(UN)SUSTAINABILITY OF BITCOIN MINING.

• Author: Gulli, Amanda

Abstract 124 I. Introduction 124 II. Section 10: The Forbearance Clause 128 a. Section 10's Creation 128 b. Broadband Generally 133 III. 47 U.S.C. S 160 and Broadband Today 140 V. Conclusion 146 I. INTRODUCTION

Coins and paper currency are the most common form of legal tender that can be accepted as payment for debt or services rendered. Since 5000 B.C., humans began using metal objects as money instead of bartering with commodities to exchange goods or services. (1) Prehistoric humans mined for precious metals like copper, silver, and gold, which were then used as a means of exchange. (2) However, "mining" has a new meaning in the internet era. People are not only extracting precious metals from the Earth, but are also extracting Bitcoins from the internet. Bitcoins are a digital currency "in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank." (3) Blockchain is the decentralized public ledger. (4) To mine on blockchain, a user must compose new transactions and decipher a challenging mathematical puzzle, which then verifies those transactions by adding a new block to the blockchain. (5) Governments and regulators take issue with the decentralization and anonymity aspects of Bitcoin, but Bitcoin's biggest kept secret is the amount of energy that is consumed to run it. It is estimated that blockchain's total energy usage is 31 terawatt-hours per year, which is more than what 150 countries consume annually. (6)

This note will examine whether Bitcoin mining is sustainable in the context of environmental sustainability given the energy consumption required for mining and the need to regulate this new sector. This note will be divided into five Sections. First, this note will view the creation of Bitcoin and the legal standing Bitcoin has in countries around the world. Second, this note will touch upon brief explanation of electricity and current emission regulation in the United States. Section III provides a brief overview of Bitcoin mining. Section IV briefly describes climate change. Section V explains environmental impacts of Bitcoin mining. Lastly, Section VI will discuss the need for regulation in Bitcoin mining because it is not environmentally sustainable.

2. LEGAL PERSPECTIVE OF BITCOIN

   1. History of Bitcoin and What It Is

      Since its inception in 2008 by a mysterious author named Satoshi Nakamoto, Bitcoin has catapulted the financial industry into a new realm of digital currency. (7) Nakamoto designed the electronic payment system "to produce a means of exchange, independent of any central authority, that could be transferred electronically in a secure, verifiable and immutable way." (8) This decentralized public ledger called blockchain uses a pure "peer-to-peer" network. (9) The peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. (10)

      Through blockchain, the "double-spending problem" is alleviated because the peer-to-peer network limits the amount of Bitcoin in circulation. (11) Instead of relying on an unlimited amount of government backed fiat currency (12), Bitcoin becomes a more attractive asset because of its limited supply. The supply is controlled by a cryptographic algorithm that produces new Bitcoins every hour "until a maximum of 21 million has been reached."' (3) Unlike electronic fiat transactions, (14) Bitcoin transactions cannot be reversed because there is no central adjudicator to return the money. (15) The immutable characteristic of blockchain means the network cannot be tampered with, creating an ironclad security system.

      To use blockchain, a user must have a "node," which is a computer that runs the Bitcoin software. (16) Furthermore, some nodes are "miners," which collect new transactions into blocks adding them to the blockchain. (17) Since miners attach previous transactions to new blocks, the older blocks become stronger in the chain creating the peer-to-peer network.

      The legal status of Bitcoin and other cryptocurrencies varies substantially from country to country because the digital currency is not backed by any central government. Governments are cautious to give Bitcoin accreditation because of its inherent decentralized system. Fiat currency is controlled by governments, which allows governments to make, destroy, regulate, and trace currency. (18) The untraceable nature of Bitcoin has facilitated crimes like "drug trafficking, prostitution, terrorism, money laundering tax envision and other illegal" activity. (19) In United States v. Ulbricht, the defendant known as "Dread Pirate Roberts" was the creator of the reprehensible "Silk Road," which was a black market website that facilitated unlawful transactions using only Bitcoin as its medium of exchange. (20) The defendant's assertion that Bitcoin did not constitute a financial transaction defined by the money laundering statute because the statute defined a monetary instrument "as the coin or currency of a county" was rejected by the court. (21) To consider if Bitcoin constitutes a financial transaction the court looked at the plain meaning of the statute and concluded that financial transactions are broadly defined and "captures all movements of "funds" by any means, or monetary instruments." (22)

      In the United States, Bitcoin regulation varies from state to state. (23) As of 2015, New York requires Bitcoin businesses to acquire a "BitLicense," which is a license to operate in the state. (24) Similarly, New Hampshire requires "bitcoin sellers to get a money transmitter license and post a $100,000 bond." (25) The state securities commission of Texas is monitoring and even shutting down Bitcoin-related investments. (26)

      Within the United States federal government, the Securities and Exchange Commission (SEC), Commodities Futures Trading Commission (CFTC), the Treasury Department's Office of the Comptroller of the Currency (OCC), and the Treasury Department's Financial Crimes Enforcement Network(FinCEN) are trying to establish legislative cryptocurrency oversight. (27) The SEC has increasingly warned potential financiers of cryptocurrency investing risks, halted several initial corn offerings (ICO), and has hinted at impending cryptocurrency regulation. (28) SEC Chairman Jay Clayton has noted that "products linked to the value of underlying digital assets, including Bitcoin and other cryptocurrencies, may be structured as securities products subject to registration under the Securities Act of 1933 or the Investment Company Act of 1940." (29) However, at this time, the SEC still does not have any cryptocurrency regulation. (30) The CFTC has designated Bitcoin within their purview because of the "[fjraud and manipulation involving Bitcoin traded in interstate commerce" and thus the CFTC recognized Bitcoin as a commodity. (31)

      Moreover, OCC does not believe Bitcoin is a threat to the United States banking system. (32) The chief officer of the OCC, Joseph Otting, stated, "mostly the banks have stayed away from the currency...it doesn't seem to have come into the banking system" and that cryptocurrency does not pose a danger to the safety and soundness of the system, "but everybody's watching it very closely." (33)

      FinCEN considers the use of cryptocurrencies in adherence with its money services business (MSB) licensing requirements. (34) These requirements range from recordkeeping, abiding by anti-money laundering statutes, and "reporting responsibilities under FinCEN's regulations." (35)

      Internationally, government authorities have varied in their approach to regulating cryptocurrencies. For instance, Japan has "relatively lenient cryptocurrency policies and recognizes Bitcoin as a form of currency." (36) Similarly, countries like Singapore and Hong Kong are supportive of cryptocurrency with Singapore expressing interest in releasing its own cryptocurrency. (37) In contrast, China has issued bans on all ICO's and is "cracking down on trading platforms by not only banning national cryptocurrency exchanges, but also restricting access of its residents to overseas platform." (38) However, similar to US regulators, the "EU and UK's financial regulators are approaching Blockchain technology and the growth of the cryptocurrency markets with cautious optimism to better cultivate the technologies before taking action." (39) A general comparability between all international regulators is that each have support to prevent market manipulation, fraud, theft, and money laundering within the financial markets. (40)

   2. How FinCEN Regulates Cryptocurrency Miners As of 2014, FinCEN announced that cryptocurrency miners will not be subject to the Bank Secrecy Act (BSA) as a money transmitter. (41) The BSA was created in 1970 to prevent criminals from using financial institutions to hide or launder their illegal money and requires financial institutions to report currency transactions to regulators. (42) Under BSA, a money services business (MSB) is "any person offering check cashing; foreign currency exchange services; or selling money orders, travelers' checks or pre-paid access (formerly stored value) products; for an amount greater than $1,000 per person, per day, in one or more transactions. (43) A person who engages as a business in the transfer of funds is an MSB as a money transmitter, regardless of the amount of money transmission activity." (44) Furthermore, businesses that accept and exchange Bitcoin from...