Hype Go Up

Using scarce clean electricity for crypto mining is a tragic waste.

I’m all about energy abundance. But I hope that the latest round of crypto hype – and the enormous amounts of energy required by some of the biggest cryptocurrencies – does not wind up costing poor nations such as Ethiopia, where Bloomberg reports that the state-owned power monopoly has just signed power deals with 21 crypto firms. 

Yes, Ethiopia, a country where electricity consumption is a paltry 122 kWh per person per year – less energy than my son’s dorm room minifridge uses.

Let me say bluntly upfront that I’m no great fan of crypto. I totally get that anonymous untraceable money can help democracy activists in hermit kingdoms or people living under the Taliban or even be fun. But it also seems obvious to me that lots of crypto is used for money laundering or other illegal activities, and most coins are barely disguised scams. I thoroughly enjoyed Bloomberg reporter Zeke Faux’s Number Go Up and his view pretty much aligns with mine.

I could be wrong about crypto’s ultimate utility to society. It won’t be the first time. If you want to throw your life savings into rando-coin, please go ahead. Just don't ask US taxpayers to protect you or bail you out.

Yet a few recent events make me think crypto and energy poverty are becoming intertwined — and why we need to ask some hard questions. 

1. Bitcoin Go Up. 

Clearly, the market thinks I'm wrong, and crypto isn’t going away.

2. Energy use from Bitcoin Go Up. 

The most popular cryptocurrency is Bitcoin. And Bitcoin requires a lot of computing power, which means lots of electricity. (The growing number of ‘proof of stake’ cryptocurrencies use far less energy, but Bitcoin’s ‘proof of work’ system is a massive energy hog.) As of today, the Cambridge Bitcoin Electricity Consumption Index estimates that Bitcoin mining is using 161 TWh (annualized), up from 101 TWh a year ago. That’s a lot of electrons. 

Source: CBECI

3. The Money Shot: Bitcoin vs entire countries. 

How much is a lot? In Bitcoin is a (Big) Country, Daniel Johansson and I show how Bitcoin uses more electricity than Bangladesh (170m people) or Nigeria/Ethiopia/Kenya combined (386m). 

4. Crypto miners don't want us to know what they’re using 🚩🚩🚩

Last month, the US Department of Energy’s EIA put out a new estimate that crypto mining is devouring as much as 2.3% of all US electricity, and raised some red flags:

This additional electricity use has drawn the attention of policymakers and grid planners concerned about its effects on cost, reliability, and emissions. Key challenges associated with tracking cryptocurrency mining energy use include the difficulty of identifying cryptocurrency mining activity among millions of U.S. end-use customers and the dynamic nature of the crypto market….

The industry’s answer? They went to a Texas court to block EIA from collecting their consumption data and won. Nothing to hide here, but if you ask, we’ll sue.

Alas, the energy poverty dilemma.

The US may not want to know how crypto is affecting the future of our power system, but China decided to crack down on Bitcoin miners when it became a problem. That prompted miners to seek cheap power elsewhere. Nearly all (19 of 21) of the crypto firms that have signed power deals with Ethiopia’s power monopoly are migrating from China. 

How to think about this? On the plus side, Ethiopia has excess clean power (at least for now) from its large hydro and Bitcoin miners provide an income source. The potential for crypto revenues could also, ideally, spur more investment in the power sector of Ethiopia and other countries with untapped clean energy potential yet who have been unable to secure offtakers to make such projects bankable. Kenyan geothermal, perhaps? (Sorry, but I sure hope not.) Or maybe capturing flared gas in Nigeria? (Okay, that seems like a better use of an otherwise entirely wasted resource. Cooking gas would be better.) In a best case, crypto-fuelled investment could eventually help build some of the long-term infrastructure countries need.  

But, but, but… It’s one thing to use crypto mining consumption to illustrate the scale of energy inequality. Yes, it’s a crazy unfair world when fake currencies consume more power than entire countries filled with actual people who live real lives and want decent jobs. Those electrons are fungible in theory but not in reality. Restricting the energy use of Bitcoin mining in Shanghai or Fort Worth does not result in more power in Addis Ababa. 

Yet when countries have limited power capacity at home and sell off those electrons to crypto miners, they are making a deliberate policy choice with real consequences for their own economies. I’m sure the Ethiopian authorities will say there are no creditworthy buyers inside Ethiopia (or in neighboring countries), so this is their best available option. After the recent civil war and ongoing risks, I doubt many foreign investors are ready to take the plunge back into Ethiopia, even for cheap electricity. Fleet-footed crypto miners are willing to try. And Ethiopia, never one to kowtow to investors, could always change its mind and cancel the contracts if it later needs the power for more productive industries. 

Yet, it still strikes me as tragic – and a failure of development policy imagination – that a country with such deep energy poverty is diverting its resources to such a pointless purpose. Bitcoin mining brings a trickle of income to the national utility but zero additional value to the Ethiopian economy. 

How do I know this? Ethiopia is happy to sell power to crypto for use by foreigners, but it bans Bitcoin trading for its own citizens. Not exactly a vote of confidence about the future of its new business partner.