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Gold and crypto mining; power and emissions

3 Mins read

There has recently been a lot of discussion and debate around the possible similarities and differences of gold and Bitcoin (and, by implication, other cryptocurrencies), and this has often included consideration of their relative environmental impacts and, specifically, their carbon footprints.

Gold and cryptocurrencies are simply very different as assets. Similarly, the social and environmental impacts of gold and cryptos are very different, although not without some superficial similarities.

At one level, a comparison of the relative carbon footprints of gold and cryptocurrencies appears justified because the emissions of both are primarily related to the electricity used in their production.

Indeed, if we compare large-scale, industrialised gold mining and the major cryptocurrency networks, there does currently appear to be a close similarity in the scale of their electricity consumption and associated emissions.

A few high-level calculations suggest gold and cryptocurrencies currently share a broadly similar emissions profile, with total emissions of roughly, between 60 and 70 million tonnes of CO2e per annum.

However, this apparent similarity of scale is likely fleeting and coincidental. It may well be out of date by the time this is published. The opacity and extreme volatility of the crypto space make any indicative ‘snapshot’ a statistical challenge and likely to change in a matter of days.

Another reason why this comparison is problematic is because data on cryptocurrency inputs and emissions is limited and patchy, and therefore estimates require a lot of assumptions. The gold mining sector, on the other hand, has made great progress in its climate-related disclosures and we have therefore been able to produce detailed estimates of gold mining’s sectoral emissions.

We have also been able to define, in some detail, what gold’s potential pathway to ‘net zero’ carbon will look like in practice. We can map out how specific moves to renewable power sources at mine sites, supported by less production from higher emissions mines, can contribute to decarbonisation aligned with Paris Agreement targets.

Unfortunately, there is no such clearly defined pathway for the crypto currency sector. Or, rather, there is no clear agreement on whether such a path will be one the industry chooses to follow.

It is worth noting here, however, that both gold and crypto mining will undoubtedly benefit from projected reductions in the emissions intensity of grid power. Indeed, as few cryptocurrency operations are responsible for their own power generation, they are almost wholly dependent on the evolution of grid-sourced electricity and its ability to shift to renewable sources.

But this dependency may also be a major weakness for cryptos. The industry’s ‘passivity’ in the face of climate change is insufficient to allow observers or stakeholders any confidence in its ability or commitment to transition. And, while coin miners have been significant users of renewable power, it is not clear whether this has simply reflected the tactical pursuit of the cheapest electricity from localised surplus power sources. That certainly appears to have been the case in China, where hydro power has frequently been the prevalent source of electricity but often due to seasonal cost advantages, rather than being evidence of any strategic commitment to decarbonise power.

Gold mining has made a demonstrable effort to address these issues, and a commitment to combating climate change is embedded in the Responsible Gold Mining Principles.

The crypto sector, however, has yet to demonstrate any direction in such sectoral leadership or industry consensus, and this is a major challenge to any concerted industry attempts to move towards greener practices. The inherently decentralised, ‘permissionless’ nature of the crypto mining business seems a substantial potential stumbling block to progress.

Of course, gold mining has a range of environmental impacts too, and many of them are substantial and disruptive, but the industry has made great strides in seeking to mitigate them via adherence to responsible and sustainable practices and standards. And the gold supply chain’s wider positive social and economic impacts, direct and indirect, can be very significant – touching the lives of millions, well beyond the gold mine or those fortunate enough to own gold.

Another key question for investors considering the sustainability impacts of their holdings is the question of the appropriate use of resources with specific purposes or beneficial impacts in mind. And therein lies a substantial problem with cryptocurrencies; their utility is yet to be demonstrated.

Claims that cryptos represent a new or alternative monetary system are, at best, premature. While the world of digital currencies and frictionless payment systems is evolving rapidly, the role of cryptocurrencies, at least in their prevailing form, in these developments remains uncertain.

Without a strong demonstrable purpose or function, the question of whether cryptocurrencies justify such a voracious use of resources will always be challenging. This not only includes electricity, but also the computer components that comprise crypto mining rigs. The rapid turnover of these units can threaten other supply chains – for example, creating or exacerbating semiconductor shortages – and generate very large amounts of e-waste. Few crypto companies appear to have yet built any degree of circularity or recycling into their operations.

Putting aside the very different investment profiles of gold and cryptocurrencies, until the latter can demonstrate a diverse set of uses and positive impacts, underpinned by an industry seeking to elevate social, economic, and environmental standards, we might forget the comparisons for now.

Source: Investment Week

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