The News: The US Environmental Protection Agency (EPA) has been urged by the United States Congress to enforce environmental regulations on cryptocurrency mining in the US, including the reporting of all energy consumption. While the EPA is still determining its path forward in regulating crypto mining, some have speculated that this type of regulation could plausibly extend to traditional data centers as well. Read more from Bitcoin Insider on the moves by government officials here.
Will a Push for Crypto Mining Data Collection Bring Environmental Regulations to the Datacenter?
Analyst Take: Seeing recent news of moves by a group of Democratic lawmakers inquiring about the depth of the EPA’s knowledge about crypto mining data collection and the energy crypto mining draws caught my attention, specifically as it relates to what this might mean in a broader sense around environmental regulations of datacenters.
The root of the concern of the group of lawmakers and the potential of regulation – at least for now – is focused on cryptocurrency. This concern around cryptocurrency stems largely from the Proof-of-Work consensus mechanism used by Bitcoin, the largest and most well-known cryptocurrency. Proof-of-Work secures the blockchain by requiring a certain amount of “work” to be put out by the “miners” who are contributing to the operation of the blockchain. This work is in the form of incredibly energy intensive computations that lead the Bitcoin blockchain to have an enormous energy consumption.
Environmental concern around Proof-of-Work is coupled with, and then amplified by, growing concern around cryptocurrency in general. Cryptocurrency has often had a negative connotation, and recent events such as the disastrous collapse of cryptocurrency exchange FTX have not helped its reputation. In fact, the FTX collapse was called out specifically in the letter sent to the EPA by congress members encouraging regulation. It should be noted however, that the FTX dilemma had nothing to do with the energy expenditure of cryptocurrencies, and in fact had little to do with the technology behind cryptocurrency at all. That said, this and other events have left a black mark on crypto, and will certainly be used to pursue greater regulations – including those regarding environmental concerns. Which is what leads me to the datacenter.
From Blockchain to Datacenter
This current initiative is focused on reporting the energy expenditure of cryptocurrency operations, so where does the speculation around datacenters come in? The average datacenter is certainly not running Proof-of-Work algorithms to mine Bitcoin, or if they are, someone in the IT department will have some explaining to do, so how does this apply?
The first thing to consider is this is likely a starting place. Discussion around the energy utilization and carbon footprint of IT infrastructure – whether used for crypto or not – has become increasingly prevalent when considering sustainability and environmental concerns. Although there is growing concern around the environmental impact of IT and some type of regulation is likely coming eventually, immediately regulating typical IT datacenters in this way may see some significant pushback. Crypto, on the other hand, opens itself up as an easy target. The technology is infamous for its huge energy expenditure and is simultaneously under extreme scrutiny due to several recent scandals.
A second idea to consider is that this regulation is in regard to crypto – not just Bitcoin, and not just Proof-of-Work. While Bitcoin, and a handful of other much smaller Proof-of-Work blockchains, are in fact incredibly energy inefficient when compared to a traditional datacenter, many others are not. Proof-of-Work is not the only consensus mechanism, and other blockchains do not have the same excessive energy expenditure as Bitcoin.
Ethereum, the second largest cryptocurrency, has recently undergone a switch from Proof-of-Work, to Proof-of-Stake – a different consensus mechanism in which validators of the blockchain “stake” a sum of money as collateral to secure the blockchain, rather than expend the computation, and associated energy, that is required for Proof-of-Work. VeChain, a leading blockchain for enterprise and sustainability use cases, uses a similar type of consensus mechanism called Proof-of-Authority, and has recently announced a commitment to fully carbon neutral operation.
The point here is not to do a deep dive into various blockchains and the merits or weaknesses of their consensus mechanisms, but rather to show that when looking beyond Proof-of-Work, blockchains and crypto are no longer dramatically different from a standard datacenter when considering energy expenditure. As such, it is not a huge leap to consider that datacenters may soon find themselves included in this energy reporting regulation. If cryptocurrencies with a similar environmental impact to datacenters are regulated for their energy usage, why shouldn’t the datacenters be included as well?
What This Might Potentially Mean for IT Organizations
The news that the EPA is being pushed to enforce regulations against crypto miners isn’t of immediate concern for IT organizations. It should however be considered with the context that they may find themselves entangled in this, or similar, regulation at some point in the future.
This type of regulation across the US at a federal level may be a way off, but similar environmental or energy related regulations may crop up on a state-by-state basis. Oregon, for example, has already started this process by introducing a bill to cut emissions by 60% by 2027. Of note, this bill includes both cryptocurrency mining and datacenters.
While additional regulations may initially feel cumbersome or restrictive, the goals of monitoring and reducing carbon footprints – whether for IT or cryptocurrency – should be seen as a positive. Although nothing is changing immediately for IT, I believe this should be viewed as a preview of what may be to come. IT organizations should be preparing by ensuring they can properly monitor their energy consumption as well as focus on ways to reduce carbon emissions, including more efficient hardware and software technologies, as well as utilizing renewable energy sources when possible.
More insights from Evaluator Group:
Check out Evaluator Group’s insights on sustainability and environmental initiatives within the datacenter here:
Storage, Sustainability, and ESG Reporting
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Disclosure: Evaluator Group, wholly owned by The Futurum Group, is a research and analyst firm that engages or has engaged in research, analysis and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article. Analysis and opinions expressed herein are specific to the analyst individually.