U.S. and China Finally Agree on Something, and It's Not Good for Crypto Miners

The Motley Fool
The Motley Fool

What happened

Cryptocurrency miners are under pressure today. Three of the largest crypto miners, 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.

Today's marked decline in the crypto mining sector appears to be a direct result of strong regulatory headwinds. Up to now, most of these have come out of China and India. However, it appears U.S. regulators are increasingly looking at crypto mining, from an environmental and sustainability perspective.

Putting investors on edge today are reports that Sen. Elizabeth Warren sent a letter to Greenidge Generation Holdings CEO Jeff Kirt asking for information on the climate change impact of crypto mining.

Image source: Getty Images.

So what

Crypto mining is extremely energy intensive. Many of the major cryptocurrency blockchain networks require what's known as a proof-of-work consensus mechanism to validate blocks on the blockchain and secure the network. These require heavy computing power to solve difficult mathematical problems. Some of the largest crypto networks, including those of Bitcoin , Ethereum , and Litecoin , use proof-of-work protocols.

Just how much energy is used to mine crypto?

Well, Bitcoin mining alone accounts for more than 0.5% of the world's electricity usage, much larger than many small countries. Given the fact that crypto mining requires large amounts of electricity, crypto miners have come under pressure, in countries like China specifically, for using the cheapest electricity possible (usually derived from coal-powered plants). The U.S. appears to be coming to a similar conclusion on the topic, questioning the viability of crypto mining from an environmental standpoint.

Now what

Many alt coins and "newer" blockchain networks are being built with proof-of-stake consensus mechanisms. These allow for blocks to be verified via token holders staking their tokens to become validators and secure the blockchain. Essentially, this cuts down on the energy usage needed to run networks, providing a more sustainable alternative to the existing validation models. Notably, Ethereum is making a move toward proof of stake with its Ethereum 2.0 update.

However, in its current state, the crypto mining sector is one that's a power-guzzler. This is one of the key reasons why the crypto sector has caught the attention of regulators once again.

This current U.S. administration has already shown an affinity toward regulating the crypto sector, from a taxation standpoint, to support infrastructure spending. That said, additional regulations related to reducing the environmental impact of crypto mining could be the next step for this largely unregulated sector. Accordingly, investors in crypto miners are on watch today.

10 stocks we like better than Marathon Digital Holdings, Inc.
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now... and Marathon Digital Holdings, Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of November 10, 2021

Chris MacDonald owns shares of Ethereum. The Motley Fool owns shares of and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy .

Comments / 28

Homer Collins

Let's be realistic... China wants to be in control of everything and Biden doesn't have the balls to stop them. perfect example... China has been in control of over 80% of the world's manufacturing since taking back Hong Kong in July 97. At the end of this year, many of the business leases in Hong Kong will expire and many of those manufacturing companies are looking to goto Taiwan. Which is why China wants to take Taiwan back after nearly 110 years since gaining it's independence from China and becoming a recognized country... China doesn't want to lose its foothold on the world.

Bent Spear

China dictates the people, America is trying to get away from free enterprise and imulate Chinese Communism. The US should be proud Americans are making money because they government made them suffer financially for the past 2 years. Capitalism is being crushed by un-American views of government officials!

Kyle Flynn

crypto isn't "largely unregulated" it is already over regulated.


Comments / 0