Crypto operations suck water, but Canadian governments aren't monitoring how much

The amount of water it takes to mine cryptocurrency in Canada is on the rise, with little regulatory oversight and no disclosure requirements to track the operations’ consumption levels.

In Kelowna, B.C., that means a data centre primarily drawing power for crypto mining is expanding with no specific need to disclose its water use from electricity generation and computer server cooling.

The last known estimate was that crypto miners use about 127 billion litres per year — enough to meet the needs of more than a million Canadian households.

But this number is three years old, and while it tracks the water footprint of generating electricity for these mines to run, it does not include the amount of water used to cool these facilities.

The statistic also only counts the water footprint at dedicated crypto mines. Meanwhile, data centres — commercial businesses that house computers and servers for multiple purposes, including crypto mining — are growing in number, with no accounting of how much water or energy goes into cryptocurrency mining and transactions.

Experts say no one actually knows how much crypto mining is happening in Canada, let alone its impact on local water needs.

“The short answer is we don't really know the current situation,” said Alex de Vries, a data scientist and researcher in the Netherlands who analyzed the growing water footprint of Bitcoin mining and transactions around the world.

“They all claim to be transparent, until the moment you start asking them questions, and then they suddenly stop talking.”

With ongoing droughts exacerbated by climate change, and water restrictions for essential services like farming becoming commonplace, there are no specific laws or bylaws restricting water use for cryptocurrency mining anywhere in the world. Environmental regulations for this industry are something experts like de Vries say are necessary at global and regional levels.

“It would make sense to target these Bitcoin miners first,” de Vries said. “They don't have any actual output. They're just generating random computations all the time and every computation is immediately thrown away. So, in terms of saving power or saving water... it would make sense to look at them first.”

At the same time, the multi-billion-dollar market for data centres in Canada is projected to grow with upcoming federal investments in artificial intelligence (AI) and no oversight or disclosure requirements for data centres in the country.

In Kelowna, in arid southern B.C. where severe drought risks have led to water restrictions on farming, a large crypto operation is set to expand. A municipal spokesperson told Canada’s National Observer that city staff are not aware of the water or energy footprint for a data centre operating there. But it’s the flagship location for Hut 8, a company which operates crypto mining and other services at 11 sites in Canada, according to its website.

The Kelowna location for Hut 8 has a contract to provide the Interior Health authority’s computing infrastructure. But a voluntary environmental disclosure from the company also reveals about 97 per cent of its electricity use in 2022 was for mining cryptocurrency. It did not disclose its water use.

At least one province is inviting more companies to set up shop. In Alberta, a spokesperson for the Ministry of the Environment and Protected Areas said the province looks forward to becoming “the data centre capital of Canada, if not North America,” and Alberta’s premier and minister of Technology and Innovation are co-leading a working group related to data centres.

The CEO of Hut 8 told investors earlier this year that the company plans to “more than double the size” of its operations “in the coming months as we prepare to build new sites.” The company did not respond to questions from Canada’s National Observer.

In Canada, 70 per cent of water withdrawals are used to generate power for industrial purposes, according to Statistics Canada data from 2019. Up to 80 per cent of the water footprint for crypto mining is from electricity generation, while cooling the servers accounts for around 20 to 40 per cent.

When asked, the federal ministry of Innovation, Science and Economic Development said it could not answer questions about the water footprint of cryptocurrency mining operations overall, and said questions are best posed to provinces.

In Ontario, the ministries of Energy and Environment Conservation and Parks did not respond to Canada’s National Observer’s repeated requests for answers on the subject. In Quebec, a spokesperson for the Environment ministry said there are 11 “authorized data centres” in the province, and six conduct cryptocurrency mining and transactions. In Alberta, a government spokesperson said they are “aware of two Bitcoin power plants” that received environmental approvals in the northern region, and 22 data centres in the province. In B.C., a government official said there are seven dedicated cryptocurrency mining operations with six more on the way, and shared no information about data centres.

Each province suggested there are general commercial water use restrictions in times of drought, but nothing specific for crypto mining operations.

Recognizing the strain that a crypto mining boom would have on electricity grids, provinces like B.C. and Manitoba introduced pauses on new cryptocurrency mining connections for a period of 18 months in late 2022. This limit did not apply to data centres, like Hut 8, which conduct crypto mining operations in addition to other data services.

According to BC Hydro, as of today, dedicated cryptocurrency facilities consume 170 megawatts per year. This load will grow by 50 megawatts next year, they said. BC Hydro did not provide details about how much hydroelectric power is used by data centres per year.

This lack of regulation and disclosure requirements is not just local, but a global problem, according to Kaveh Madani, director of the United Nations University Institute for Water, Environment and Health based in Richmond Hill, Ontario.

“When it comes to all these energy-consuming products of the Fourth Industrial Revolution, there is a lot that we don't know,” Madani said. “The regulations are far behind… and our major concern is that by the time we see the impacts, it might be too late to enforce strict regulations.”

For Madani, the lack of regulatory oversight creates a “major injustice element” because the beneficiaries of cryptocurrency mining and transactions are not accountable for the environmental impacts.

“We don't know the location of the beneficiaries, and that's the scary part because the impacts are local. The benefits are not local,” Madani said.

According to de Vries, there is one important piece of upcoming legislation that could change the situation: a new Markets in Crypto-Assets Regulation from the European Securities and Markets Authority, slated to take effect next year. It would require data centres to disclose the environmental impact of the crypto mining section of their operations.

“This would be a very big step forward,” de Vries said. “That might affect Canadian companies as well because, in the end, the companies that want to be active in the EU…, they [will] need this type of data.”

Norway is also slated to become the first country to require data centres to register their services, owners and managers to control the growth of crypto mining.

In the long term, B.C. does plan to introduce legal changes that would let the government regulate the supply of electricity to cryptocurrency miners. But it’s not clear whether these changes would apply to data centres.