The Key Truth About Bitcoin Mining, Energy, and the Environment

The Key Truth About Bitcoin Mining, Energy, and the Environment

The Future of Bitcoin Mining: Embracing Cheaper Energy

Last week, Greenpeace USA made headlines by projecting animations of prominent CEOs onto skyscrapers in Manhattan. Alongside startling stats about bitcoin mining’s energy consumption and emissions, the message was clear: bitcoin is an environmental disaster waiting to happen. But as an environmentalist and bitcoin mining researcher, I hold a radically different view. I believe that bitcoin has the potential to be a powerful tool for decarbonizing the grid, reducing waste methane, and accelerating the electrification of heating. In fact, I believe that bitcoin mining’s emissions will actually decrease over time. And I predict that it will make energy cheaper, not more expensive.

Why Bitcoin Miners Will Find the Cheapest Electricity

To understand why bitcoin miners will gravitate towards the cheapest electricity, we need to examine the fundamental facts about bitcoin mining. Miners earn bitcoin from two sources: the block subsidy and transaction fees. The block subsidy, which is how new bitcoin enters circulation, is awarded to miners in proportion to their computing power. However, the issuance rate of new bitcoin halves every four years, making the supply decrease over time. This limited supply of new bitcoin incentivizes miners to find the most cost-effective ways to mine.

In the current mining landscape, most miners already pay significantly below average rates for electricity. Some report costs as low as $0.02 per kilowatt-hour (kWh). And as competition intensifies and technology improves, these costs will continue to decline. Eventually, mining will only be profitable on free or nearly-free power.

The Positive Impact of Bitcoin’s Energy Shopping

The fact that bitcoin mining seeks out the cheapest energy sources has several positive implications for energy systems and the environment.

Firstly, the influx of bitcoin miners into an electricity market will not cause utility rates to rise significantly. If electricity prices in an area increase due to bitcoin mining, it would become more profitable to mine elsewhere. Miners, being flexible and interruptible, can avoid using power during peak demand periods when prices are higher. This means they won’t contribute to demand peaks that strain infrastructure and drive up costs.

Secondly, bitcoin mining is well-suited to consume excess and wasted energy. Certain types of electricity generation, such as nuclear, hydro, wind, or solar, produce power that cannot be adjusted to changes in demand. This leads to an oversupply of electricity during certain periods or in regions with insufficient demand. Bitcoin mining can help improve the economics of these non-dispatchable power sources by buying up the excess and underutilized electricity.

To illustrate this, imagine a bakery customer who agrees to buy a certain amount of pastries each day, with the option to cancel the order on busy days. The customer also agrees to purchase any unsold pastries at the end of each day. This is analogous to how bitcoin miners operate. They purchase a predictable amount of power at a low price and turn off their machines during demand spikes, allowing other buyers to utilize the electricity. And just as the bakery gains steady revenue from this flexible customer, power producers benefit from bitcoin miners who consume their excess energy.

Additionally, bitcoin mining can help address environmental issues. For instance, by utilizing flared methane, which is currently wasted, miners can generate electricity and reduce methane emissions. Bitcoin miners can seek out flared gas in landfills, wastewater treatment facilities, farms, or oil fields, incentivizing the mitigation of methane emissions, a potent greenhouse gas.

Furthermore, the heat produced by the energy consumed in bitcoin mining can be repurposed, providing competitive advantages to miners who find a way to sell this excess heat. This is already happening in various settings like spas, distilleries, and district heating systems. If profitable, this practice is likely to continue.

In summary, bitcoin mining is a market that gravitates towards nearly-free energy. Coupled with its scalability, flexibility, and location-agnostic nature, it ensures that wasted energy finds a valuable use. By consuming primarily cheap and excess energy, bitcoin mining can improve the economics of non-dispatchable power generation, incentivize the reduction of waste methane, and support the electrification of heating systems.

Real-World Complications and Remaining Questions

While the outlook for bitcoin mining’s energy consumption is optimistic, there are several real-world complications and unanswered questions.

Debt and jurisdictional risks can influence mining profitability in the short term. Miners with access to capital may operate at a loss, and risks associated with government actions can outweigh the advantages of cheap energy. Additionally, during bull runs, limited availability of ASICs and power infrastructure can maintain higher profit margins for miners, even with expensive energy.

The halving event, which halves the issuance rate of new bitcoins, can trigger price rallies that allow less efficient miners to remain profitable. Securing financing for new electrical generation projects based on bitcoin mining revenue can also be challenging due to the volatility of bitcoin prices. Finally, government subsidies and regulations can impact electricity prices, potentially leading to market distortions that benefit bitcoin miners at the expense of other consumers.

Although these challenges exist, they do not negate the overall trend towards cheaper energy in bitcoin mining. Temporary aberrations and market failures eventually give way to the relentless pursuit of nearly-free energy. Bitcoin mining aligns with the growing abundance of unwanted electricity from non-dispatchable sources, and economic forces drive miners to find the most cost-effective solutions.

Serious discussions about bitcoin mining’s impact on energy systems and the environment must move past sensationalism and embrace a comprehensive understanding. While Greenpeace may continue to promote a doom-and-gloom narrative, policymakers and industry leaders should delve into the nuances of bitcoin mining and its potential benefits. Recognizing bitcoin mining’s inherent drive towards cheaper energy is a foundation for informed discourse and rational decision-making.

In conclusion, the future of bitcoin mining lies in embracing the utilization of cheaper energy sources. As miners gravitate towards the cheapest electricity, they contribute to improved energy economics, incentivize the reduction of waste methane, and facilitate the transition to cleaner energy systems. Rather than viewing bitcoin mining as an environmental threat, we should explore its potential to create positive changes in the energy landscape.

This article was edited by Daniel Kuhn.

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