Miners are in a bind right now. Marathon Digital Holdings (NASDAQ:MARA), Riot Blockchain (NASDAQ:RIOT), and Hive Blockchain (NASDAQ: HIVE) are all down more than 8% as of 2 p.m. ET, three of the world’s biggest crypto miners.
As a result of strong regulatory headwinds, today’s significant drop in the crypto mining sector appears to be a direct consequence. Until recently, most of these have originated in China and India. Finally, however, it looks like U.S. regulators are paying more attention to crypto mining from an environmental and sustainability standpoint.
Reports that Sen. Elizabeth Warren wrote a letter to Greenidge Generation Holdings CEO Jeff Kirt demanding information about the climate change consequences of crypto mining have investors on edge today.
What’s The Issue?
Mining for crypto is a major energy drain. To validate blocks on the blockchain and secure the network, many of the main cryptocurrency blockchain networks employ what’s known as a proof-of-work consensus mechanism. These need complex math problems to be solved with great computing power. Bitcoin, Ethereum, and Litecoin are among the biggest crypto networks that use proof-of-work.
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How much energy is used to mine crypto?
Given that Bitcoin mining alone consumes more than 0.5% of the world’s power, it is by far the most significant energy consumer. Given the requirement for vast amounts of energy in crypto mining, crypto miners have come under fire in China, among other places, for using the cheapest electricity possible (typically from coal-powered plants).
Proof of stake is a type of consensus mechanism that some altcoins and “newer” blockchain networks employ. These enable users to validate blocks by staking their tokens as validators, assuring the security of the network. In essence, this reduces energy use in network operations, offering a more sustainable alternative to current validation methods with its Ethereum 2 purchase,
However, in its present condition, the crypto mining business is a power-hog. This is one of the primary reasons why regulators have once again paid attention to the cryptocurrency sector.
The crypto sector is currently facing significant regulatory uncertainty, which has resulted in many firms calling for greater government oversight. Regulating the crypto market was already on the table when this current US administration took office to support infrastructure investment from a tax standpoint. However, additional measures to reduce cryptocurrency mining’s environmental effect may be coming down the road.