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Explainer: What is cryptocurrency mining and how does it hurt the environment?

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Explainer: What is cryptocurrency mining and how does it hurt the environment?

What is cryptocurrency mining? 

Cryptocurrency mining is the competitive process that verifies and adds new transactions to the blockchain, which is a digital transaction record.

As cryptocurrency is a decentralised network that lacks any central governing authority, cryptocurrency uses the proof-of-work method to verify the accuracy of new transactions.

Proof-of-work is a form of cryptographic proof in which one party proves to a verifier that a certain amount of a specific computational effort has been expended. 

The miner who completes the highest volume of transactions is rewarded with some amount of currency and/or transaction fees. 

If a miner is able to successfully add a block to the blockchain, they will receive 6.25 bitcoins as a reward. Although the reward amount is cut in half roughly every four years, or every 210,000 blocks, cryptocurrency mining still yields fairly lucrative rewards.

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The two most popular cryptocurrencies in circulation today are Bitcoin and Ethereum. 

As of March, Bitcoin traded at around US$24,300, making 6.25 bitcoins worth a staggering US$152,000.

How does cryptocurrency mining harm the environment?

The proof-of-work concept in cryptomining incentivises miners to ramp up their operations as quickly as possible, often irrespective of the energy source, so as to outdo their competitors. 

As more bitcoin miners join the mining network, the difficulty of the computational problem increases, and the amount of electricity needed to win the race increases exponentially too. 

Bitcoin, the world’s most widely-traded cryptocurrency, consumes 101 terawatt-hours of electricity annually, comparable to the power consumption of Kazahstan with a population size of 19 million.

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Producing that energy emits some 56 megatons of carbon dioxide into the atmosphere each year. This is comparable to the emissions of Peru, making crypto a significant air polluter. 

Using the social cost of carbon, a common metric to gauge the financial damage caused by the greenhouse gas, the researchers who looked at the number of bitcoins mined daily between 2016 and 2021, calculated the climate cost of Bitcoin.

On average, they found that for each dollar in bitcoin value created, the process resulted in 35 cents in global climate damage – or 35 per cent of its market value. In contrast, the climate damage caused by beef accounts for 33 per cent of its market value, while damages from gasoline produced from crude oil were 41 per cent. 

On the other hand, the cryptocurrency ethereum implemented a major network upgrade in 2022 that completely changes how the blockchain verifies transactions, mints new coins and secures its network. Called proof-of-stake, this system has reduced ethereum’s energy consumption by more than 99 per cent.

A proof-of-stake network like Ethereum secures itself via staked cryptocurrency. Instead of expending computing energy to solve a puzzle, the nodes validating new transactions stake their own value as collateral. These nodes then run efficiently and honestly to avoid losing that collateral. 

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Deng Xin, associate professor of banking and finance at Singapore’s Nanyang Technological University, said that in response to growing environmental concerns, the blockchain community has been actively integrating ecological considerations and embracing more sustainable consensus mechanisms such as Ethereum.

Cryptocurrency mining also produces electronic waste. As the equipment used for cryptomining is highly specialised, the hardware becomes obsolete within just a year and a half before it becomes e-waste, says Alex de Vries, a digital currencies researcher at the Vrije Universiteit Amsterdam in the Netherlands. 

A single Bitcoin transaction creates about 275 grams of e-waste, which equates to 1.68 iPhone 12 devices, according to Digiconomist, a site that examines the unintended consequences of digital trends.

What are countries in Asia doing to mitigate cryptocurrency’s climate impact?

Deng said that the introduction of the DAME tax in the US is likely to prompt the departure of Bitcoin miners, driving them to seek more favourable jurisdictions given their sensitivity to cost.

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A likely destination for America’s Bitcoin miners could be Asia, which is leading the way in cryptocurrency regulations. 

Attitudes towards the regulation of cryptocurrency vary greatly across Asia. In the most extreme of cases, developing Asian countries such as China and Bangladesh have banned cryptocurrency altogether. 

Some countries, such as Kazakhstan, have adopted punitive measures similar to those implemented by the US. To discourage energy overconsumption, the central government implemented a 1 tenge (0.002 US cents) electricity rate surcharge, about a 4 per cent increase in total energy costs, on registered crypto miners last month. To further regulate the demand for power, state-owned Kazakhstan Electricity Grid Operating Company routinely restricts energy supply to cryptomining companies.

Ben Charoenwong, assistant professor in finance at the National University of Singapore Business School, says that countries in Asia — which are mostly emerging economies — may have a harder time adopting such punitive measures because of enforcement issues.

“I have heard plenty of anecdotes of miners simply tapping into electric poles, effectively stealing the electricity. These miners, unlike those in America, will not worry about energy prices. Likewise, going after them for taxes would also be difficult,” he said. 

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As such, other countries like Uzbekistan have adopted a carrot-and-stick approach. 

The Central Asian country has legalised crypto-mining powered by solar energy, and has implemented a new federal income tax exemption that will benefit miners who install solar panels. 

At the same time, the government in Uzebekistan has also levied steeper electricity rates on miners who choose not to make the switch to renewable energy, while imposing surcharges during the busiest hours of the day. Miners using non-rewewable energy are also required to foot double the electricity tariff of those using solar energy. 

Meanwhile, countries with a surplus of renewable energy such as Japan, have said that they will divert excess renewable energy across the grid to distributed data centres that power cryptocurrency mining operations, curtailing energy wastage.

“Encouraging miners’ participation in carbon offsetting programs could also provide another avenue for mitigating their environmental effects,” said Deng. 

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“Countries can also allow cryptocurrency miners to issue green bonds to help miners transition from using energy from unsustainable sources to more sustainable sources,” said Charoenwong. 

On the other end of the spectrum, cryptocurrency mining is currently not being regulated in land-scarce Asian countries like Singapore. This is because the local conditions are not favourable for cryptocurrency mining.

“[Singapore’s] relatively high land, labour and electricity costs, coupled with our hot tropical climate, make it expensive to operate cryptocurrency mining,” said environment minister Grace Fu in parliament in 2021. 

What does the future hold for crypto-mining?

Charoenwong concluded that all proof-of-work cryptocurrencies such as Bitcoin are at risk of future developments, such as technological transitions arising from pressures exerted by environmental groups and support from the open-source communities behind these decentralised cryptocurrencies to make the switch. 

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Hence, the energy discussion may become moot one day, just like how it was wiped out with Ethereum’s migration from proof-of-work to proof-of-stake.

“So in some sense, the issue of mining may ‘solve itself’ just from the incentive of actors in the own economies to develop new solutions even without much government intervention,” he said.

A caveat, however, is that this transition is likely to take time given that the majority of Bitcoin miners, who collectively mine 900 new bitcoins per day (worth over US$20 million), still prefer the existing proof-of-work concept. “As such, to the extent that the cryptocurrency activity generates a negative externality to the public, we should consider taxes or other schemes to correct the externality,” he said.

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'Wild west of finance': Why are there cryptocurrency ATMs?

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'Wild west of finance': Why are there cryptocurrency ATMs?

The Canberra region has about 39 cryptocurrency ATMS, but for locals who haven’t engaged with digital currency before their presence can be confusing.

Cryptocurrencies, or cryptos, are digital tokens that allow people to make payments directly to each other through an online system.

The ATMS were created as an alternative payment method to remove the middleman of banks through a de-centralised system.

When transferring crypto, thousands of computers worldwide verify the transfer, instead of one bank.

Bought and sold on digital marketplaces called exchanges, cryptocurrencies don’t have any intrinsic monetary value — they are worth whatever people are willing to pay for them at the market on a given day.

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Currently, Bitcoin is both the most popular crypto and the crypto with the highest monetary value, at about $150,000 per coin.

So if the main purpose of crypto is to be digital, why do crypto ATMs exist, and are they useful?

How do they work?

There is no tangible data on how many Australians are accessing the ATMs, however as of last July, according to YouGov, about 1.3 million NSW residents, 801,000 Victorians, 850,000 Queenslanders, 294,000 South Australians, and 462,000 WA residents said they currently owned crypto.

Award-wining technology journalist and founder of technology publication Pickr, Leigh Stark, told ABC Radio Canberra the primary function of a crypto ATM is to turn real money into digital money, or vice versa.

In order to use a crypto ATM a person must already have a crypto wallet that can generate a QR code.

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At a crypto ATM the digital currency can be bought, sold, or both, but Mr Stark said most only offer access to between five and 10 of the major cryptocurrencies — almost always including Bitcoin.

Selling cryptocurrency through a crypto ATM means swapping it for its current market value in cash or with a debit card.

You can also buy cryptocurrency with cash or a debit card at a crypto ATM.

Mr Stark said he didn’t know “if there’s necessarily a need” for cryptocurrency ATMs.

“I can understand why some people might want to take some of their money out of it, so effectively turning a digital coin that only exists on the internet into hard money, that kind of makes some sense to me,” he said.

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“But buying crypto through it, I’m not entirely sure I understand that — largely because of the amount of exchanges that exist online.

“I feel like they would be a better approach for actually buying crypto, not even just because of the money transfer, but also because there are a lot more options for what you invest in on an online exchange.”

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Mr Stark warned taking money out from some crypto ATMs was taxable, and it was up to a user to remember and file.

“So the ATMs, effectively, they still have to abide by Australian government regulation regarding how they work,” he said

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“But the whole thing about crypto and managing to take your money out of it, it qualifies as part of the capital gains tax.

“Not all crypto ATMs work that way, but if you take your money out, you have to remember what you did as a form of event, and file that information later on.”

Are Canberrans using Bitcoin ATMs?

Mr Stark said because a Bitcoin ATM usually only offered access to a selection of major cryptocurrencies, their usefulness depends on what exchanges a person invests in.

And they don’t all support selling, which is how a person can get money from them.

“Not every Bitcoin ATM works as a form of exchange, that’s for selling currency and they don’t all do that.

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“In fact, far fewer support selling than they do buying.”

A Localcoin branded Bitcoin ATM in Canberra. (ABC News: David Sciasci)

Mr Stark said crypto ATMs in the Canberra region typically accepted a maximum of $25,000 in cash, but he suspected the majority of users wouldn’t be carrying that much cash with them.

But he said much smaller amounts were not uncommon.

“I mean the reality is, if you put in 20 bucks, that’s 0.000013 of a single Bitcoin,” he said.

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“[But] you absolutely could buy that small amount of crypto, and that’s quite normal.”

Mr Stark said often people begin buying crypto in these very small amounts and then decide whether to buy more depending on whether its value increases.

“Crypto is kind of the wild wild west of finance, depending on what type of coin you get, whether it’s one of the big ones like Bitcoin or one of the small ones like Shiba Inu or Ethereum, or anything like that, you might end up with a small amount that spirals into a big one,” he said.

“You might be one of those success stories, it seems highly unlikely, but you could be just waiting for it to get higher and higher.”

Are they used for scams or crime?

In order to use the financial proceeds of crime, or ‘dirty money’, it first needs to be laundered to hide its illegal origins. 

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Cryptocurrency offers a sophisticated way to do this by turning it into digital currency.

However, every crypto transaction is recorded on a blockchain — essentially a publicly available, online ledger — so to make the dirty money truly clean, the crypto is then put through a mixer service.

These services mix cryptocurrency together from a number of different users, which obscures the transaction trails and makes it very difficult to trace the original source.

A Localcoin branded sign that reads "Bitcoin ATM here".

Leigh Stark says if someone is asking you to buy them Bitcoin, it’s most likely a scam. (ABC News: David Sciasci)

Mr Stark said it wouldn’t shock him if Bitcoin ATMs were being used for criminal enterprises like money laundering or money mule activities.

“I’ve not seen it, but likewise, I’ve also never seen anyone actively use a Bitcoin ATM before,” he said.

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“I’ve never had a reason to, and that’s kind of the point.

“But maybe I’m coming at the wrong times, maybe there are people coming through with $25,000 at 1am and I just have no idea.”

As for using them in scams, Mr Stark said that was less about the ATMs and more about cryptocurrency as a whole.

He said if someone is asking you to get Bitcoin for them “it’s probably a scam”.

“There are a lot of different scams out there, and Australians lose billions every year, but yes, if somebody has asked you to buy them crypto or said that you need to give them crypto in order to get something in return, it’s very likely a scam,” Mr Stark said.

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“Some of the Bitcoin ATMs have been used for things like that, and so now the Australian government is effectively trying to track and work out how those actually work in relation.”

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Trump to designate cryptocurrency as a national priority

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Trump to designate cryptocurrency as a national priority

As President-elect Donald Trump begins a second term on Monday, he plans to issue an executive order making cryptocurrency a national priority, Bloomberg reports. 

The order is meant to guide government agencies to work with the industry and possibly pause crypto-related litigation, according to Bloomberg, which cited unnamed people familiar with the matter. Trump also plans to create a crypto advisory council to advocate for the industry’s policies, per Bloomberg, and has suggested creating a national bitcoin stockpile.

This would mark a new era for crypto, an industry that collapsed two years ago after prices crashed. The period was marked by the fall of FTX, a leading exchange that went bankrupt that year. Its founder, Sam Bankman-Fried, was convicted of defrauding customers and sentenced to 25 years in prison.

The industry resurged in 2024, boosted by Trump, a former skeptic who pledged to turn the U.S. into the crypto capital of the world. Eager for a clear governing framework and a friendlier watchdog, donors poured tens of millions of dollars into pro-crypto candidates’ campaigns. 

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Dogecoin, a cryptocurrency with a dog mascot and billionaire Elon Musk as a fan, surged in value after Trump won and announced a non-governmental cost-cutting group nicknamed DOGE.

Trump then nominated crypto ally Paul Atkins to lead the Securities and Exchange Commission, the federal agency that led a crackdown under the Biden administration. Bitcoin surged to $100,000 for the first time following the announcement. “CONGRATULATIONS BITCOINERS!!! $100,000!!!” Trump wrote on Truth Social. “YOU’RE WELCOME!!!”

Crypto companies and investing platforms like Coinbase, Robinhood, Kraken and Ondo Finance Inc. have made $1 million donations to his inauguration. Ripple plans to donate $5 million in the form of its own digital token, and the industry is holding an “Inaugural Crypto Ball” to support Trump, Bloomberg reports.

Trump’s business interests include World Liberty Financial, a crypto platform he and his sons launched last year with Steve Witkoff, a friend and inaugural committee co-chair who has been named special Middle East envoy. The Trumps are not employees of the business but promote it, and an entity affiliated with Trump, DT Marks DEFI LLC, is entitled to receive 75% of the revenues.

In mid-November, the Financial Times reported that Trump Media — the parent company of Trump’s social media platform, Truth Social — was in talks to buy Bakkt, a crypto trading firm previously led by Kelly Loeffler, another co-chair of his inaugural committee.

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Trump’s 2024 financial disclosures show he owned as much as $5 million worth of the crypto token ethereum, a crypto token that has surged in value since the election, according to The New York Times.

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Donald Trump plans to make cryptocurrency a national priority: Report

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Donald Trump plans to make cryptocurrency a national priority: Report

Donald Trump, who is going to take office as the 47th US President on January 20, is planning to issue an executive order that will elevate cryptocurrency to a national priority in the United States, reported Bloomberg.

The move is expected to signal a policy shift and provide the crypto industry with a more prominent role in shaping government decisions.

According to sources mentioned in the report, the order will designate cryptocurrency as a national imperative, encouraging government agencies to collaborate with the industry. Additionally, it is likely to establish a cryptocurrency advisory council to advocate for the sector’s policy needs.

Bitcoin was trading at $101,021.39, with a market cap of $2 trillion at the time the article was being written.

CRYPTO INDUSTRY’S INFLUENCE

Donald Trump has received considerable support from the cryptocurrency industry, including donations from prominent companies such as Coinbase and Ripple to his inaugural committee. On Friday, just days before the beginning of his second term at the White House, the industry is set to host an “Inaugural Crypto Ball” in Washington, celebrating its ties with the incoming administration.

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This initiative would represent a huge shift for the crypto sector, which has faced numerous regulatory challenges under President Joe Biden’s administration. Federal agencies, including the Securities and Exchange Commission (SEC), have launched more than 100 enforcement actions against crypto companies in recent years.

The proposed executive order may include a directive requiring all government agencies to review their policies on digital assets. There is also discussion about pausing ongoing litigation involving cryptocurrency firms, sources told Bloomberg. This could potentially halt legal actions against major players such as Binance Holdings Ltd. and Ripple Labs Inc., a move seen as a top priority by the industry.

CREATION OF NATIONAL BITCOIN STOCKPILE

Another key aspect under consideration is the creation of a national Bitcoin stockpile, the report mentioned.

The US government currently holds nearly $20 billion worth of Bitcoin, confiscated during various investigations, according to analytics firm Arkham. Bitcoin’s price has surged by nearly 50% since the November election, reaching over $100,000, partly due to speculation about the potential stockpile.

The proposed stockpile would formalise the government’s holdings of Bitcoin and reflect a strategic shift in how the US approaches cryptocurrency. Bitcoin has seen remarkable growth in 2024, with its value more than doubling over the year.

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Kara Calvert, Vice President for US Policy at Coinbase Global Inc., commented on the importance of Trump’s potential move.

“What I think Donald Trump is going to do is signal that the United States is back and we are ready to lead in this industry. What it’s signaling to other countries is be careful, or you won’t keep up,” she told Bloomberg.

Trump has also made bold promises during his campaign, vowing to transform the US into the global capital of cryptocurrency. His administration is expected to issue several executive orders covering various industries within his first few days in office.

Despite facing regulatory hurdles during the Biden administration, the cryptocurrency industry in the US has continued to grow. Prominent financial firms, including BlackRock Inc., have launched spot Bitcoin and Ether exchange-traded funds (ETFs).

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Jan 17, 2025

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