Cleaning Up Cryptocurrency: The Energy Impacts of Blockchains (U.S. House Committee on Energy and Commerce, Subcommittee on Oversight and Investigations)

Hearing	Cleaning Up Cryptocurrency: The Energy Impacts of Blockchains
Committee	U.S. House Committee on Energy and Commerce, Subcommittee on Oversight and Investigations
Date	January 20, 2022

 

Hearing Takeaways:

• Cryptocurrency Mining’s Energy Consumption: The hearing focused on the growing popularity of cryptocurrency mining and blockchains and the energy consumption associated with these technologies. Cryptocurrency mining refers to the process in which computers perform a series of calculations in order to validate transactions on a blockchain. This process results in new digital currencies being made or discovered and being entered into circulation. The cryptocurrency mining process can be very energy intensive due to the specialized hardware that is needed to validate transactions. Rising cryptocurrency prices have created an incentive for cryptocurrency miners to invest increasing amounts of capital in larger computer systems in order to validate more transactions, which has resulted in greater energy consumption. Subcommittee Members and the hearing’s witnesses expressed interest in how these trends would impact the U.S.’s energy grid and carbon emissions moving forward.
  • Proof of Work Validation Method: The hearing largely focused on the proof of work validation method (which is the validation method used for the Bitcoin and Ethereum networks). Under this method, a party must prove to others that they have completed computational work (often through solving difficult math problems) in order to validate the transactions on a blockchain. Parties that engage in such computational work can obtain newly mined tokens in exchange for their efforts. Several Subcommittee Members, Dr. Juels, and Mr. Wright highlighted how this validation method was very energy intensive. However, Mr. Belizaire and Mr. Brooks contended that proof of work-validated networks created strong incentives for network security.
  • Proof of Stake Validation Method: The proof of stake validation method involves parties having to prove that they have sufficient stakes in a given network (through holding the network’s tokens) before they were permitted to validate transactions on the network’s blockchain. Parties that validate the network’s blockchains can obtain newly mined tokens in exchange for their efforts. The proof of stake validation method is less energy intensive than the proof of work validation method. Mr. Brooks argued that the proof of stake validation method was inferior to the proof of work validation method because it was more vulnerable to control by a small number of parties and less secure. Dr. Juels argued however that the fear that this validation method could result in blockchain takeovers was largely theoretical and noted that there currently existed significant concentration within the Bitcoin mining space.
  • Impact on Neighboring Communities: Subcommittee Members and the hearing’s witnesses expressed concerns over cryptocurrency mining operations could impact their neighboring communities. They specifically raised concerns that these mining operations could drive up utility rates and create health and safety risks, including fires stemming from unmonitored and overheating mining hardware. Mr. Wright testified that the sudden growth of cryptocurrency mining in his community had created reliability, safety, and cost recovery challenges for the local public utility. He also emphasized that the portability of cryptocurrency mining machines subjected the public utility to significant demand uncertainty.
  • Impact on the Demand for Non-Renewable Energy Sources: Subcommittee Democrats expressed particular concerns over how cryptocurrency miners were bringing retired fossil fuel plants back online and delaying the retirement of less efficient power plants in order to support their mining activities Mr. Wright mentioned how cryptocurrency miners tended to seek out the cheapest sources of energy and noted how increased demand for renewable energy sources had made fossil fuel energy sources relatively cheap.
  • Potential for Electronic Waste: Subcommittee Chairman Diana DeGette (D-CO) raised concerns with the high volume of electronic waste generated by cryptocurrency mining. She mentioned that most cryptocurrency mining computers were now custom-made for mining activities and could not be repurposed for other uses, which led to recycling and disposal problems.
• Potential Benefits of Cryptocurrency Mining: Subcommittee Republicans, Mr. Brooks, Mr. Belizaire, and Mr. Zerzan took a more positive view towards cryptocurrency mining and argued that it could serve as a driver of innovation.
  • Contention that Proof of Work Mining is Relatively Efficient: Mr. Belizaire and Mr. Brooks argued proof of work mining did not constitute a wasteful activity. Mr. Brooks noted that the measure of waste in an economic activity was whether activity was producing a value that other people are willing to pay for. He stated that this high level of demand for Bitcoin suggested that Bitcoin mining activity was not wasteful. He further noted that Bitcoin’s energy use per unit of value generated was either less than or similar to other industries, including the aviation, traditional financial services, and insurance industries. Moreover, he noted how the current energy mix for Bitcoin mining involved a high percentage of renewable energy sources. Dr. Juels contended however that proof of work cryptocurrency mining as a whole was becoming less energy efficient because the rewards of this mining were determined by a cryptocurrency miner’s power relative to their competitors. He also suggested that the excess electricity used to support cryptocurrency mining would be better used for other purposes, such as supporting drug discovery computing and the smelting of bauxite. 
  • Potential Driver of More Energy Efficiency: Mr. Brooks further contended that the Bitcoin network’s design incentivized miners to pursue energy efficiency. He highlighted how the difficulty of mining Bitcoins increased during each halving cycle, which meant that the value of new Bitcoins also increased. He stated that this dynamic meant that only the most efficient Bitcoin miners were able to survive into future halving cycles.
  • Potential Tool for Energy Load Management: Subcommittee Ranking Member Morgan Griffith (R-VA) and Mr. Belizaire noted how cryptocurrency mining could be batched and paused. They stated that these features could enable cryptocurrency miners to provide flexible demand to energy producers, which could lead to cheaper energy prices for consumers. 
  • Potential Driver of Demand for Renewable Energy Sources: Subcommittee Ranking Member Griffith, Mr. Belizaire, and Mr. Brooks how that cryptocurrency miners were partnering with renewable energy producers to support their operations and stated that these partnerships were making many renewable energy producers financially viable. Mr. Belizaire also noted how the cryptocurrency mining industry was increasingly receiving institutional financing. He stated that this institutional financing often came with environmental, social, and governance (ESG) requirements, which would lead cryptocurrency miners to pursue net zero carbon emissions. 
  • Potential to Make Use of Abandoned Fossil Fuel Sources: Subcommittee Republicans noted how cryptocurrency data centers could use natural gas flared from oil wells and the residual gas in abandoned wells in order to power their operations. Rep. David McKinley (R-WV) expressed frustration with how cryptocurrency data centers were being advised to exclusively use renewable energy sources to power their operations. He called this policy discriminatory against fossil fuel rich states (including his state of West Virginia).
  • Potential to Make Use of Abandoned Mine Lands: Subcommittee Ranking Member Griffith also argued that abandoned mines within his state of Virginia could potentially serve as natural coolants for data centers and cryptocurrency mining operations. Mr. Brooks, Mr. Zerzan, and Mr. Wright remarked that these abandoned mines could serve as natural coolants for data centers and cryptocurrency mining operations. 
  • Potential Driver of Other Technological Innovations: Mr. Brooks testified that Bitcoin mining produced incentives to improve application-specific integrated circuit (ASIC) chip efficiency and new technology development for immersion cooling. Mr. Belizaire predicted that the continued growth of cryptocurrency mining would lead to more flexible data centers around the U.S.’s electricity grid. He remarked that these flexible data centers would not be exclusively focused on cryptocurrency mining once they reached a certain size. He stated that these flexible data centers would have other types of pausable batchable applications, such as movie selection algorithms and drug discovery systems.

Hearing Witnesses:

1. Dr. Ari Juels, Weill Family Foundation and Joan and Sanford I. Weill Professor, Jacobs Technion-Cornell Institute, Cornell Tech
2. Mr. John Belizaire, Chief Executive Officer, Soluna Computing, Inc.
3. Mr. Brian Brooks, Chief Executive Officer, BitFury
4. Mr. Steve Wright, Former Chief Executive Officer, Chelan County Public Utility District and Bonneville Power Administration
5. Mr. Gregory Zerzan, Shareholder, Jordan Ramis P.C.

Member Opening Statements:

Subcommittee Chairman Diana DeGette (D-CO):

• She discussed how blockchain technology involved networks of computers working collaboratively to record and verify data and stated that this technology had numerous practical applications.
  • She highlighted how blockchain technology could be used within the contexts of health records, energy management, and online data management.
• She remarked that while the U.S. should work to encourage new and innovative applications of blockchain technology applications, she contended that the U.S. must prioritize energy efficiency and the reduction of carbon emissions in its work on the issue.
• She discussed how different blockchains employed different methods to add data to and verify the integrity of blockchains and stated that the validation method chosen could impact a blockchain’s energy usage.
• She mentioned how the proof of work method involved millions of computers racing to be the first to solve a complicated puzzle and indicated that the winner of this race would receive new cryptocurrency coins or tokens.
  • She commented that this method was very energy intensive.
• She noted how the two largest cryptocurrency networks (Bitcoin and Ethereum) employed proof of work to add data and to verify the integrity of their blockchains.
• She remarked that the high financial rewards associated with proof of work networks incentivized cryptocurrency miners to constantly increase their computing power, which in turn increased their need for inexpensive and reliable energy.
• She discussed how cryptocurrency mining companies were responding to these increased energy needs in the same manner.
  • She mentioned how some cryptocurrency mining companies were basing their facilities in communities with cleaner and less expensive renewable energy sources.
  • She mentioned how other cryptocurrency mining companies had either revitalized or prolonged the usage of fossil fuel plants.
• She raised concerns with how cryptocurrency mining operations were driving fossil fuel energy production and commented that this energy production was incongruent with the U.S.’s current climate change objectives.
• She stated that while the unique energy demands of the cryptocurrency mining industry did present potential benefits, she expressed uncertainty as to whether these benefits would ultimately be realized.
  • She suggested that cryptocurrency miners could play a role in balancing and stabilizing the U.S.’s energy grid.
• She also raised concerns with the high volume of electronic waste generated by cryptocurrency mining.
  • She mentioned that most cryptocurrency mining computers were now custom-made for mining activities and could not be repurposed for other uses, which led to recycling and disposal problems.
• She concluded that the cryptocurrency industry must work to reduce the need for constant high volume energy consumption and minimize its negative impacts on the environment.

Subcommittee Ranking Member H. Morgan Griffith (R-VA):

• He discussed how Bitcoin and other cryptocurrencies had become increasingly popular in recent years and attributed much of this growth to the blockchain technology underlying cryptocurrencies.
  • He explained that a blockchain was a shared ledger for recording transactions and tracking assets that protects against manipulation.
  • He noted how blockchains ensured valid transfers without centralized clearinghouses.
• He remarked that blockchain technology had already proven to be lucrative and mentioned how outstanding cryptocurrency assets had an estimated value of over $3 trillion.
• He contended that policymakers ought to understand the cryptocurrency ecosystem, including the baseline technology, the key players, the market, and the ways that the U.S. could help to advance its development.
• He then discussed how energy was consumed when computers performed calculations to validate transactions on a blockchain and indicated that this process was referred to as cryptocurrency mining.
  • He noted that cryptocurrency mining was the process in which new digital currencies were made or discovered and entered into circulation.
• He explained that the cryptocurrency mining process was energy intensive due to the specialized hardware that was used to validate transactions.
• He remarked that rising cryptocurrency prices had created an incentive for cryptocurrency miners to invest increasing amounts of capital in larger computer systems in order to validate more transactions.
• He noted how Bitcoin mining comprised the largest share of Bitcoin mining and indicated that Bitcoin miners currently received a reward of 6.25 Bitcoins for successful mining.
  • He indicated that 6.25 Bitcoins was equivalent to nearly $270,000 as of January 2022.
• He mentioned how experts had estimated that Bitcoin mining used between 110 and 188 terawatts (TW) of energy annually.
• He noted that while the proof of stake validation method used by many other tokens tended to consume less energy than proof of work validation, he mentioned how there were concerns that proof of stake validation was less secure and did not involve enough validators.
• He remarked that energy grid operators might need to update their infrastructure in order to accommodate the energy consumption of certain cryptocurrency miners.
  • He commented that such updates could be expensive and time consuming.
• He also discussed how energy grid operators maintained demand response programs and noted how most of these programs included contracts stipulating that a cryptocurrency mining customer will turn on and off their load depending on the demand and availability of the electric supply.
  • He mentioned how Texas cryptocurrency miners were enrolling in programs to become a controllable load resource and commented that these programs could provide stability to energy grids and lower prices for other customers.
• He further noted how some cryptocurrency miners were partnering with renewable energy producers to support their operations and stated that these partnerships made energy producers more profitable.
  • He highlighted how cryptocurrency miners were partnering with solar farms to make use of their excess energy produced during the day and how cryptocurrency miners were repurposing orphan natural gas wells.
• He then discussed how cryptocurrency mining could impact the communities in which they operated and mentioned how miners had driven up utility rates in some communities and created health and safety risks.
  • He elaborated that these health and safety risks included fires in apartment complexes resulting from unmonitored and overheating mining hardware.
• He commented however that the aforementioned adverse community impacts appeared to be outlier events.

Full Committee Chairman Frank Pallone (D-NJ):

• He remarked that blockchain technology and cryptocurrencies had “enormous promise” and asserted that the hearing was not meant to stifle that promise or discourage innovation.
  • He indicated that the Subcommittee wanted to examine the potential environmental costs of the cryptocurrency mining industry and how these impacts could be addressed.
• He discussed how some blockchains were currently consuming “enormous” amounts of energy and mentioned how one estimate had found that the energy required to process transactions on the Bitcoin network could power a home for more than 70 days.
  • He also mentioned how another estimate had found that 78.8 million tons of carbon had been emitted in 2021 from Bitcoin and Ethereum mining.
• He called it critical that the Subcommittee examine the environmental impacts of cryptocurrency mining as part of its work to combat climate change.
  • He also expressed interest in learning about the potential benefits that the cryptocurrency mining industry could provide in terms of supporting new renewable energy deployment, grid stabilization, and other innovations that might reduce energy consumption and have implications beyond cryptocurrency mining.
• He mentioned how President Biden had set forward goals to reduce the U.S.’s carbon emissions by 50 percent from 2005 levels by 2030, create a 100 percent carbon pollution-free power sector by 2035, and achieve net zero carbon emissions by 2050.
• He expressed concerns with how cryptocurrency miners were bringing retired fossil fuel plants back online and delaying the retirement of less efficient power plants in order to support their mining activities.
  • He asserted that these actions were counterproductive to President Biden’s carbon reduction goals.
• He remarked that the Subcommittee should work to encourage innovations to improve the U.S. energy grid, increase the availability of clean energy, and improve energy efficiency across industries.
  • He commented that the Build Back Better Act and the Infrastructure Investment and Jobs Act would help to advance the aforementioned objectives.
• He lastly expressed interest in how cryptocurrency mining impacted the affordability of electricity for American consumers and noted how there were instances in which cryptocurrency mining operations had caused electricity rates to spike in certain communities.

Rep. Cathy McMorris Rodgers (R-WA):

• She criticized the Biden administration’s handling of the economy, China, Afghanistan, Russia, the U.S.’s southern border with Mexico, and the COVID-19 pandemic and expressed frustration with the Subcommittee’s lack of hearings.
• She then called blockchain technology “transformational” and commented that the technology was still in its early stages.
• She expressed interest in working to ensure that blockchain technology was developed and adopted within the U.S.
  • She also stated that eastern Washington had been at the forefront of this technology. 

Witness Opening Statements:

Dr. Ari Juels (Jacobs Technion-Cornell Institute, Cornell Tech):

• He remarked that the “tremendous promise” of blockchain technology did not require Bitcoin or its energy intensive proof of work validation method.
  • He commented that some of the most exciting developments in blockchain technology were currently occurring outside of the Bitcoin ecosystem.
• He explained that blockchains involved ledgers that were globally readable and immutable and stated that these ledgers had numerous useful applications, such as supporting payment systems.
  • He noted that while traditional web servers could be used to support a network built on top of a blockchain system, he indicated that this network would fail in the event of a web server crash or hack.
• He remarked that the “brilliant” insight of Bitcoin’s founder was to use a blockchain maintained by an open community in order to avoid the aforementioned issues.
• He discussed how Bitcoin relied upon a proof of work validation method in order to ensure that parties could fairly participate in the network and that no one individual could easily take over the network.
• He noted that parties could help to maintain the Bitcoin blockchain and earn Bitcoin through contributing large amounts of computation to the system.
  • He explained that this process was known as mining and was done through solving difficult mathematical problems.
• He remarked that Bitcoin mining consumed a “massive” amount of energy and mentioned how some estimates had found that 0.5 percent of the world’s total electricity supply went to Bitcoin mining.
• He noted how the term “proof of work” had been coined in a 1999 paper that he had co–authored and indicated that the paper had recognized the inherent waste involved in the validation method.
• He highlighted how the blockchain community had devised new ways to validate blockchains using methods other than proof of work and stated that the leading alternative validation method was known as proof of stake.
  • He explained that proof of stake consumed less electricity than proof of work and noted how the second most popular cryptocurrency (Ethereum) was planning to adopt a proof of stake validation method.
  • He added that “nearly” all new blockchain systems already used proof of stake validation methods.
• He stated that proof of stake systems are faster than the Bitcoin network and supported smart contracts, which are small programs that run on top of blockchains.
  • He highlighted how smart contracts were being used to power blockchain applications like decentralized finance (DeFi) and non-fungible tokens (NFTs).
  • He indicated that Bitcoin did not readily support either DeFi or NFTs.
• He noted that while some claimed that proof of work was critical to achieving decentralization, he asserted that Bitcoin and other blockchain systems were centralized in some key ways.
  • He mentioned how just four Bitcoin mining pools controlled the majority of Bitcoin’s mining power, which meant that they could technically take control of the entire Bitcoin network.
• He concluded that there existed more energy efficient alternatives to proof of work validation methods and that the U.S. ought to embrace these alternatives.

Mr. John Belizaire (Soluna Computing, Inc.):

• He contended that cryptocurrency’s energy consumption was a “feature” and disputed the concerns that the energy demands of cryptocurrency mining would destabilize the U.S. energy grid.
  • He suggested that cryptocurrency computing could be a catalyst for clean energy development, which will reduce pollution and create local jobs.
• He discussed how his company, Soluna Computing, built data centers to convert clean energy that would otherwise go to waste (known as curtailed energy) into low-cost global computing.
• He remarked that curtailed energy was a massive problem for clean energy developers and noted how up to 30 percent of power generated by solar and wind farms can be curtailed or wasted.
  • He commented that this problem reduced the profitability of clean energy developers.
• He attributed the U.S.’s curtailed energy issues to the fact that its energy grid was inflexible and designed on an antiquated architecture of equalizing supply and demand.
• He then discussed how Bitcoin involved proof of work mining and asserted that this computing intensive process was not a waste.
  • He stated that Bitcoin’s proof of working mining system was designed to encourage network participants to protect the network (rather than attack it).
• He also noted how cryptocurrency mining could be batched and paused and highlighted how cryptocurrency data centers (unlike traditional data centers) did not need to be run 24/7.
• He stated that the ability to pause mining processes enabled the introduction of flexible energy loads to the energy grid.
  • He commented that flexible energy loads could ramp up and ramp down as needed, which would increase energy grid resilience.
• He then testified that the wind and solar energy developers that he had talked to were very concerned about their revenues.
  • He noted how the congested nature of the energy grid meant that projected energy curtailment made their returns uncertain.
• He also testified that wind and solar energy developers were currently having conversations with multiple cryptocurrency miners and commented that this situation suggested that these energy developers were beginning to view cryptocurrency data centers as a path to additionality.
  • He contended that cryptocurrency data centers were therefore serving as catalysts for building clean power plants that would otherwise not get built.
• He expressed support for federal legislation that would incorporate flexible computing, as well as transmission and batteries, into the U.S.’s grid infrastructure.
  • He also called for more grid-scale programs that would provide new types of flexible-load energy solutions to the energy grid.

Mr. Brian Brooks (BitFury):

• He remarked that Bitcoin was important because it had introduced the world to the concept of a fully decentralized, secure, and trustless system of financial value exchange that was based on a proof of work validation method.
  • He commented that Bitcoin’s reliance on proof of work did not constitute a “necessary evil” and was instead a positive feature of its design.
• He testified that his company, BitFury, was one of the most energy efficient Bitcoin miners in the U.S. and globally.
• He remarked that not all types of energy consumption were the same and stated that policymakers ought to acknowledge this fact when assessing environmental concerns about a given energy use.
  • He suggested that there would be less concerns about a given activity’s energy consumption levels if that activity obtained 100 percent of its energy from renewable sources.
• He stated that Bitcoin consumed an energy mix that was roughly twice as sustainable as the U.S. electric grid as a whole and created incentives to generate more renewable energy production.
• He also remarked that policymakers ought to consider the economic productivity created by Bitcoin per unit of energy consumed.
  • He suggested that policymakers compare the energy used to mine gold and the energy used to mine Bitcoin when considering the energy efficiency of Bitcoin given how both gold and Bitcoin were commonly viewed as stores of value.
  • He also suggested that policymakers compare the energy used to run the Bitcoin network and the traditional financial services system when considering the energy efficiency of Bitcoin given how both the traditional financial services system and Bitcoin network were providing payments and lending services to individuals.
• He acknowledged that while Bitcoin’s energy consumption was not trivial, he stated that Bitcoin’s energy consumption was very small compared to other energy uses that received no scrutiny.
• He noted how the 188 TW-hours (TWh) of energy used by Bitcoin in 2021 was sourced more sustainably than other energy uses on average.
  • He indicated that Bitcoin mining’s energy mix was about 58 percent sustainably sourced in 2021 and that the U.S. energy grid’s energy mix was only about 31 percent sustainably sourced.
  • He testified that BitFury’s specific numbers were “in line” with these rough ratios.
• He also remarked that Bitcoin created incentives for the future production of renewable energy.
• He discussed how Bitcoin miners always sought out lower energy costs and noted that the lowest energy costs always came from excess capacity.
  • He indicated that this excess capacity could include wind and solar energy and energy lost during the transmission and distribution process.
• He stated that Bitcoin miners could easily locate themselves near the sources of energy production, which meant that they could make use of excess energy capacity.
  • He commented that this ability could make certain types of energy production profitable and reduce the need for government subsidies.
• He also remarked that Bitcoin mining produced other secondary effects, including grid stabilization, incentives to improve ASIC chip efficiency, and new technology development for immersion cooling technology.
  • He indicated that his company was innovating within the immersion cooling space.
• He then contended that proof of stake validation methods were not a substitute for proof of work validation methods and asserted that proof of stake validation methods would be unable to support DeFi innovations.
• He lastly remarked that Bitcoin’s energy use per unit of value generated was either less than or similar to other industries, including the aviation, traditional financial services, and insurance industries.

Mr. Steve Wright (Former Chief Executive Officer, Chelan County Public Utility District and Bonneville Power Administration):

• He recounted how cryptocurrency miners had begun to establish a presence in Chelan County, Washington around 2014.
  • He noted how these cryptocurrency mining operations were initially small and located in shipping containers, vacant small businesses, and residences.
• He discussed how cryptocurrency mining operations in Chelan County had grown over time and stated that the country’s low electricity rates and available high-speed internet had made it an attractive location for these miners.
• He remarked that the growth in cryptocurrency mining operations had created reliability, safety, and cost recovery challenges for the Chelan County Public Utility District due to the large electricity use and the portability of the mining machines.
  • He commented that the county’s public meetings to discuss the issue of cryptocurrency mining had left the public utility’s customer-owners even more perplexed.
• He recounted how an aluminum plant in Chelan County had curtailed operations in late 2015, which had led to increased interest in economic development.
• He mentioned how the community had expressed several reservations about supporting cryptocurrency mining.
  • He noted that these reservations included stranded asset risk (due to the portability of the mining machines), the relatively low number of local jobs per unit of electricity consumed, uncertain tax benefits that appeared modest relative to the electric system cost and risk, frustration with the lack of regard for local health and safety by some miners, concerns over the potential use of cryptocurrencies for nefarious activities, regulatory uncertainty surrounding the future sustainability of cryptocurrency, and questions as to whether cryptocurrency mining constituted the best use of hydropower.
• He discussed how a cryptocurrency mining machine was roughly the size of a shoe box, which enabled the machines to easily fit in a variety of places and easily use up available transmission and distribution capacity.
  • He also noted how cryptocurrency miners could reduce or relocate their operations on short notice.
• He mentioned how Chelan County had sought to address cryptocurrency mining risks through adopting rates that included upfront payments for cryptocurrency miners in order to avoid stranded asset risk, rates based on forecasted electricity market price indices, and pricing for unusual risks.
• He remarked that cryptocurrency electricity usage varied “dramatically” by coin and commented that policymakers ought to consider this dynamic in light of the national commitment and substantial utility funding dedicated to energy efficiency.
• He also stated that clean energy resources were gaining value in electricity markets while carbon emitting generation was losing value.
  • He commented that this dynamic would likely push cryptocurrency production toward fossil fuel-powered resources for at least the near-term.
• He noted that while the ability to modulate cryptocurrency electrical usage would be valuable in a system that was increasingly reliant on variable generation, he testified that the Chelan County Public Utility District had not received “serious” modulation offers.
  • He suggested that this lack of offers could be indicative of a desire for cryptocurrency miners to run their mining machines continuously due to the short lifetime of mining machines.
• He stated that while having cryptocurrency mining operations located near areas with short-term underutilized transmission could be beneficial, he asserted that collaboration would be essential to prevent the growing cryptocurrency mining industry from exacerbating the existing challenges associated with building new transmissions.
• He noted that while Chelan County’s experience with cryptocurrency mining was suboptimal, he expressed hope that these drawbacks could be better managed however time.
  • He expressed uncertainty however as to whether cryptocurrency mining would eventually be able to provide enough value to overcome the cost of risk mitigation.
• He stated that policymakers and stakeholders would need to encourage the electricity efficient production of cryptocurrency, establish wholesale market rules that promote demand response to take advantage of cryptocurrency mining flexibility, address transmission planning, expansion, and cost allocation for portable large loads, and consider the impact on carbon emissions reduction strategies from cryptocurrency mining that focused on least cost production strategies.

Mr. Gregory Zerzan (Jordan Ramis P.C.):

• He stated that while Bitcoin was a “transformative and revolutionary” innovation, he commented that Bitcoin was merely one application of blockchain technology.
• He remarked that blockchain technology had the potential to enable an internet in which individuals would own and control their own data.
• He then acknowledged how there were concerns raised over cryptocurrency mining’s impact on energy usage, he stated that the U.S. had been innovating its energy production to become less carbon intensive.
  • He commented that this innovation was leading to new methods of achieving consensus and processing transactions on blockchains.
• He also noted how Bitcoin constituted just one cryptocurrency of many and stated that not all cryptocurrencies were meant to be cash substitutes.
• He suggested that financial regulators should not be the exclusive regulators of cryptocurrencies and remarked that cryptocurrencies should be viewed as code meant to support the efficient running of blockchains.
  • He raised concerns that the U.S. could hamper innovation in blockchain technology through inappropriate regulation.
• He recommended that the Federal Trade Commission Act and other consumer protection laws be applied to transactions in code (such as cryptocurrency transactions).

Congressional Question Period:

Subcommittee Chairman Diana DeGette (D-CO):

• Chairman DeGette asked Dr. Juels to explain his assertion that proof of work validation methods were inherently wasteful. She also asked Dr. Juels to indicate whether there was a way to perform proof of work validation in a less wasteful manner.
  • Dr. Juels discussed how proof of work validation methods sought to provide mathematical problems to solve in order to ensure that one computer was not pretending to be multiple computers. He commented that while proof of work validation was effective, he noted that this validation method was also energy intensive. He stated that the resources used in proof of work validation methods were wasted in the specific sense that they served no useful purpose outside of the system that they were meant to protect. He remarked that there existed an opportunity cost in terms of the computational energy resources used for proof of work validation and commented that these energy resources could potentially be used for other goals. He highlighted how there existed energy efficient alternatives to the proof of work validation method, such as proof of stake.
• Chairman DeGette noted that parties engaged in proof of work validation could use alternative energy sources. She asked Dr. Juels to confirm that there was no requirement for parties engaged in proof of work validation to use alternative energy sources. She also asked Dr. Juels to confirm that cryptocurrency miners tended to use the cheapest form of available energy.
  • Dr. Juels confirmed Chairman DeGette’s statements.
• Chairman DeGette then asked Mr. Belizaire to elaborate on his assertion that cryptocurrency’s energy consumption should be viewed as a feature and not as a “bug.”
  • Mr. Belizaire remarked that cryptocurrency network’s depended on energy consumption in order to create certain behaviors, protect network security, and lock in the value that the assets create. He noted that cryptocurrency network miners will search for the lowest available cost of power and indicated that renewable energy was now becoming the lowest cost of power around the world.
• Chairman DeGette noted how Mr. Wright’s testimony had stated that renewable energy did not always constitute the lowest cost of power.
  • Mr. Wright confirmed these statements. He stated however that cryptocurrency production presented an opportunity to provide energy demand response.
• Chairman DeGette asked Mr. Brooks to answer whether the proof of work validation method could be wasteful. She also asked Mr. Brooks to address why Bitcoins and other cryptocurrencies could not change their validation method to proof of stake.
  • Mr. Brooks noted that the measure of waste in an economic activity was whether activity was producing a value that other people are willing to pay for. He indicated that Bitcoin had the largest market capitalization of any cryptocurrency by a large amount. He stated that this high level of demand for Bitcoin suggested that Bitcoin mining activity was not wasteful. He then remarked that the proof of stake validation method’s issue was that it depended on network participants to trust the network’s stakeholders. He stated that the Bitcoin network’s design made it entirely trustless as mined Bitcoins were given out based on a lottery. He noted how a simple majority of the ownership of a proof of stake-validated network could rewrite the network’s ledger in order to disadvantage the minority of the network’s ownership. He commented that this dynamic was not possible in the Bitcoin network due to its reliance on a proof of work validation method.
• Chairman DeGette interjected to indicate that her question period time had expired.

Rep. David McKinley (R-WV):

• Rep. McKinley criticized the Committee for not holding enough meetings over the past year. He asserted that Congressional Democrats were attempting to divert attention away from the Biden administration’s failures through holding this oversight hearing on cryptocurrency data centers. He then expressed frustration with how cryptocurrency data centers were being advised to exclusively use renewable energy sources to power their operations. He called this policy discriminatory against fossil fuel rich states (including his state of West Virginia). He then noted how some witnesses had discussed how cryptocurrency data centers could use natural gas flared from oil wells and the residual gas in abandoned wells in order to power their operations. He stated that there existed permitting obstacles to the aforementioned approaches. He also suggested that companies might be unwilling to pursue these approaches given how Democrats had called for ending the use of fossil fuels for power generation by 2035. He asked Mr. Zerzan to indicate whether cryptocurrency mining companies would be able to rely upon wind and solar energy in order to power their operations.
  • Mr. Zerzan mentioned how the U.S. had achieved energy independence in 2019 for the first time since the 1950s and became a net exporter of energy. He also noted how the U.S. in 2019 had emitted the fewest greenhouse gasses since 1992. He commented that while the U.S.’s energy portfolio was becoming less greenhouse gas intensive, he stated that the U.S. still relied upon fossil fuels in order to maintain a reliable and stable energy grid. He remarked that wind and solar energy sources were prone to shortages and surpluses, which often led energy to be wasted. He noted that cryptocurrency mining could make use of this energy that would otherwise be discarded. He then remarked that it was in no one’s interest to pursue energy that was more expensive than the best price that could be obtained in the market and stated that one of the U.S.’s key economic advantages was its access to cheap energy.

Full Committee Chairman Frank Pallone (D-NJ):

• Chairman Pallone noted how estimates for the cryptocurrency mining industry’s electricity consumption and carbon emissions varied heavily. He commented that these different power consumption estimates made it difficult to assess the extent to which the cryptocurrency mining industry’s activities were a problem. He asked Mr. Belizaire to discuss the extent to which the cryptocurrency mining industry was concerned about its power consumption. He also asked Mr. Belizaire to identify the estimates of the cryptocurrency mining industry’s power consumption that he found particularly credible.
  • Mr. Belizaire mentioned how the Cambridge Centre for Alternative Finance (CCAF) tracked the power consumption associated with cryptocurrency mining and worked to provide updated estimates on this consumption annually. He noted how he had seen estimates regarding the power consumption associated with cryptocurrency mining that ranged from 0.33 percent of the world’s power consumption to 0.5 percent of the world’s power consumption. He highlighted however that traditional data centers used 3 percent of the world’s power consumption and commented that this usage was uncontroversial. He expressed his willingness to follow up with Chairman Pallone on assessments of the various estimates on the power consumption of cryptocurrency mining.
• Chairman Pallone noted how Dr. Juels’s testimony had stated that the Cambridge Bitcoin Electricity Consumption Index (CBECI) provided a good estimate regarding Bitcoin’s energy consumption. He asked Dr. Juels to explain why he found that particular index to be credible.
  • Dr. Juels remarked that the CBECI’s methodology appeared sound based on his brief review of it. He stated that there did not exist a direct way to estimate or ascertain the amount of energy that the Bitcoin network was using. He noted how the Bitcoin network’s energy consumption was inferred based on the hash rate, which he explained referred to the amount of computation within the network. He also indicated that electricity consumption was estimated based on the types of machines used for mining.
• Chairman Pallone then noted how Mr. Wright’s testimony had stated that the growth and evolution of the cryptocurrency mining industry posed load growth challenges and that not managing these risks could result in significant cost exposure for a utility company’s other customers. He asked Mr. Wright to explain what some of these risks were and to address how communities could ensure that ordinary rate payers did not bear the costs of cryptocurrency mining.
  • Mr. Wright indicated that an electric utility’s rates were composed of three elements: transmission, distribution, and generation. He stated that portable loads could move away on short notice, which would expose customers to higher transmission and distribution costs. He then highlighted how electric utilities might need to build additional generation capacity in order to satisfy the demands of cryptocurrency miners. He noted that this additional generation capacity could become a stranded asset in the event that cryptocurrency miners moved their operations. He also stated that electric utilities would be limited in their ability to sell long-term generation capabilities given the portable nature of cryptocurrency mining. He noted how generation generally received more value in the market when it was sold on a long-term basis. He then mentioned how his electric utility had collected money upfront from certain customers and set electricity rates for these customers based on short-term market prices. (Note: Mr. Wright’s video stream experienced technical difficulties throughout his response).

Full Committee Ranking Member Cathy McMorris Rodgers (R-WA):

• Ranking Member McMorris Rodgers asked Mr. Zerzan to explain how blockchain technology would provide consumers with control over their own information.
  • Mr. Zerzan noted how a blockchain operated as a distributed computer, which meant that it could do all of the things that a traditional computer could do. He stated that there were five companies that controlled the current version of the internet and indicated that these companies maintained private servers containing consumer information. He explained that blockchains distributed information across an entire network and provided consumers with ownership of their own data and the ability to control how their data was used.
• Ranking Member McMorris Rodgers then mentioned how there was a recent report that found that cryptocurrency-related job postings in the U.S. had surged 395 percent between 2020 and 2021. She asked Mr. Zerzan and Mr. Brooks to discuss how government regulations of the cryptocurrency industry could impact the industry’s job growth and investments. She also asked Mr. Brooks to address the long-term utility of the expertise required for cryptocurrency-related jobs.
  • Mr. Zerzan described cryptocurrencies as the “oil that lubricates the blockchain.” He noted how Bitcoin was designed to serve as a substitute for cash in the case of the Bitcoin network. He noted how other systems had cryptocurrencies that served as a mechanism for incenting people to distribute their computing power to a broader network. He remarked that there will likely be increasing interest in cryptocurrency innovation because it was fundamentally a software and coding innovation. He stated that exclusively regulating cryptocurrencies as a financial services topic would likely drive cryptocurrency innovation to other markets outside of the U.S.
• Ranking Member McMorris Rodgers then asked Mr. Wright to discuss Chelan County Public Utility District’s experience with cryptocurrency mining when he had served as the utility’s chief executive officer (CEO). She also asked Mr. Wright to discuss how the negative impacts associated with cryptocurrency mining could be addressed or managed.
  • Mr. Wright recounted how his utility had first encountered the cryptocurrency mining industry when the industry was in its nascency. He commented that the cryptocurrency mining industry during this period was still learning how to properly operate. He stated that cryptocurrency miners during this period were very prone to relocate, which had caused frustration for Chelan County. He then remarked that his community viewed blockchain technology as providing potential benefits outside of Bitcoin. He noted however that there were community concerns about Bitcoin and other cryptocurrencies regarding their decentralized and unregulated nature, as well as their reported use in illicit activities.

Rep. Ann Kuster (D-NH):

• Rep. Kuster asked Mr. Brooks to discuss the innovations occurring within the cryptocurrency industry that could have applications beyond the cryptocurrency mining context.
  • Mr. Brooks noted how cryptocurrency was previously viewed as a tool for asset speculation and illicit activity and stated that the view that cryptocurrencies were really about decentralization had picked up traction in the ensuing years. He remarked that Bitcoin and cryptocurrencies were not just about creating new forms of money and were instead about replacing the concepts of networks. He noted how distributed companies were now competing with Amazon and Microsoft within the cloud computing space. He also noted how distributed companies were now competing with Google within the internet search space. He contended that cryptocurrencies had grown significantly over the past couple of years because they were built on top of decentralized systems. He stated that decentralized systems were safer, fairer, more secure, and more valuable than centralized applications.
• Rep. Kuster then mentioned how China had banned all cryptocurrency transactions and mining in June 2021 and how the U.S. had subsequently had its global share of cryptocurrency mining grow “substantially.” She asked Mr. Belizaire to discuss what had drawn cryptocurrency mining companies to the U.S. following China’s June 2021 ban. She also asked Mr. Belizaire to discuss the criteria that his company looked for when deciding where to site a new cryptocurrency mining facility.
  • Mr. Belizaire remarked that China’s June 2021 actions had led many parties to enter the U.S. cryptocurrency mining space. He stated that cryptocurrency miners looked for cheap energy and commented that they were increasingly prioritizing clean energy. He also stated that cryptocurrency miners often sought out locations in which they could build large-scaled operations. He commented that this led cryptocurrency miners to seek out markets with talent resources and access to economic development support. He further stated that cryptocurrency miners considered a potential facility location’s various services, including support services, insurance, business operations talent, and finance offerings. He remarked that the growth of the U.S. cryptocurrency mining industry would drive the industry to become more mature given how the U.S. had strong rule of law and infrastructure.

Rep. Neal Dunn (R-FL):

• Rep. Dunn remarked that the applications of blockchain technology remained in their nascency and that Congress ought to ensure that it did not stifle innovation within this space. He also contended that Congress should be impartial to the consensus mechanisms being employed by blockchain networks. He then remarked that the U.S. needed to produce more energy domestically and called on the U.S. to make investments in cleaner power sources (including nuclear power and natural gas) in order to support its energy production needs. He asked Mr. Brooks to discuss how Bitcoin’s halving cycle would help Bitcoin to reach an energy equilibrium. He commented that this halving feature of Bitcoin mining would discourage less efficient Bitcoin mining over the long run.
  • Mr. Brooks discussed how the difficulty of mining Bitcoins increased during each halving cycle, which meant that the value of new Bitcoins also increased. He stated that this dynamic meant that only the most efficient Bitcoin miners were able to survive into future halving cycles, which created incentives to identify new energy efficient approaches to Bitcoin mining. He commented that these new energy efficient approaches had spillover effects to sectors outside of cryptocurrency. He mentioned how Bitcoin miners had developed innovative immersion cooling techniques in response to the halving cycle and noted how these techniques were now being applied to high performance computing data centers.
• Rep. Dunn also asked Mr. Brooks to discuss the current demand for ultra-low-voltage ASIC chips.
  • Mr. Brooks mentioned how BitFury was on its eighth generation of ASIC chips and testified that the energy improvement for BitFury’s chips between the first and eighth generation was 6,100 percent. He stated that this innovation had applications beyond Bitcoin mining. He mentioned how BitFury had developed an artificial intelligence (AI) chip business based on its work within the Bitcoin mining space.
• Rep. Dunn asked Mr. Brooks to confirm that BitFury was helping to address the U.S.’s current semiconductor chip shortage.
  • Mr. Brooks stated that BitFury was helping to address the U.S.’s current semiconductor chip shortage.
• Rep. Dunn then asked Mr. Brooks to indicate whether the energy used to mine cryptocurrencies in the U.S. was cleaner than the energy used to mine cryptocurrencies outside of the U.S. He commented that moving cryptocurrency mining to the U.S. could make the mining process cleaner.
  • Mr. Brooks indicated that U.S. cryptocurrency mining was twice as efficient as the regular electric grid. He added that U.S. cryptocurrency mining was even more efficient than electric grids of other countries.

Rep. Jan Schakowsky (D-IL):

• Rep. Schakowsky mentioned how some cryptocurrency miners had restarted dormant coal plants and kept open a coal plant that was set to close down in order to power their operations. She stated that the operation of these coal plants was detrimental to both the environment and fenceline communities. She commented that the economics underlying cryptocurrency mining could push cryptocurrency miners to use fossil fuels in order to power their operations in the short-term. She asked Mr. Wright to comment on this dynamic.
  • Mr. Wright noted that while the cost of renewable resources had been decreasing, he indicated that the demand for clean energy was concurrently increasing. He commented that this increasing demand was leading to increasing prices. He attributed this increased demand to recent state laws (particularly on the West Coast) that were aggressive in requiring the use of clean energy. He then mentioned how his state of Washington was banning the use of coal in 2025 to serve energy load. He stated that this impending prohibition reduced demand for coal energy in the state, which in turn reduced the price for coal energy.
• Rep. Schakowsky expressed concerns that there might remain incentives to power cryptocurrency mining using fossil fuels. She asked Mr. Belizaire to indicate why he believed it was feasible to increase the use of renewable energy sources for powering cryptocurrency mining.
  • Mr. Belizaire remarked that the cryptocurrency mining industry was maturing and was increasingly receiving institutional financing. He stated that this institutional financing often came with ESG requirements, which would lead cryptocurrency miners to pursue net zero carbon emissions. He then discussed how there were large sums of capital being invested in building more clean power throughout the world. He stated that these investments created opportunities for cryptocurrency miners to make use of clean energy. He commented that the aforementioned dynamics would likely drive the scale and maturity of clean energy-powered cryptocurrency mining operations.

Subcommittee Ranking Member H. Morgan Griffith (R-VA):

• Ranking Member Griffith discussed how his region of southwestern Virginia has been working to redevelop its abandoned mines for other purposes. He asked Mr. Brooks to indicate whether these abandoned mines could potentially serve as natural coolants for data centers and cryptocurrency mining operations. He noted how many of these abandoned mines were deep underground and had 50-degree water and air temperatures.
  • Mr. Brooks remarked that these abandoned mines could serve as natural coolants for data centers and cryptocurrency mining operations. He stated that cryptocurrency miners were always looking for lower temperatures and noted how cooling costs were a big part of energy inputs.
• Ranking Member Griffith commented that repurposing abandoned mines to serve as natural coolants for data centers and cryptocurrency mining operations would be beneficial to both the environment and industry. He asked Mr. Zerzan and Mr. Wright to indicate whether they believed that abandoned mines could be used to support cryptocurrency mining operations.
  • Mr. Zerzan commented that abandoned mines had the potential to support cryptocurrency mining operations.
  • Mr. Wright remarked that cryptocurrency miners were looking to identify the lowest cost resources and commented that abandoned mines appeared to be low-cost resources.
• Ranking Member Griffith then mentioned how there had been 31 federal bills focused on cryptocurrencies and blockchain technology in 2021. He commented that this large number of bills suggested that Congress might be trying to overregulate this emerging industry. He asked Mr. Brooks to identify policies that would harm the cryptocurrency mining industry.
  • Mr. Brooks expressed opposition to policies that would charge Bitcoin miners more for electricity than other types of customers and commented that markets should decide the appropriate prices for electricity. He also stated that policymakers should not assume that the entire value of Bitcoin was measured just by Bitcoin’s market capitalization. He indicated that the transaction throughput on the Bitcoin blockchain was many multiples of Bitcoin’s market capitalization because the Bitcoin network had many transaction layers built on top of it. He lastly noted that Bitcoin was the reference asset for most DeFi. He elaborated that Bitcoin trading was the foundation on which companies were able to offer high interest rates to consumers for lending out their cryptocurrencies. He asserted that Bitcoin was therefore essential for these lending products and other innovations within the cryptocurrency space. He acknowledged however that this topic was outside of the Committee’s jurisdiction.
• Ranking Member Griffith then stated that China’s recent actions to ban cryptocurrency transactions and mining appeared to be partially due the decentralized nature of cryptocurrencies. He asked Mr. Zerzan to comment on this.
  • Mr. Zerzan stated that cryptocurrencies provided freedom to users and that many countries did not like the concept of freedom.

Rep. Paul Tonko (D-NY):

• Rep. Tonko mentioned how a lot of cryptocurrency mining was occurring within his state of New York, which he partially attributed to the state’s cheap electricity. He noted that while cryptocurrency miners were making use of New York’s cheap hydroelectric power, he also highlighted how cryptocurrency mining had led many of the state’s retired fossil fuel plants to reopen. He asked Belizaire to provide recommendations for encouraging cryptocurrency miners to only use clean energy to power their operations.
  • Mr. Belizaire suggested that Congress could establish tax credits or financial incentives for companies to support clean energy development through flexible load environments. He also stated that Congress could encourage energy grid operators to expand their definitions of demand and response solutions to include new computing platforms. He commented that this approach would increase revenue opportunities and offset the volatility associated with cryptocurrency energy demands. He lastly suggested that Congress could encourage renewable energy developers to consider combining their renewable energy resources with cryptocurrency mining facilities. He commented that vertical integration between renewable energy and cryptocurrency mining could promote the availability of renewable energy and help the U.S. to achieve its environmental goals.
• Rep. Tonko then asked Dr. Juels to discuss the opportunity costs associated with having cryptocurrency miners consume excess electricity from renewable energy generators.
  • Dr. Juels noted that excess electricity could support drug discovery computing and the smelting of bauxite. He then mentioned how it was previously stated during the hearing that cryptocurrency mining machines were becoming more energy efficient. He commented that while this statement was true, he asserted that the statement was also deceptive. He remarked that cryptocurrency mining as a whole was becoming less energy efficient because the rewards of this mining were determined by a cryptocurrency miner’s power relative to their competitors. He noted that while individual cryptocurrency mining rigs had grown more energy efficient over time, he indicated that overall energy consumption in cryptocurrency mining had also been growing over time.
• Rep. Tonko asked Dr. Juels to indicate why he believed there were better ways to use the excess energy being generated by renewable energy sources than cryptocurrency mining.
  • Dr. Juels remarked that the proof of work validation method was unnecessary for the maintenance of blockchains. He contended that the proof of stake validation method was a perfectly viable alternative that was already securing hundreds of billions of dollars in value. He asserted that the concern that proof of stake validators could wipe a blockchain clean was a theoretical concern that was based on certain implausible suppositions. He stated that the proof of stake validation method used significantly less energy than the proof of work validation method, which would enable the energy currently being used for proof of work validation to be redirected towards better uses.
• Rep. Tonko acknowledged that his question period time had expired.

Rep. Scott Peters (D-CA):

• Rep. Peters stated that the cryptocurrency mining industry could potentially serve as a source of innovation given its significant energy consumption. He noted how Bitcoin mining demanded specialized powerful computing hardware. He asked Mr. Brooks to discuss the developments that have been made regarding computing efficiency that could reduce power consumption.
  • Mr. Brooks remarked that there were efficiency gains in every generation of cryptocurrency mining equipment that were necessary to maintain the profitability of cryptocurrency mining. He stated that while the cryptocurrency networks might use an increasing amount of energy, he asserted that the system was more energy efficient in that it was consuming less energy per terahash. He then discussed how other parts of the economy benefited from cryptocurrency mining innovations, such as low-voltage ASIC chips and immersion cooling.
• Rep. Peters asked Dr. Juels to confirm that he had previously asserted that the overall amount of energy used for cryptocurrency mining had increased, even as cryptocurrency mining equipment had become more efficient.
  • Dr. Juels noted how the argument was made earlier during the hearing that the cryptocurrency networks were becoming more efficient in that the amount of energy required per terahash was decreasing. He stated however that end users do not care about terahashes and instead care about the number of transactions a cryptocurrency network is processing. He indicated that the number of transactions that the Bitcoin network was processing had remained “fairly steady” over its lifetime. He noted however that the Bitcoin network’s energy consumption had concurrently grown over time. He contended that the Bitcoin network was thus less efficient when comparing the network’s energy consumption against its number of processed transactions. He then discussed the Lightning Network, which he explained was a second layer technology that could increase the transaction rate of the Bitcoin network. He stated that the Lightning Network remained in its infancy and that its prospects for success remained unknown. He added that the Lightning Network was not currently used by a large number of Bitcoin network end users.
• Rep. Peters then asked Mr. Belizaire to discuss how cryptocurrency mining could support batchable computing.
  • Mr. Belizaire predicted that the continued growth of cryptocurrency mining would lead to more flexible data centers around the U.S.’s electricity grid. He remarked that these flexible data centers would not be exclusively focused on cryptocurrency mining once they reached a certain size. He stated that these flexible data centers would have other types of pausable batchable applications, such as movie selection algorithms and drug discovery systems.

Rep. Kim Schrier (D-WA):

• Rep. Schrier discussed how cryptocurrency mining companies had increased their demand for energy over the previous ten years. She stated that the increased demand for energy from these companies could sometimes threaten the amount of available energy for homes and businesses. She mentioned how Chelan and Douglas counties within her state of Washington had taken different approaches in responding to this increased demand for energy from cryptocurrency mining companies. She noted how Douglas County maintained a policy that increased electricity rates for cryptocurrency miners by 10 percent every six months. She asked Mr. Wright to summarize Chelan County’s approach to responding to the increased demand for energy from cryptocurrency mining companies.
  • Mr. Wright remarked that the main energy challenge associated with cryptocurrency mining was the ability of miners to move their operations on short notice. He elaborated that communities might build energy assets to satisfy the electricity demands of cryptocurrency miners only to have the miners leave the community, which would render the assets stranded. He stated that Chelan County Public Utility District had responded to this risk through imposing an upfront charge on cryptocurrency miners for transmission and distribution. He also noted that Chelan County Public Utility District priced generation for cryptocurrency miners based on short-term market prices. He remarked that the aforementioned policies neutralized the impact of cryptocurrency mining on the public utility district’s existing customers.
• Rep. Schrier also mentioned how Mr. Wright had questioned whether communities should want cryptocurrency mining. She noted how cryptocurrency mining was very energy intensive and how cryptocurrencies were often used for nefarious purposes (including drug trafficking and ransomware). She asked Mr. Wright to indicate whether the value of cryptocurrencies should warrant the high amounts of energy needed to mine them.
  • Mr. Wright stated that his cost-benefit assessment of cryptocurrencies would be heavily dependent on how the cryptocurrency industry evolves. He mentioned how Chelan County residents were concerned over the use of cryptocurrencies for nefarious purposes and wanted assurances that there would be robust federal monitoring of cryptocurrency activities. He also expressed concerns over the efficiency of existing cryptocurrency mining operations. He commented that it was much cheaper to implement efficiency efforts at the outset of an operation than it was to retrofit an existing operation in order to make that operation more efficient.
• Rep. Schrier then discussed how the U.S. exported hundreds of millions of dollars annually to Canada as part of the Columbia River Treaty in exchange for a dam that had been completed many years ago and flood management. She mentioned how there had been bipartisan concerns over the lack of progress in the renegotiation of the treaty with Canada. She asked Mr. Wright to indicate whether there were actions that the Committee could take to accelerate the Columbia River Treaty renegotiation process so that it could ensure that Washington state could satisfy its demands for clean electricity.
  • Mr. Wright remarked that the Committee could express the importance of mechanisms that were defined in the Columbia River Treaty to the Biden administration that could repatriate electricity to Pacific Northwest consumers. He also stated that the U.S. could also address flood control and ecosystem issues as part of the renegotiation process.

Rep. Lori Trahan (D-MA):

• Rep. Trahan remarked that blockchain networks were largely premised on decentralization and that this decentralization was key to supporting the security and accuracy of cryptocurrency transactions. She stated however that the Bitcoin mining industry was becoming increasingly consolidated. She mentioned how there were estimates suggesting that as few as 50 Bitcoin miners controlled half of the world’s Bitcoin mining capacity. She asked Mr. Brooks to discuss the implications of having fewer players control an increasing amount of Bitcoin’s mining activity.
  • Mr. Brooks remarked that the number of miners on a cryptocurrency network using a proof of work validation method (like Bitcoin) mattered less than the number of miners on a cryptocurrency network using a proof of stake validation method. He noted that the miners on a proof of work-validated blockchain could not collude to alter the blockchain because rewards were distributed randomly within these types of networks. He explained that the miners on the Bitcoin network sought to solve complicated math equations in order to obtain a chance at winning a Bitcoin reward. He asserted that the Bitcoin network’s proof of work validation method therefore guarded against the prospects of collusion.
• Rep. Trahan noted how one of the major criticisms often levied against proof of stake-validated networks was their vulnerability to consolidation. She asked Dr. Juels to indicate whether there existed a consensus within academia or industry regarding the viability of proof of stake-based mining as an alternative to proof of work-based mining.
  • Dr. Juels remarked that centralization was a systemic problem that impacted all blockchains and stated that the cryptocurrency industry was working to reduce this problem. He disputed the claim that the proof of work validation method provided protection against centralization. He also stated that the claim that cryptocurrency miners could manipulate a proof of stake-validated network more effectively than a proof of work-validated network relied on theoretical considerations. He acknowledged that while there were concerns that proof of stake-validated systems advantaged the already powerful, he commented that this was a systemic problem that also existed in Bitcoin. He contended that the proof of stake validation method was a viable technology and noted how proof of stake-validated networks had proven very resistant to hacks thus far. He commented that while the proof of work validation method was just as robust as the proof of stake validation method, he emphasized that the proof of work validation method consumed an “enormous” amount of electricity.
• Rep. Trahan mentioned how a common criticism of the proof of stake validation method was that it was less secure due to its susceptibility to consolidation. She asked Dr. Juels to indicate whether proof of stake networks would pose security concerns if their miners were to become more consolidated.
  • Dr. Juels regarded that any blockchain that became more centralized (regardless of validation method) would face increased security threats because the miners could in principle take over the network. He indicated that four mining pools could currently control the Bitcoin blockchain in principle. He elaborated that these four mining pools could theoretically collaborate to spend the same Bitcoins twice or cause the network to stop processing transactions. He asserted that the proof of work validation method was therefore not sufficient on its own to protect against consolidation. He also mentioned how there were instances where people had been able to rent hash power to successfully commandeer proof of work systems.

Rep. Tom O’Halleran (D-AZ):

• Rep. O’Halleran first raised concerns over how susceptible the cryptocurrency markets were to manipulation and illicit activity. He then mentioned how cryptocurrency mining industry had contended that its facilities and energy consumption levels were no different than the web service and cloud computing industry’s facilities and energy consumption levels. He asked Mr. Wright to briefly describe how a cryptocurrency mining facility differed from a data center in terms of energy consumption.
  • Mr. Wright remarked that it had been difficult for his public utility to determine whether a given facility was engaging in cryptocurrency mining or traditional data services from the outside. He stated that cryptocurrency miners and traditional data centers tended to have different business models. He elaborated that the traditional data center businesses that his public utility had dealt with had tended to be more established, have extensive credit histories, and be more willing to engage with the utility on pursuing mutually beneficial objectives. He then stated that cryptocurrency miners could potentially provide value to public utilities and their customers through providing more stable demand for electricity. He testified however that his public utility’s cryptocurrency mining customers had not been engaged with the utility on pursuing mutually beneficial objectives.
• Rep. O’Halleran than asked Mr. Belizaire to describe the types of jobs that his company’s cryptocurrency mining facilities created. He noted how Mr. Belizaire had previously mentioned a growth factor of around 300 percent. He asked Mr. Belizaire to indicate the baseline for this 300 percent figure and to clarify whether this figure was based on construction jobs, consistent jobs, or both.
  • Mr. Belizaire indicated that he could not speak to the baseline for the 300 percent growth figure and expressed his willingness to follow up with Rep. O’Halleran on his question. He then mentioned how approximately $5 billion had been invested in publicly traded cryptocurrency mining and data center companies. He stated that this availability of capital led to the development of very large cryptocurrency mining and data facilities, which required highly skilled employees to manage. He mentioned how his company’s facilities hired a lot of data technicians and testified that his company sought out military veterans to fill these roles.
• Rep. O’Halleran interjected to indicate that his question period time had expired.

Rep. Darren Soto (D-FL):

• Rep. Soto first mentioned how he was co-chair of the Congressional Blockchain Caucus and noted that most Americans had difficulties in comprehending blockchain technology. He remarked that blockchain technology would ultimately benefit Americans through enabling international transactions and making transactions more secure. He called for establishing more consistent cryptocurrency rules and definitions across statutes and regulatory agencies. He mentioned how the U.S. House of Representatives had advanced his bills that would direct the U.S. Department of Commerce and the U.S. Federal Trade Commission (FTC) to issue reports on clarifying cryptocurrency definitions. He also mentioned how the Infrastructure Investment and Jobs Act had set some tax rules for cryptocurrencies. He asserted however that additional reforms needed to be made to this law’s cryptocurrency tax provisions. He further remarked that the U.S. must work to combat the use of cryptocurrencies in illicit activities. He then expressed concerns over the impact of cryptocurrency mining on the U.S.’s energy consumption. He referenced a recent report of a North Dakota coal plant that was being kept open to support a cryptocurrency mining operation. He asked Dr. Juels to discuss how data oracles could help blockchain systems to run more efficiently and consume less energy.
  • Dr. Juels stated that the primary role of data oracles was not to help blockchain systems run more efficiently. He noted how blockchains lacked direct internet connections, which meant that smart contracts built on top of blockchains could not query websites directly. He explained that oracles addressed this issue through connecting blockchains to off chain systems (e.g., web servers, other blockchains, etc.).
• Rep. Soto asked Mr. Brooks to provide recommendations for how the U.S. government could promote less energy intensive cryptocurrency mining.
  • Mr. Brooks remarked that it was important for policymakers to allow for markets and price signals to dictate what constituted appropriate uses of energy. He stated that Bitcoin was currently acting as an energy derivative in that it provided real-time price signals to the market about where energy was most needed. He testified that his company only deployed cryptocurrency mining in joint ventures with either utility providers or renewable energy providers. He indicated that his company did not acquire power plants to support their Bitcoin mining operations. He stated that his company’s partnerships with existing energy providers gave the providers consistent base load demand, which made their facilities economically viable. He acknowledged that while there were some instances where a Bitcoin mining operation acquired a power plant, he asserted that the vast majority of industrial scale Bitcoin miners played key roles in ensuring that existing energy producers remained economically viable.