In a new report titled "Bitcoin, Blockchain, and the Energy Sector," the Congressional Research Service ("CRS") (i) highlighted the increasing energy demands posed by blockchain technology and (ii) proposed regulatory solutions.

According to the report, mining operations for cryptocurrencies such as Bitcoin rely on a proof-of-work ("PoW") algorithm to add new blocks to the blockchain. The CRS stated that PoW uses substantial energy to both operate and cool the computing equipment used to validate transactions.

The CRS offered several regulatory measures Congress might consider to curb cryptocurrency's energy consumption. These include:

  • enacting minimum energy conservation standards for the operation and cooling of equipment used to mine cryptocurrencies;
  • administering voluntary energy-efficient standards, such as ENERGY STAR labeling;
  • creating or adopting energy-efficient standards for data centers used by mining companies; and
  • expanding FERC's role to include regulating blockchain technology used in the energy sector.

Commentary

Christian Larson

For Bitcoin miners at least, mining will take place wherever plentiful electricity is cheapest, not where it is cleanest. Given that Bitcoin miners compete to validate new blocks on the blockchain, any federal regulation in the U.S. that slows the performance of U.S.-based Bitcoin mining will cause U.S. miners to lose the competition to their counterparts abroad and ultimately stop mining. That is certainly one way to reduce energy consumption. Fortunately, Bitcoin is fairly unique among cryptocurrencies, many of which are now being designed with scalability and electricity consumption in mind. The U.S. should consider FERC's role, but must recognize that any successful measure to reduce a cryptocurrency's global energy footprint must be similarly global.

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