I WANTED TO BRING TO YOUR ATTENTION, SOME OF THE ‘HIDDEN’ COSTS OF BITCOIN MINING.


So you can see on the face of it, the environmental impact is significant, taking these percentages on board. Yet there have been some reasons why Bitcoin mining has benefitted from being close to hydro-electric sources. You see, in the rainy seasons in China, predominantly in Spring and Summer, there is an excess of hydro-electric generated electricity. For example, in the Garze prefecture in Sichuan, hydro-electric power plants generated 41.5 billion KWh in 2017, of which 16.3 billion KWh went to waste, effectively too much for the grid5


. That would have


been fine to use for Bitcoin mining…but there is pressure now to rein in the use of hydro-electricity for Bitcoin mining and so the alternative is back to using coal powered electricity. This was highlighted by a coal mine flooding in Xinjiang during the weekend of the 17th – 18th of April this year. This flooding led to a blackout that halted up to a third of Bitcoin’s global computing usage and brings me nicely as to who are the miners, who are the ‘pools’?


Well, the mining pools are collaborations between individual miners and major mining companies. They combine their ‘Hashrate’, the computational power needed to mine and process transactions for a blockchain, to get a better chance of finding a block. Four of the top five pools are in China and many miners outside of China are lured to join these pools because of the steady, yet small, earnings from a pool, compared to the high rewards and low odds of solo mining/small pools. Number one, is F2Pool (aka DiscusFish). They have mined 18% of all blocks in the last year and control 18 EH/s (1 EH/s or 1 Exahashes per second is a quintillion hashes per second). The second largest is Poolin, with 13% of all blocks in the last year and controlling about 10 EH/s. Huobi Pool is third with 9% of all blocks and 11.5%. Another large Chinese mining pool is AntPool. They’ve mined 8% with a hashrate of 10.9 EH/s. However, there is speculation that they may be much larger as they may control other mining pool such as Via BTC, BTCcom, GBMiners, CANOE and maybe others6


. It is worth noting the following. The supply


of Bitcoin is finite. There are supposed to be 21 million Bitcoins in total. About 89% have been mined, leaving only about 2.27 million still left…though this could theoretically, take up to 2140 to mine.


5 Coindesk, 28 April 2020. 6 Jordan Tuwiner, founder But Bitcoin Worldwide, May 2021.


5 | ADMISI - The Ghost In The Machine | Q2 Edition 2021 7 We need to talk about Bitcoin, Chris Clothier, CGAM January 2021.


8 Bitcoin v ESG: Fund Manager Chris Clothier warns against BTC, Rick Steves, FinanceFeeds, 28 April2021.


However, the cost of mining well before then may be prohibitive due to splitting. When that happens, the servers employed in mining, would only be able to earn transaction fees for putting together transactions, an amount that’s a lot less than the reward for mining. This is unless things change. I would just like you to think that over, along with all its ESG implications. OK…so back in January, Chris Clothier laid out his opinion in a special report as to why investors should beware of Bitcoin. I’ll concentrate on the three key ESG elements of his paper. He started with the Environmental implications and stated that Bitcoin was ‘… nothing short of an environmental disaster. No investor who upholds ESG principles should own it under any circumstances.’. He was not pulling punches as he laid out other reasons why…but I’ll concentrate on the ESG implications in this short piece. Thus he continued ‘…it is estimated to consume as much electricity as Chile and have a carbon footprint equal to the entire population of New Zealand.’. In a second point, he wrote about the Social impacts, thus ‘Turning to social issues, the primary use of case of Bitcoin outside of speculation, iss for settling illegal transactions: drugs, money laundering, child pornography, terrorism, extortion and assassination.’. In a third and final point, he wrote about Governance, the G in ESG, ‘Governance is also problematic, the decentralised nature of Bitcoin has certain attractions, but equally that lack of accountability presents problems especially when coupled with the risk of a malign actor taking control, of the network…Trading volumes of Bitcoin remain small relative to its market cap and market makers are not subject to the same scrutiny as in traditional markets.’7


. These are


some of the highlights from a paper that reads for 12 pages…but I think you get the message.


In response to this, Brushify.io’s CEO Joe Garth argued that ‘…the sustainability argument is incredibly short-sighted. Bitcoin uses a fraction of the energy that the conventional banking system requires. Go to New York and look at the skyscrapers lit up like Christmas Trees, filled with computers. Think about the employees of those banks and all the energy they’re using pushing numbers around spreadsheets manually. The transportation of those employees, the food for those employees…the costs of traditional banking go on and on.’. He added that ‘Banking has millions of workers that are no longer needed…’.8


They continued to respond to each other…but that conversation is not the subject of my piece. I wanted to bring to your attention what are some of the ‘hidden’, for want of a better word, costs of Bitcoin and cryptocurrency mining and who actually are the miners plus an insight into their world…and how they do it.


Eddie Tofpik E: eddie.tofpik@admisi.com T: +44(0) 20 7716 8201


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