The CCAF’s research finds that 76% of ‘hashers’ use renewable energy to power their activities, with hydropower the number one source at 62%. Wind and solar energy meanwhile are used by 17% and 15% respectively.

This would appear to be consistent with previous research which estimates that 74% of bitcoins are mined using renewable energy.

However, the CCAF’s report specifies that the 76% refers to the share of hashers who use renewable energy at any point. It estimates that only 39% of hashing’s total energy consumption comes from renewables.

Behind hydroelectricity, coal (38%) and natural gas (36%) are the energy sources hashers favour most.

‘Hashers’ is used by CCAF as a more accurate than the umbrella ‘miners’ to refer to actors that are running mining equipment to generate hashes for finding a valid proof-of-work.

Equal measure

The dominance of hydroelectricity also prompts discussion. Hydroelectricity is more reliable than solar or wind but not as scalable as fossil fuels, as it requires specific topography to build reservoirs and dams and so on.

Even where hydroelectricity is feasible for an activity like bitcoin mining, there is seasonal variation. During the rainy season in south-west China, for example, a surplus of electricity is produced which brings the costs down.

“The estimate is that it’s 30% cheaper to access electricity in Sichuan or Yunnan during the rainy season compared to other regions, so miners will tap into this oversupply of hydroelectric energy,” Apolline Blandin, cryptocurrency and blockchain lead at the CCAF, says.

“Then, when the rainy season ends at the end of October, they will migrate back to regions with cheap electricity powered by coal in Inner Mongolia or Xinjiang.”

It is estimated that around 65% of bitcoins are mined in China with Xinjiang alone accounting for some 35.76%. The CCAF’s research may point to equal use of renewable and non-renewable energy sources being a key factor in this.

The CCAF’s research finds that an equal share of hashers in Asia-Pacific report using hydroelectricity and coal as energy sources, both 65%.

Hydroelectricity is prominent elsewhere as well, at 60% in Europe, 67% in Latin America and the Caribbean (LAC) and 61% in North America.

The share powered by coal in these regions is much lower, however. Just 20% do so in Europe, 28% in North America and none in LAC.

Mining is specifically a function of ‘proof of work’ cryptocurrencies, where participants in the network are rewarded with coins for adding new blocks to the chain.

To swerve this energy-intensive process, ‘proof of stake’ cryptos are now common, where users holds funds in the cryptocurrency in order to support the blockchain network’s operation. Ethereum, for example, is rebooting as Ethereum 2.0, following a staking model.

Regulatory harmonization

The CCAF’s director and co-founder, Dr Robert Wardrop, believes the research demonstrates that issues relating to compliance and security are “still rampant” and that they must be addressed for the crypto industry to become fully mainstream.

Blandin describes cryptoassets as a “completely different type of beast”, requiring wholly different infrastructure to offer custody services, which remains a barrier for institutions that are not “cryptoasset native”.

“All in all, if there is greater regulatory clarity and greater harmonization across jurisdictions, then we will see the industry moving towards greater compliance and abide by similar standards that the traditional financial system has to comply with,” she sums up.

The CCAF’s research suggests that efforts by regulatory bodies to harmonise their approaches to cryptoassets appears to be bearing fruit.

The data from over 280 cryptoasset entities finds that a plurality of providers abide by obligations relating to combating the financing of terrorism (CFT) and AML, with such firms rising in number by 67% from 2018 to 2019.

This trend is down to an increase in the number of providers also supporting fiat currencies, according to the CCAF. Some 30% that only supported cryptoassets in 2018 now also offer support fiat.

Focusing on cryptoasset-only companies, the research finds that 13% of firms do not conduct any KYC checks at all, though this has decreased from 48% since 2018.

The CCAF puts this down to such work as that conducted by the Financial Action Task Force (FATF) in harmonising standards across jurisdictions.

However, the overall picture for regulatory compliance in the cryptoasset industry remains a patchy one. The study highlights that only 54% of firms report being insured, pointing to an absence in the market for an insurance plan built with the crypto industry in mind.

The number of firms who indicate that they have been independently audited in the last 12 months has also declined by 24% compared to 2018.