US and China finally agree on something, and it’s not good for crypto miners

[ad_1]

What happened

Cryptocurrency miners are under pressure today. Three of the biggest crypto miners, Marathon Digital Holdings (MARA -15.14%), Riot Blockchain (RIOT -13.13%) and Hive Blockchain (HIVE -9.33%) are all down over 8% at 2 p.m. ET.

Today’s marked decline in the crypto mining industry appears to be a direct result of strong regulatory headwinds. So far, most of them have been from China and India. However, it appears that US regulators are looking more and more at crypto mining, from an environmental and sustainability perspective.

Today, investors are on the lookout for reports that Senator Elizabeth Warren sent a letter to Greenidge Generation Holdings CEO Jeff Kirt, asking for information on the impact of crypto mining on change. climate.

Image source: Getty Images.

So what

Crypto mining is extremely energy intensive. Most of the major cryptocurrency blockchain networks require what is called a proof of work consensus mechanism to validate the blocks on the blockchain and secure the network. These require significant computing power to solve difficult math problems. Some of the larger crypto networks, notably those of Bitcoin, Ethereum, and Litecoin, use proof of work protocols.

How much energy is used to mine crypto?

Well, Bitcoin mining alone accounts for over 0.5% of global electricity consumption, far more than many small countries. Since cryptocurrency mining requires large amounts of electricity, cryptocurrency miners are under pressure, in countries like China in particular, to use the cheapest electricity possible (usually derived from power plants). charcoal). The United States appears to come to a similar conclusion on the matter, questioning the viability of mining crypto from an environmental perspective.

Now what

Many alternative coins and “newer” blockchain networks are built with proof-of-stake consensus mechanisms. These allow the blocks to be verified via the token holders staking their tokens to become validators and secure the blockchain. Essentially, this reduces the energy consumption required to run the grids, providing a more sustainable alternative to existing validation models. In particular, Ethereum is moving towards proof of stake with its Ethereum 2.0 update.

However, in its current state, the crypto mining industry is a heavy consumer of energy. This is one of the main reasons the crypto industry has come to the attention of regulators again.

This current US administration has already shown an affinity for regulating the crypto industry, from a tax perspective, to support infrastructure spending. That said, additional regulations related to reducing the environmental impact of crypto mining could be the next step for this largely unregulated industry. As a result, investors in crypto miners are on guard today.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Questioning an investment thesis – even our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

[ad_2]