Cryptomining: Still a goldmine, or a waste of energy?

This is the last article of a two-part series exploring the cryptocurrency landscape, and the various regulatory and sustainability issues that it faces.

THREE years ago, the Chinese government initiated a harsh crackdown on cryptocurrency, cryptomining and crypto-related businesses in China, effectively shutting down 70 per cent of the world’s bitcoin mining operations overnight.

The sudden ban threw the cryptocurrency market into a frenzy, but it quickly recovered as miners shifted operations to neighbouring and more welcoming countries, and eventually, some even returned covertly to China.

The question on everyone’s mind at the time was: why?

Why did the Chinese government shut down bitcoin mining operations when the country had previously held such an overwhelming market share?

The official answer given by the Chinese government was that the ban was meant to preserve social stability, as cryptocurrencies had a less-than-stellar reputation closely linked with financial crimes, and were also known as a potential source of economic instability due to their high price volatility.

This aligned with China’s previous actions, such as restricting financial institutions’ involvement with bitcoin in 2013, and their 2017 move to ban initial coin offerings (ICOs) of new cryptocurrencies.

Nevertheless, many industry analysts at the time speculated that China’s cryptomining ban was also heavily motivated by the country’s ambitious carbon neutrality goals of achieving net zero by 2060.

With bitcoin miners estimated to consume around 348 terawatt hours (TWh) of energy per year, it certainly made sense that banning cryptocurrency mining in China would be a significant step toward achieving their net-zero goal, especially given that their energy mix at the time included only around 30 per cent renewable sources.

However, critics argued that the ban had only made cryptocurrency mining ‘dirtier’ as miners relocated to countries with less favourable energy mixes.

Primarily, miners had moved to neighbouring Kazakhstan, which has an estimated 11 per cent renewable energy mix; the US, with an estimated 23 per cent renewable energy mix; and also, covertly back to China.

According to data from the University of Cambridge, as of January 2022, the US has become the largest host to bitcoin miners, with an average monthly global hash rate share of 37.48 per cent.

This was followed by China, with a share of 21.11 per cent, and Kazakhstan, with a share of 13.22 per cent.

While it is true that global cryptomining has become less sustainable since China’s ban, there has been significant debate among key crypto stakeholders on how best the industry can address its growing unsustainability issue.

‘Location, location, location’

Although there is a strong public perception that crypto mining is a ‘waste of electricity’, a new wave of miners believes that crypto-mining needs not be environmentally ‘unfriendly’.

Beyond the obvious large-scale operations to achieve economies of scale, this new wave of miners asserts that the key to making crypto mining sustainable is through location optimisation. This involves choosing strategic locations with abundant, and often stranded, renewable energy sources and underutilised resources or facilities.

Sarawak, for instance, has been identified by several major miners as such a location, as around 60 to 70 per cent of our total energy mix comes from renewable hydropower, with the remainder supplied by indigenous coal and gas.

We also appear to be blessed with surplus green energy, with several ongoing and potential electricity interconnection projects with Singapore, Sabah, Kalimantan, and Peninsular Malaysia, where Sarawak will sell its surplus renewable energy.

Moreover, some miners have commented on the amount of viable industrial land and underutilised structures and resources that Sarawak possesses.

‘Heat waste from mining: A potential resource’

Drawing from the concept of the circular economy, new wave miners have begun to target the recycling of heat generated from cryptomining.

In the past, miners viewed this heat as an unfortunate by-product that needed to be discarded to maintain optimal rig performance.

However, many miners are now implementing creative new applications for this heat waste, repurposing it into valuable resources.

In areas with colder climates, waste heat has largely been used to heat up houses and facilities, helping to lower heating costs and also to further mitigate emissions.

In fact, there are plans for a Canadian city to be heated by bitcoin miners, and amusingly, some miners have even opened spas and wellness centres next to or within their operations, using the heat to warm saunas and hot springs.

For tropical regions like Sarawak, these applications might not be entirely feasible. However, one potential avenue for local miners is repurposing this waste heat for agriculture and food production.

For example, in the Netherlands and Sweden, several miners have begun repurposing their waste heat to warm greenhouses, while in North America, some whiskey makers have started using bitcoin waste heat in their production processes.

The potential applications for this waste heat seem endless, and in time, it is likely that we will see more and more miners exploring new ways to harness this by-product in tropical climates.

‘Sarawak: The next target’

With all the ingredients for success in place, it is only a matter of time before we begin seeing our current surplus green energy be converted into economic advancement through investments from the crypto industry.

While most news have focused on illegal mining operations stealing electricity, several major crypto miners and related businesses have been quietly making moves to establish new mines in Sarawak.

One such miner is Bityou, which now operates four crypto mining sites in Sarawak, with the largest on a 6.9-hectare industrial plot in Tanjung Manis, formerly a logging processing site and swiftlet house.

Bityou owner Peter Lim was quoted in several news reports stating that they chose the Tanjung Manis site after their 10,000-rig, 20-megawatt operation in China was shuttered in 2021, because they wanted to ‘make use of abandoned resources’ left on the site.

According to a pitch deck sighted by Bloomberg, another miner is considering setting up nearby Bityou’s Kuching mining site in some abandoned steel and plastic factories.

Singapore Exchange-listed (SGX) SMI Vantage Ltd is also an existing miner in Sarawak, having announced in September last year its plans to establish a bitcoin mining venture in the state to leverage on Sarawak’s relatively low electricity rates compared to those in Peninsular Malaysia.

Most recently, on July 2, SMI Vantage announced that it had signed another option to rent, allowing it to expand its operations to a second location.

Additionally, state government-linked Sovereign Sengalang Sdn Bhd has been reported to have developed a partnership with Singapore Sprint Capital Management Ltd to seek investment in developing ‘new brownfield sites’ for cryptomining in Sarawak.

We would have to wait and see how these investments turn out in the long run, but at the moment, the future of cryptocurrency in Sarawak appears promising.