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1 1 (December 15, 2022)

handle is hein.crs/govejui0001 and id is 1 raw text is: Congress&ona R Fesedrch Ser/ce hnormingt Ahej i ived debtem sino114 December 15, 2022 Recent Cryptocurrency Developments: Energy and Environmental Implications Cryptocurrency mining (cryptomining) is the process of creating additional units of cryptocurrency-a type of digital asset-and validating cryptocurrency transactions on a blockchain ledger. According to some estimates, cryptomining consumes around 1% of annual global electricity usage and exceeds the total electricity usage of some nations. This has raised concerns and prompted initiatives to address the environmental impact of resulting greenhouse gas (GHG) emissions. Congress has expressed interest in the environmental impact of cryptomining, as well as recent developments within the cryptocurrency industry and potential regulatory approaches to addressing related policy issues. For more information, see CRS Report R45863, Bitcoin, Blockchain, and the Energy Sector, by Corrie E. Clark and Heather L. Greenley. Cryptocurrency Industry Developments As cryptocurrencies have gained popularity, industry has taken some actions to address their increasing energy consumption, reliance on fossil fuels, and resulting GHG emissions. Many popular cryptocurrencies use an energy-intensive transaction validation process called Proof of Work (PoW), which requires substantial amounts of energy to operate and thermally regulate the devices computing the required calculations. On September 15, 2022, in a highly publicized event called the Merge, the Ethereum blockchain shifted from PoW to a less energy-intensive Proof of Stake (PoS) validation process. While there are other blockchain networks that use PoS, the Merge is significant because the Ether cryptocurrency is the second largest cryptocurrency by market capitalization and the largest cryptocurrency to transition from PoW to PoS. Ethereum predicted the Merge would cut its energy consumption by 99.5%, which has been supported by some outside estimates. According to news outlets, the Merge prompted some Ethereum miners to either cease operation or switch mining to other PoW blockchain networks since their equipment could no longer be used on PoS networks. These changes reduced the overall energy consumption of the Ethereum blockchain, but may have increased the consumption of other networks as miners migrated. Other private-sector efforts have focused on switching to renewable energy sources to reduce reliance on fossil fuels. The Crypto Climate Accord is an alliance of industry members who have committed to net-zero emissions by 2030 for all their crypto-related operations. Critics contend that cryptomining's energy consumption, a feature of the PoW system, could continue to grow and draw renewable electricity generation away from other sectors and negate their potential beneficial impact on GHG emissions. The energy intensity of cryptomining rises and falls with profitability. In 2022, the prices of various cryptocurrencies dropped substantially, which impacted mining profitability and, subsequently, total energy consumption. The exact impact is difficult to measure due to the lack of public data from cryptomining companies. However, the Cambridge Bitcoin Electricity Consumption Index has noted that expected mining profitability and expected price trajectory are two driving factors of Bitcoin's energy consumption. When the cost of electricity and maintenance exceeds the profit from cryptomining, miners potentially may power down existing equipment, stop buying and using new mining equipment, or sell off cryptocurrency reserves, which may in turn affect prices and profitability. However, low prices do not guarantee permanent decreased energy consumption. Historically, the value of cryptocurrencies has been volatile, so low prices could rise in the future, which could lead to an increase in energy consumption. Poly Dev_opments Among other actions by Congress, in 2022, the House Committee on Energy and Commerce held a hearing on the energy impact of cryptocurrencies. Further, several Members of Congress have written letters to federal agencies, such as the U.S. Environmental Protection Agency (EPA), to ensure mining facilities are not violating the Clean Air Act or Clean Water Act. In March 2022, President Biden signed Executive Order (E.O.) 14067 on the responsible development of digital assets. In response to E.O. 14067, the White House Office of Science and Technology Policy (OSTP) released a report, Climate and Energy Implications of Crypto-Assets in the United States. The report examines how digital assets affect energy consumption, the scale of consumption relative to other energy uses, the opportunities of blockchain technologies to support climate monitoring or mitigation, and potential policy options to minimize or mitigate the climate, energy, and environmental effects of cryptomining. The report is part of the first whole-of- government approach to address cryptocurrency risks and benefits, according to the Administration. It also provides recommendations for agencies and Congress, such as legislation to limit or eliminate energy-intensive transaction validation processes. The international regulatory landscape also has changed in recent years. In 2021, the Chinese government banned all cryptocurrency transactions, which caused an exodus of cryptocurrency miners to other countries, including the United States. Reportedly, a portion of Chinese miners have continued their operations illegally, but the ban impacted the overall global distribution of cryptomining and,

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