Energy breaks promote the state as a go-to location for US crypto operations
Image by Aaron Olson from Pixabay
On March 18th the Kentucky state legislature gave its final seal of approval to House Bill 230 which offers energy and tax breaks for companies that choose to operate crypto mining operations within the state. It is hoped that the breaks would attract companies which will in turn boost employment and help the local economy more widely.
The bill was introduced by General Assembly Representatives Chris Freeland and Steven Rudy who hope that Kentucky may in time become the national leader in crypto mining - a significant portion of the costs associated with such businesses are the energy required to meet the needs of the computing power that processes the complex algorithms associated with Bitcoin production. A reduction in energy costs is thus of great appeal to businesses looking to make their operation as profitable as possible.
While such measures will be significant as a draw for businesses, the question over the environmental impacts associated with such significant energy consumption is seldom far from mind when it comes to the critics of Bitcoin.
The energy associated with Bitcoin mining
One of the biggest concerns quoted by those who are skeptical of Bitcoin is the energy used in its mining. There's a whole set of arguments that are worth diving into to address that topic specifically and I've tried to summarise them more completely in a separate piece.
Headlines are typically emotive and depending on which estimates you believe, Bitcoin can be likened to having the energy consumption of a nation the size of Switzerland (factoring in the cost of its entire network of computers). Such statistics, while impressive (and potentially alarming) only tell half the story.
Whether the energy usage is worthwhile is a value judgment that each person will make. Right now the technology is still relatively new, but it doesn't mean it's not worthwhile. Your opinion will depend whether you think the existing system of finance is viable in the long term, while governments are relentlessly printing new money from thin air in order to prop up ailing global economies, or whether a system like Bitcoin with its finite supply is a suitable means for the future storage and exchange of value.
In 2015 it was found Christmas lights in the USA used the same amount of energy as countries like El Salvador - that too could be considered a frivolous and unnecessary use of energy?
The energy that's used is consumed by computer equipment that needs to be high powered to give it the capacity to solve the data processing that rewards miners with new Bitcoins which are generated globally at a relatively fixed rate of 1 every 10 minutes. Each new coin is awarded by computer algorithms which determine the miner that solved each calculation first. As such, there's an incentive for mining nodes to be performant, which demands good components and correspondingly, a lot of energy.
Photo by Ramón Salinero on Unsplash
Kentucky and renewable energy
A big part of the counter-argument to the energy usage of Bitcoin mining is to make as much of the energy used clean and green - generated from renewable resources. There's no real need for mining operations to be sited in major cities, and as such they can be located near to green energy sources.
It seems like Kentucky as a state is motivated about adopting renewable energy sources generally and this must be part of the reason why its so bullish about wanting to become the go-to state for Bitcoin mining operations.
Hydroelectric power is a great example of such a source, and Kentucky has the potential to double its current supply of hydroelectric power by bringing 887 megawatts of power back online from existing dams.
As a nation, Germany leads the world in solar-power generation and yet Kentucky has the potential to exceed this with measures already being taken to generate 15% of the state's energy requirement from solar power by 2025.
Kentucky is still heavily reliant on coal-fire generated electricity and in 2019 around 73% of its energy came from coal. As it seeks to promote itself as the preferred destination for Bitcoin mining in the future, this may help as a catalyst for efforts to move the state more generally to renewable energy sources - a switch that could be beneficial for both Bitcoin and for the Bluegrass state.
Photo by American Public Power Association on Unsplash
States pioneering the adoption of Bitcoin
While the federal government considers its position regarding Bitcoin and cryptocurrencies more generally - most fundamentally in terms of how and if they should be regulated and controlled (and whether this is even feasible), it seems as though individual state leaders are deciding one by one to make their own decisions.
The move by Kentucky must surely be seen as forward looking - a means of identifying what will likely be a critical part of the infrastructure of the future, and making a compelling argument for businesses to come to the state now.
Other states too are getting in early and declaring themselves 'Bitcoin friendly'.
Wyoming has gone to great lengths (including via zero state corporate and individual income taxes) to attract digital asset and blockchain technology companies to establish themselves in the state - Avanti, crypto exchange Kraken and now Ripple have all adopted Wyoming as their own.
More recently, Wyoming as a state is introducing a new system for corporate and legal filings, that is built upon blockchain computing.
The city of Miami is also exploring how to embrace Bitcoin in its operation. Mayor Francis Suarez has introduced various measures, including giving city employees the opportunity to be paid in Bitcoin, as well as allowing citizens to pay fees and taxes using it too. The city may also follow the lead of corporations like MicroStrategy and Tesla in placing some of their treasury in Bitcoin.
While such measures are inevitably piecemeal and a little fragmented at present, it does indicate pockets of interest across the nation where political leaders are looking seriously at the potential offered by Bitcoin and blockchain technology.
Cryptocurrency as a catalyst for change.
For Kentucky, the move to promote its adoption for Bitcoin mining businesses should be seen as a progressive and forward-looking move - it may result in new jobs as well as bringing corporate investment to the sate. It may also offer a healthy and welcome boost for the state's initiatives to migrate onto renewable energy sources.
Other states and cities in the US are also looking to Bitcoin, digital assets and blockchain technologies with open minds, as they assess the possibilties that they may offer in future. While all are entitled to reserve judgment while the technology matures and advances, those who are forward looking are also likely those that will stand to benefit first and most significantly.
If there's one thing that Bitcoin alone has demonstrated - it's that it's the early adopters who have the most to gain and most likely also the least to lose too.