of work to do so.
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If they're satisfied, the miner gets to add a new batch of transactions to the blockchain
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and is rewarded with some tokens for their effort.
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But just like mining for gold, the chances of discovering new crypto can be pretty slim.
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In fact, the best way to improve your chances is with more processing power, or “hash power.”
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The higher the hash power, the more chances a computer gets to guess the right answer to a puzzle.
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And as usage of the blockchain grows, the difficulty of successfully mining cryptocurrency
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also increases, meaning miners are forced to use more power-hungry machines.
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The whole point of proof of work is that it's the energy expenditure that secures the network.
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Today, the process of creating new bitcoins consumes more than 130-terrawatt hours of electricity annually.
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That's more than entire countries, including Sweden, which has a population of over 10 million.
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This is proving problematic for global governments, who are under pressure to limit global warming
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to well below 2°C, and eventually reach net-zero emissions.
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Locally, we're getting quite a bit of support.
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Towns, municipalities, local suppliers, definitely power producers, grid owners.
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We're getting a bit of backlash from Finansinspektionen in Sweden.
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Finansinspektionen is Sweden's financial regulator.
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The government agency called on the European Union to ban crypto mining due to its huge energy usage.
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I think regulating it and alleviating any worries the Finansinspektionen may have about
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these kinds of assets would help a long way.
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To address concerns around pollution from crypto mining, companies like Hive are increasingly
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shifting away from dirty fossil fuels to renewable sources of energy, like wind, solar and water.
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This Hive facility is powered by a local hydropower plant.
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This region is renowned for its surplus of cheap, renewable electricity.
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In the north of Sweden, 100% of the power is either hydro power-based or wind power-based.
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So, it is 100% renewable.
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More than two-thirds of Sweden has a large excess production of electricity, or the possibility
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to produce a lot more electricity.
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And what the crypto miners are doing here is they're utilizing that excess electricity.
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China used to be the world's biggest crypto mining hub, home to between 65-75% of the market.
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But since China banned crypto mining, the country's share of the bitcoin mining market
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has plunged dramatically.
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Bitcoin's backers had hoped this would make the cryptocurrency greener, with miners flocking
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to less fossil fuel-reliant regions.
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However, a peer-reviewed study released in February 2022 suggests China's crypto ban
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has had an inverse effect: bitcoin mining got dirtier in 2021.
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Zumo is a member of the Crypto Climate Accord, a private sector-led initiative inspired by
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the Paris Climate Agreement that aims to achieve net-zero emissions in the crypto industry by 2030.
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They're working on something called the green hash rate solution.
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And what that does is it allows the source of electricity used in mining to be verified as renewable.
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And there's quite a lot of trials going on with that at the moment.
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If that's successful, then hopefully that will filter out to the rest of the sector.
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But some activists believe steps to decarbonize bitcoin production are misguided.
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Greenpeace and other environmental groups are calling for the bitcoin community to make
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a change in the cryptocurrency's code to replace its proof of work mechanism
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with something called proof of stake instead.
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Proof of stake removes the huge computational cost of verifying new crypto transactions.
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The technology is already being used by blockchains like cardano and solana.
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And Ethereum is also planning to upgrade to a proof of stake protocol later this year.
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If that does happen successfully, which at the moment, all the signs are looking good,
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then that will reduce the electricity consumption of the Ethereum network by 99% or more.
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That puts bitcoin in an awkward position.
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I don't believe that there's an option to do away with proof of work, precisely because
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not one single player has control of the system.
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It's a peer to peer network, a trustless network, and no individual has control over it.
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And for that reason, I don't think any of us can make a decision about what happens
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with proof of work.
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Ethereum's change to proof of stake also has implications for the future of ethereum miners,
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such as Hive, although Johan says he's not worried by this.
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There's been delays on implementing proof of stake so far.
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And I think there's going to be more delays going forward.
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So proof of work, for the foreseeable time is going to have its place.
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So you're not worried about the future of Hive being at risk?
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Not really.
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In Sweden, it's running on GPUs.
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And that has so many uses.
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If power of proof of work goes away, then I mean, you could use these same facilities
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for rendering, high-performance computing.
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Even if it goes away, there's a good business for shifting the focus from mining to other
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sources of income.
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So, can crypto go green?
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Well, with regulators closely scrutinizing cryptocurrencies' energy usage,
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and climate change top of mind for global governments, the stakes couldn't be higher.
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We know that we're a bigger user of renewable energy than most other sectors, because the
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data that we do have suggests that at least 39% of electricity from Bitcoin mining is from renewable sources.