Cryptocurrency and Data Centers: Perspectives for Global Digital and Financial Security
Data Center Frontier is pleased to announced that Melissa Farney will be joining our editorial ranks as Editor at Large, reporting and writing about the trends shaping the data center industry. Melissa is an award-winning industry leader who has spent 20 years marketing digital technologies and is a self-professed data center nerd. She holds degrees in Marketing, Economics, and Psychology from the University of Central Florida.
Over her career, Melissa has supported organizations specializing in software applications, IoT, RFID, industrial automation, and power distribution to utility markets, including smart grid, smart city, and microgrid applications, as well as critical infrastructure industries such as data centers. This has enabled her to form critical connections across these related industries and has driven her to lend her voice as an advocate for sustainability initiatives. To these efforts, she contributed to both best-selling volumes of the "Greener Data" books featuring the voices, stories, and perspectives of leading decision-makers in the data center and network infrastructure industry.
Melissa currently serves as the Marketing Director for TECfusions, a global data center operator serving AI and HPC tenants with innovative and sustainable solutions. Prior to this, she held senior industry marketing roles with DC BLOX, Kohler, and ABB. Until recently, she authored the Data-Centered column for the erstwhile Mission Critical Magazine, and will now bring dedicated monthly contributions to Data Center Frontier.
Cryptocurrency is a decentralized form of digital money with roughly 20,000 different cryptocurrencies in circulation, with Bitcoin and Etherum as the most common.
While most modern currencies rely on a central banking system and authority to manage and maintain value, cryptocurrency distributes this task across online “miners” and is frequently powered by blockchain, an open, distributed ledger of transactions shared across a network.
Tech gurus first embraced the digital “money” for its representation of the borderless digital economy with a currency that bypassed control of governments and financial institutions. It quickly grew from a digital concept to over $3 trillion market cap at its bubbly peak in November 2021, according to reports by Forbes.
Cryptocurrency has been back in the news lately, if it ever really left. That's not just because this year we've seen several examples of AI pushing hyperscale and Bitcoin data centers closer together - and also farther apart. According to sources at Wikipedia, on November 22, 2024, Bitcoin's price reached an all-time high at $98,739 USD.
Further, with a market capitalization of ~1,906,373,771,469 USD, Bitcoin accounted for 55.2% of the total value of the cryptocurrency market as of November 11, 2024.
For a bit of background, as explained by DCF Founder Rich Miller in a 2021 article:
"Bitcoin is a digital currency developed in 2009 by an anonymous programmer named Satoshi Nakamoto. It is based on a public ledger known as the blockchain, with each transaction verified using cryptography. Bitcoin incentivizes computer users to process transactions by offering financial rewards paid out in virtual currency (hence “mining”). As users share more computing power with the network, they improve their chances of earning rewards ... The rise of Bitcoin and other cryptocurrencies like Ethereum has led to a new breed of computing facilities featuring high-density hardware, low-reliability electrical infrastructure and off-the-shelf enclosures. These hashing centers often are built in old warehouses and house servers on shelving from hardware stores.
Bitcoin miners yearn for cheap space and power, and lots of it. They typically run high-density racks and invest less in backup infrastructure, which is a key component of the value of a commercial data center. Some utility-scale bitcoin miners have developed modular data centers or immersion containers in which servers are dunked in pools of coolant. Some data center providers have begun offering “variable resiliency” space with limited generator or UPS support as a lower-priced option for bitcoin mining companies [...] he volatile nature of bitcoin pricing has made mining operations a challenging customer segment for the data center industry. Back in 2014, a number of bitcoin firms leased space with providers like CenturyLink and C7 Data Centers, but many of those customers experienced financial challenges when the price of bitcoin declined."
Fast-forward to the crypto moment of now, and concurrent with the Bitcoin resurgence, Yahoo Finance contributors are reporting that XRP, the cryptocurrency associated with digital payment and network protocol Ripple, has rocketed 274% in a month, reaching its highest price in nearly seven years (recently surpassing $1.93). Meanwhile, writing on Dec. 1, 2024, The Motley Fool's Dominic Basulto addressed the elephant in the room for a range of U.S. stakeholders:
"Trump's second stint in the White House seems likely to lead to a pro-business regulatory environment that would boost crypto [...] If the U.S. moves forward with plans for a Bitcoin reserve, it could elevate crypto as a strategic national priority."
Crypto Mining Results in a Massive Carbon Footprint
The data center industry has not only been rife with controversy surrounding crypto mining's volatility, but also its energy consumption. Unlike the scale of AI, when cryptocurrency was first conceived, few of us could have predicted that it would scale in popularity to levels that cause environmental concern.
The rapid rise in crypto valuation triggered a race for aformentioned crypto “miners” to compete in solving high-compute math problems to earn their digital tokens. The exponential rise in computing power to solve these problems, naturally, has been powered by a similar increase in electricity use.
Taken at face value, the impact of crypto on the environment reveals a massive carbon footprint the size of some small countries. Each Bitcoin transaction consumes the same amount of power as one US household would in two and a half months.
Concerns over the sustainability impacts have seen large corporations like Tesla refuse to accept it as a payment method and government officials across many regions begin to take a hard look at regulation.
Realities of Electricity Consumption and Environmental Scrutiny
The rapid growth of cryptocurrency has caused electricity usage to balloon, with some estimates show it doubling or quadrupling annually. The effects of this exponentially-growing industry could have significant impacts on the power grid, energy makeup, greenhouse gas emissions, and other forms of air and water pollution.
Crypto mining operations are under environmental scrutiny for more than just their energy use and mix—crypto also has an issue with electronic waste. The hardware used to mine the various cryptocurrencies regularly becomes obsolete and isn’t suited for circular repurposing.
Crypto mining has also been scrutinized for instances when miners discharged heated water back into lakes after it was circulated through server farms, prompting fears of algae blooms and associated fish death. In other cases, power demands from crypto prompted closed coal plants to reopen, triggering fears of toxic Nitrogen oxide emissions, which contribute to smog and respiratory illnesses.
This has prompted some authorities to call for policy measures that address the significant carbon footprint of certain crypto operations. Some regulatory efforts have been successful, while others have not. Or better said, not yet. Because of crypto’s place in the spotlight and the intense scrutiny into its valuation and operations, change is unavoidable.
Review of Global Regulatory Efforts
In September 2021, China implemented a comprehensive ban on all cryptocurrency transactions and mining due to concerns related to financial stability, consumer protection, financial crime, and environmental impact. This ban resulted in a significant disruption to the global crypto market, both routing the operations to other countries as well as forcing it underground within their own.
Following the increased presence of crypto-asset producers in Europe’s Nordic region, there is concern that countries such as Sweden will see their renewable energy consumed by crypto miners instead of being used for essential services, threatening their ability to meet the Paris Agreement. They have called on the EU to consider a ban on the more energy-intensive mining methods.
As a result, the European Parliament considered a ban on crypto mining but instead decided to introduce additional environmental disclosures for crypto asset producers starting in 2024. However, the European Central Bank expressed the likelihood of further regulatory measures, including a potential ban on crypto mining, as concerns about its environmental impact persist.
As crypto mining has been uprooted from some territories, more mining operations have moved into the US, triggering proposals across many states to regulate carbon emissions tied to both crypto mining and data center operations. The US now hosts most crypto operations, with estimates at roughly one third of the world’s mining compute, consuming between 0.9 and 1.7 percent of its electricity.
Washington state passed House Bill 1416, which requires customers of rural utility districts to curb emissions associated with the electricity they purchase. The law aims to ensure that crypto mining operations reduce their environmental impact and align with the state's Clean Energy Transformation Act of 2018, which requires utilities to phase out nonrenewable energy use by 2045.
House Bill 2816 was introduced in Oregon, aiming to impose emissions reduction targets on crypto mining operations and data centers. The bill sought to impose the emissions reduction timelines laid out in Oregon’s 2021 climate law on crypto miners and data centers by cutting cut greenhouse gas emissions from electricity use 60% below baseline levels by 2027 and achieve emissions neutrality by 2040.
This would close a loophole that some crypto mining operations could take advantage of, which allowed them to buy power on the market from non-renewable sources if the hydroelectric-powered local utility can’t satisfy their demand. The bill received opposition from existing data centers in the region and, ultimately, did not progress further.
Likewise, a California law regulating crypto companies was vetoed in 2022, again opposed by other leading data center operators, from Amazon to Uber.
I find the efforts of New York most unique because of their role as the financial capital of the US, where regulators seem truly torn in how they should approach the digital currency. There really seems to be a rift between those who believe in currency innovation from a financial perspective and those who are terrified of the new currency seeking much too hard to regulate what they cannot control. This state, more than any other, reveals society’s divided views on the subject.
On one hand, some of the proposed restrictions are simply pending a two-year comprehensive environmental impact study, demonstrating apparent willingness to investigate further, while trying to maintain an acceptance of the digital dosh and not putting a complete kibosh on all existing mining operations.
Additionally, bills have also been introduced this year that would allow NY state agencies to accept cryptocurrency as a form of payment, indicating support of the innovative currency form. On the other hand, the bills to restrict crypto operations have been numerous and cover a broad range of regulatory efforts.
Wherever you sit in this world, efforts to regulate such as these will be heading your way. They fall primarily in a handful of categories. The largest effort is to prohibit crypto mining operations from receiving power from fossil fuel plants. Another effort seeks to limit their use of renewables that could be used elsewhere. Others, still, seek to restrict the most carbon-intense processes, such as PoW mining.
No matter which way you think about our future efforts, change is unavoidable.
Cryptocurrency — Regulate or...What?
In the ever-evolving world of cryptocurrencies, the clash between government regulation and foundational principles is a central story to tell.
As we navigate this digital frontier, we have witnessed the transformation of the financial landscape, with banks at the forefront. This complex issue is fraught with opinions, and it's worth exploring government influence on asset valuation, the shifting sands of cryptocurrency sustainability, and what they reveal about the clash of ideals in the history of American banking.
History of Banking and American Principles
To truly grasp the significance of cryptocurrencies' impact on the financial landscape, it's essential to delve into the historical context of American banking and currency.
The United States was built on principles of individualism and capitalism. The laissez-faire approach to economics, championed by objectivist thinkers, was the backbone of the nation's financial system. But in the early days of the United States, a diverse array of currencies were in circulation, issued by state-chartered banks, leading to a chaotic financial environment. However, in 1792, the Coinage Act established the U.S. Mint and introduced the first national coinage system based on the decimal system, which remains in use today. This was a pivotal moment in American monetary history as it laid the foundation for a unified and regulated national currency.
In the 19th century, the United States adopted the gold standard, wherein the value of the dollar was directly tied to a fixed quantity of gold. This system instilled confidence in the currency and fostered economic stability, as each dollar could be exchanged for a specific amount of gold. This era witnessed a relatively stable valuation of the U.S. dollar, reflecting a belief in the intrinsic value of tangible assets.
However, the constraints of the gold standard became apparent during times of economic hardship, such as the Great Depression. To combat deflationary pressures, President Franklin D. Roosevelt abandoned the gold standard in 1933, allowing the government to print more money and stimulate economic recovery. This marked a significant departure from the rigid principles of asset backing and initiated an era of flexible, fiat currency.
In the evolution of American currency, from its adoption to the gold standard era, we witness a fascinating interplay of values and economic principles. These historical transitions in American currency underscore how valuation has evolved over time, from a tangible and gold-backed standard to a more flexible, government-backed fiat currency system. It's against this backdrop that we examine the disruptive force of cryptocurrencies and their impact on traditional notions of valuation and financial control.
Enter the Incumbent
Cryptocurrencies were born out of the desire for financial freedom and autonomy. They offer an escape from centralized control, but regulators are increasingly asserting their presence. Government influence in the crypto market raises concerns, primarily because it contradicts our founding principles of minimal government intervention.
Under the lens of historical context and regulatory efforts, it is readily apparent that cryptocurrency spawned an industry that created a monetary system that circumvents today’s financial institutions. It challenges the status quo in ways reminiscent of early American entrepreneurship.
Cryptocurrency mining continues the virtualization and intangibility of what was once a material process – producing real dollars and cents. To this end, I actually prefer to discard the imagery of referring to community members as crypto “miners” and instead suggest we refer to them as crypto “asset producers.”
One of the most intriguing aspects of cryptocurrencies is their inherent volatility. Banks understand that asset valuation changes constantly, even with more traditional assets. They sit at odds with government institutions that strive to maintain a relatively stable valuation of American currency, but with cryptocurrencies, their reach into the paradigm shifts dramatically.
Crypto assets challenge the conventional wisdom banks have operated under for centuries, where currency valuation is regulated and controlled by the Federal Reserve through measures like money printing and interest rate adjustments.
Sustainability Hurdles
The unfortunate reality is that as cryptocurrency value goes up, the interest, a.k.a. demand, to produce it also increases, which drives greater energy consumption.
In order for cryptocurrency to be mined, it requires specialized high-performance hardware to accurately solve computer algorithms in the shortest time possible. This hardware produces a significant amount of heat, which naturally has to be cooled in the same ways we’ve all come to know and appreciate in the traditional data center world.
There is increasing demand for them to be equipped with the technology to handle such a vast amount of heat, and specialized data centers are able to achieve this thanks to immersion cooling, a liquid cooling technique developed for this particular purpose. Initiatives such as these are welcome and embraced in principle, they remain voluntary in nature and governments are unable to externally enforce changes in the consensus method.
And as the world grapples with environmental issues, cryptocurrencies have faced scrutiny for the energy consumption involved in the mining process. Critics argue that this threatens the planet's sustainability.
However, the crypto community is also actively seeking solutions to mitigate these environmental impacts, and in the spirit of objectivism and capitalism, many in the crypto world are advocates of the freedom to produce assets without excessive oversight, believing that the dynamism of this emerging market should not be stifled by regulation, but encouraged to flourish.
While decentralized as a currency, it’s not impossible for regulators put a halt to the currency creation in other ways, because many aspects of the ecosystem surrounding it are not outside of regulatory pressure or control. Large-scale miners can easily be targeted with higher electricity rates, moratoria, or, in the most extreme case, confiscation of the equipment used.
Let's Think About This Though
While cryptocurrency uses a lot of power, the data center world understands that so do regular fiat money systems of banking. While we can all agree that crypto uses a massive amount of power, it seems there are two different ways of thinking about how big the impact on the environment really is.
As we know, estimating carbon emissions is more difficult as you need to know the exact energy mix, and this is why its environmental damage varies greatly depending on the source.
Some mining companies claim to be environmentally friendly because they use renewable electricity generated by wind, hydro, solar, or nuclear. However, because of mining’s rapid increase, the industry also faces criticism that these renewable energy resources are being monopolized by miners instead of used to support the greater good of societal infrastructure – schools, manufacturing, transportation, etc.
I also like to think about this in financial terms, proposing that we offset the largest energy offenders with the best power sources, sort of like paying off your highest interest credit cards first. However you look at it, there is a lot to consider on behalf of all stakeholders.
First and foremost, public authorities face the task of evaluating whether crypto assets' substantial carbon footprint undermines their ambitions and commitments to achieving sustainable transitions to net-zero greenhouse gas emissions.
However, it is crucial for these authorities not to stifle innovation, recognizing it as a catalyst for economic growth. Instead, the onus lies on investors to evaluate whether engaging or investing in certain crypto-assets is in line with their ESG objectives.
Now too, financial institutions will have to integrate climate-related financial risks associated with crypto-assets into their ESG strategy. Regulatory bodies overseeing these institutions should scrutinize the extent to which significant climate-related financial risks are factored into the banks' risk management frameworks.
Prudential standard-setters may opt for a comprehensive approach, including defining requirements like risk weightings or even more stringent measures such as imposing capital deductions for new exposures to crypto-assets with substantial carbon footprints.
Striking A Balance
The crypto market's negative side, influenced by government regulation and valuation challenges, presents a fascinating paradox in the context of American ideals. While regulatory concerns are valid, it's crucial to strike a balance that allows for innovation while ensuring the sustainability of the environment.
As we continue this journey, the battle for crypto freedom remains an ongoing struggle, emblematic of the clash between government intervention and the principles of individualism and capitalism.
Melissa Farney
Melissa Farney is an award-winning data center industry leader who has spent 20 years marketing digital technologies and is a self-professed data center nerd. She holds degrees in Marketing, Economics, and Psychology from the University of Central Florida. Melissa currently serves as the Marketing Director for TECfusions, a global data center operator serving AI and HPC tenants with innovative and sustainable solutions. Prior to this, she held senior industry marketing roles with DC BLOX, Kohler, and ABB.
