As Europe continues to grapple with an energy crisis caused by skyrocketing demand for liquefied natural gas, a tight global energy supply, and Putin keeping pipelines at low capacity as gas-rich Russia gains political ground, Another sleeping giant has emerged to become a huge and surprising obstacle 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 computation needed to create new crypto-assets, some European countries are beginning to clamp down and even outright ban this practice.
Bitcoin’s energy footprint alone now hovers at 137.4 terawatt hours per year, ranking between the annual consumption rates of Ukraine and Egypt – countries with more than 40 and 100 million inhabitants, respectively. The “mining” of cryptocurrencies requires more and more energy all the time, in order to secure the system through the use of the blockchain, which requires complex calculations, and in order to maintain the production rate (and so hopefully the value of the currency) stable. To achieve this, the problems that “miners” solve become more and more complex as more and more people start mining, which means that producing a 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 straining the energy networks and economies of entire nations as energy prices soar. In Kazakhstan, where energy prices are kept artificially low by the government in order to keep electricity affordable for its citizens, crypto miners from other countries, notably China, were crossing the border and taking advantage of the source cheap energy and sucked the grids dry, vastly exacerbating the country’s already severe 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 has plummeted by around 13% as the data centers used to produce the cryptocurrency have been taken offline,” according to recent reports 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 Kosovo’s borders as part of emergency measures to alleviate the current energy crisis. Similar to Kazakhstan, Kosovo offers its residents heavily subsidized energy tariffs and cheap energy produced by burning an abundance of low-quality domestic coal. And then there are other little local quirks, shall we call them, that make this country a crypto gold mine. “Larger-scale crypto mining is believed to be taking place in the north of the country, where the Serb-majority population refuses to recognize Kosovo as an independent state and has therefore not paid for electricity for more than two decades,” the Guardian said. reported this week.
Now, with the new temporary ban in effect, Kosovar crypto miners are trying to sell their gear in a hurry. “There is a lot of panic and they are selling it or trying to move it to neighboring countries,” said cryptoKapo, a crypto investor and administrator of the online crypto community, as quoted by the Guardian. These types of groups (like Albanian Crypto Amateurs on Facebook and Crypto Eagles on Telegram) have exploded in popularity in recent years, suggesting a huge increase in crypto mining in Kosovo – although exact numbers are hard to pin down.
The struggles in Kosovo and Kazakhstan highlight some of the biggest challenges presented and faced by cryptocurrencies. While the number of people engaged in mining and trading is still relatively small, the energy footprint of these currencies already rivals that of mid-sized countries, and regulation is next to impossible as the purpose of these businesses is l anonymity and decentralization. This is especially true for cash-strapped countries like these that have extremely weak capabilities to fight crypto miners who dry-mine their networks. While a temporary ban like Kosovo’s can have an equally temporary effect, no real solution has yet been discovered.
By Haley Zaremba for Oilprice.com
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