Cryptocurrency requires an immense amount of power to exist. Without tons of energy, there is no Bitcoin. To truly wrap your head around cryptocurrency, you must first understand that the basic economics of it are rooted in energy, not some weird software algorithm. The existence of the algorithm is why it consumes so much energy, and all software improvements to Bitcoin are made with reducing this dynamic in mind. The problem is that a big part of what makes Bitcoin so incredibly secure is its energy consumption. Tom Lee, an analyst for Fundstrat Global Advisors, said last year on CNBC that it would cost about $30 billion to counterfeit one fake Bitcoin (this was when Bitcoin’s price was around $4,000—it’s presently around $8,000).

As this gold rush has intensified, more people have wanted to get in—including this writer. If you’ve never seen a Bitcoin miner, I bought one. Here’s what it sounds like (warning: it’s extremely loud).

So, uh, bitcoin miners are kinda loud. Thankfully, I have a friend with a basement who's willing to take mine in cuz I will never sleep again with this in the other room. pic.twitter.com/7TMVvmUTV6 — Jacob Weindling (@Jakeweindling) February 24, 2018

That sound is a very apt representation of Bitcoin's energy consumption, and it's growing at an astounding rate. Per meteorologist Eric Holthaus in Grist:

Bitcoin's energy footprint has more than doubled since Grist first wrote about it six months ago.

It's expected to double again by the end of the year, according to a new peer-reviewed study out Wednesday. And if that happens, Bitcoin would be gobbling up 0.5 percent of the world's electricity, about as much as the Netherlands.

That's a troubling trajectory, especially for a world that should be working overtime to root out energy waste and fight climate change. By late next year, Bitcoin could be consuming more electricity than all the world's solar panels currently produce — about 1.8 percent of global electricity, according to a simple extrapolation of the study's predictions. That would effectively erase decades of progress on renewable energy.

Those of us who are sold on the power of cryptocurrency (I was sold by Bitcoin literally saving at least thousands of lives in Latin America by giving people a safe-haven to store their savings while their government-backed currency loses value every day) must reckon with the fact that it demands energy consumption on par with that of a rich country. However, what was left out in the report is where that energy is coming from. Going back to energy consumption being the true economics of cryptocurrency: mining incentivizes you to find the cheapest energy. Let's use myself as a basic example.

Right now, that noisy miner stored in my friend's basement is costing me about $200 a month. Since I'm just plugging into the civilian grid, that's $200 worth of fossil fuels I'm burning in order to get roughly $240 in Bitcoin in return. However, I am not even a minnow swimming in the ocean—I'm more like an atom. Most Bitcoin mining isn't done in the United States—it's done in China by hugely profitable companies.

A Cambridge University study from last year revealed that 58% of Bitcoin mining is done in China, 16% in the United States and 26% “other.” Business Insider UK spoke with University of Cambridge Research Fellow Garrick Hileman, and he explained “that there are four key ingredients that make the ideal conditions for cryptocurrency mining; low-cost electricity, cold weather, reliable internet and low population density.” Hileman continued:

So you see a lot of cryptocurrency mining taking place in the far northern hemisphere so countries like Iceland, Sweden, Canada.

You also see cryptocurrency mining taking place in countries like the United States, they have hydroelectric power there that's relatively inexpensive.

But by far and away the country where most of this mining is taking place is China for a couple of reasons. One – and the biggest reason of all – is low-cost electricity or free electricity.

China has very cheap coal-based electricity and also a lot of extra hydro-capacity.

Cryptocurrency idealists have a way of framing the energy issue as “Bitcoin gravitates towards renewables,” but in reality, it is profits that determine what energy will be used to mine this new lucrative item. The less it costs to run a miner, the more money you will make from said miner. Given the constraints of our world, it largely leads Bitcoin mining towards two main sources: renewables and coal. The world is never as simple as we'd like it to be.

Bitmain is the 800-pound gorilla in the cryptocurrency space right now. They manufacture most miners (Jihan Wu, Bitmain's CEO, says they control 70% of the market) and they also have a large foothold in the mining space, with a massive facility located in a coal mine in Inner Mongolia which comprises about 4% of the Bitcoin network's computing power. Its daily energy costs are roughly $39,000.

A huge part of what has aided this Chinese economic boom is the cheap cost of coal in China, and Bitcoin has ridden the same wave. This is the part where Eric Holthaus is 100% right: Bitcoin is an enemy of the battle against climate change. The widespread availability of coal is a positive crypto-economic incentive with extremely negative external effects. The good news is that China—and the rich world as a whole (our Trumpian nonsense and Russia exempted)—is slowly moving away from this empirically bad energy source.

In 2006, coal comprised 72.4% of Chinese energy consumption. In 2016, that number slipped to 62%, while water, nuclear and wind power rose from 7.4% to 13.3%. That number has surely risen in the last couple of years, because China didn't just rely on coal to supply their expansion into the 21st century, they invested heavily in hydropower. Per Al Jazeera:

One such area is Sichuan, which has quietly become known as “the capital of Bitcoin mining”.

Entrepreneurial Chinese set up mines in the province due to its abundance of hydropower, perfect for the high energy needs of the computers required for Bitcoin mining.

They are often built beside hydroelectric plants set up along mountain streams. These plants often produce more energy than they can sell to China's state grid, and some plant owners have found they can either sell the surplus to Bitcoin mines or set up their own mines.

You may have heard of China's infamous “ghost towns”—massive new cities sprung up out of the ether by the Chinese government that have almost no inhabitants. China is in a bit of a catch-22: they want to modernize their country and build all these huge new cities, but 28.3% of their population works in agriculture, which only comprises 8.2% of their GDP. That is the genesis of these “ghost towns,” and as a result, the hydroelectric dams that China built to sustain large populations have been pumping out a ton of excess electricity, which has attracted a literal gold rush of Bitcoin miners. However, China's dominance over Bitcoin mining is soon to decline, as Quartz reported in January:

The country's top internet-finance regulator, the Leading Group of Internet Financial Risks Remediation, issued a notice asking local governments to “guide” Bitcoin-mining operations to make an “orderly exit” from the business, according to a leaked document online. Citing government sources, Bloomberg and Reuters earlier reported that China is planning to limit electricity supply to Bitcoin miners.

“Currently, there are some so-called 'mining' enterprises that produce 'virtual currencies.' They have consumed huge amounts of resources and stoked speculation of 'virtual currencies,'” according to the document dated Jan. 2.

North America stands to benefit the most from this development, as Patrick Gray, CEO of HashChain Technology Inc. told Charles Kennedy of Oilprice.com: “North America is one of the best places in the world for mining, thanks to low cost electricity, cool temperatures, and high-speed internet.” Quebec and Manitoba are especially attractive thanks to their abundance of cheap hydropower. Per the CBC:

Bruce Owen of Manitoba Hydro says the utility has been approached by more than 100 groups interested in opening mines in the province since Christmas, However, he couldn't disclose where those groups are based.

“We are getting a lot of inquiries of people just kicking the tires.”

In addition to the tire-kickers, Owen says there are six major digital currency mines operating in the province. Together, he says, they consume as much power as 18,000 new households.

Hydro-Quebec is also fielding numerous requests from foreign digital currency miners hoping to set up shop in the province. The public utility says its campaign last year to attract data centres also caught the attention of many Bitcoin miners.

Similar to the case in Manitoba, a Hydro-Quebec spokesperson recently said more than 100 digital currency companies have expressed interest in mining in the province.

Coindesk interviewed David Vincent, business development director at Hydro-Quebec. He said they went looking for tech giants like Apple and Facebook to build data centers, and wound up catching Bitcoin miners. Per Coindesk:

35 cryptocurrency mining organizations are asking the company for information regarding connecting to the power grid there. Those companies now account 70 percent of the total wattage capacity in Hydro-Quebec's development pipeline.

Canada's gigantic oil and natural gas companies are also warming up to the idea of Bitcoin mining, but the interest for now is focused on hydroelectric power. Russia is another country which stands to benefit from China's crackdown, for many of the same reasons that Canada is attractive. Coal comprises 23% of Russia's energy consumption, but unfortunately, that stands to rise, as the RAO Unified Energy System of Russia announced that they are going to build many new plants—two and a half times their current capacity—with half being built in Siberia. Gazprom, Russia's largest energy company, agreed to a partnership with EuroSibEnergo to subsidize cryptocurrency miners, particularly in Siberia. Russia is also building a $100 million mining facility in Moscow.

Ultimately, where Russia fits into the world's energy future is still to be determined due to a range of balls currently up in the air in our rapidly changing world, but it's certain that they will increase coal pollution, and given where they are investing new resources in coal and Bitcoin mining, those two seem to be intrinsically linked going forward. In places like Canada and Iceland, hydroelectric power is the current rage, but existing oil and gas companies loom over the horizon. Bitcoin's story of energy consumption is the world's story of energy consumption. Because capitalism, the lowest price dictates the winner, and so long as coal is around, it will be used not just for mining Bitcoin, but for fueling our existing society.

The International Renewable Energy Agency asserted that renewables will be consistently cheaper than fossil fuels by 2020 in the Renewable Power Generation Costs in 2017 report. Mankind is not making enough progress to curb our fossil fuel consumption in time to stop irreversible changes to our planet, and that is because the logic of capitalism is superseding our instincts for broad survival. However, once renewables qualify as a good capitalist investment, the theory should hold that all businesses—not just Bitcoin miners—will transfer over to a cheaper energy source. The fact that Canada—the only country in the Western world still largely run by grown-ups—has an inside track on the future of Bitcoin mining mainly thanks to its investments in hydroelectric dams, can only help the cause.

Ultimately, the logic embedded in the origin story of cryptocurrency will push it towards renewables if all prices are equal. Bitcoin exists as a rebuke against the existing international financial system that nearly brought the world to the brink of complete economic collapse in 2008. It is very much an attempt to build a parallel financial system (or a replacement, as crypto-evangelists assert). The genesis block of Bitcoin contains this text of a Financial Times report:

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.

Cryptocurrency exists because we just watched the worst economic crisis since the Great Depression wipe out nearly half of middle class wealth in America, and no one did anything except bail out the people responsible for the crash. Well, someone did something. No one knows who Satoshi Nakamoto is, but they may have started something like a revolution. This technology didn't just spring up out of nowhere. The fundamental basis of cryptocurrency was developed in the 1980s and 1990s through things like Digicash. The economics of this space were even fleshed out through online game currencies. The web is still evolving, and at its elemental level, blockchain technology is just a new, advanced kind of software for the Internet. It's not some alien thing. As we move more of our lives online, it would stand to reason that our markets would too.

Markets need rule of law, and rulers create constraints. Blockchains use code as law, and point the way towards true free markets. — Naval (@naval) August 7, 2017

If you watched this season of HBO’s Silicon Valley, the idealistic decentralized internet proposed by Pied Piper is basically what cryptocurrency aims to do. In Latin America, it has unchained families from their depreciating fiat currency made worse every single day by corrupt, inept governments. The decentralized nature of the systems combined with the power of cryptography ensure that countries cannot simply just shut the Bitcoin network down using their traditional muscle. They could restrict on-ramps to the network like Coinbase, but the Bitcoin network itself exists in every miner like the one I own. That’s the beauty of cryptocurrency, there is no single-point of systemic failure (aside from a 51% attack, as demonstrated by Silicon Valley’s season finale). The risk is spread out.

Renewable energy is more attractive than coal on the basis that you could theoretically set up solar panels in your backyard and live independently of the grid with your Bitcoin miners, while doing the same with a coal power plant is not a viable option. Mining companies operating at scale are what comprise the vast majority of hash power in the Bitcoin system, and capitalism incentivizes them to reduce their energy costs to zero—plus, extracting resources from the Earth will always have prohibitive costs. If the IREA is correct, and renewables become indisputably cheaper than fossil fuels by 2020, then the cryptocurrency ecosystem will be wholly incentivized to shift towards renewable energy, and that should lead to larger investments in solar, wind, water, etc…because that’s where the profits are.

That is the promise of this technology. Cryptocurrency shouldn’t be about getting rich, but freedom from oppressive systems which have proven themselves corrupt and/or inefficient on a grand scale. The problem is that the success of this plan depends on mankind to work together in order to execute it properly.

Jacob Weindling is a staff writer for Paste politics. Follow him on Twitter at @Jakeweindling.