Bitcoin Will Save Our Earth
By using energy to validate transactions in a way that is independent of any existing grid or source, Bitcoin mining will save the climate.
It’s in vogue to think that Bitcoin is accelerating the climate crisis.
Both more efficient hardware and more efficient cooling solutions lead to turning the same amount of electricity into more hashes, contrary to the common criticism that only the “most power-hungry computers make a profit.” It is the least power hungry computers that make the most profit.
Find Cheaper Power
Power is essentially the only variable cost for a miner at scale. Seeking cheaper power is about the only thing that can save a miner when the Bitcoin protocol begins to squeeze a miner’s profit. The miner may move their machines to a new location with cheaper power, or be forced to shut down and sell their machines to someone else who has access to cheaper power. Either way, profitability is regained, and the average cost of power used to secure the network is pushed lower.
> The most important ongoing factor for a mining operation is simply power cost.
This has very important implications for climate change and emissions, because it means Bitcoin mining is forced to find cheaper and cheaper power sources over time. Critiques of Bitcoin’s energy use and climate impact today focus on estimating Bitcoin’s existing uses of power — especially during bull markets when miner’s have large profit margins — while ignoring the long-term trend implied by the functioning of the protocol and the evolution of energy technologies.
Thankfully, cheap energy fit for Bitcoin mining is increasingly not found in fossil fuels, but in renewables, wasted and “stranded” sources of energy, as we’ll dive into next.
Bitcoin Improves Energy Efficiency And Promotes Renewables
Energy consumption by humanity correlates well with GDP and quality of life. While correlation is not causation, it’s easy to reason that more energy production allows us to give to machines more of the back-breaking labor that supplies food, shelter, clothing and other creature comforts to us. That at least affords us the opportunity to improve our quality of life, if only in material ways.
However, it’s no secret that energy production can have unwanted consequences in the form of pollution or local and global ecosystem changes. Knowing what we know about Bitcoin’s mining dynamics, what can we learn about the types of energy that Bitcoin is likely to seek out and its resulting impact on the environment?
Now that we understand why the Bitcoin network will always seek cheaper energy over time, we need to look at the cost of energy by source. The investment bank Lazard produces an analysis of energy costs by source annually, which is widely considered an industry benchmark. Data from its 2020 report below:
Thankfully, renewables are on par with or cheaper than conventional power sources at industrial scales. This holds true in most places around the globe, and the trend is getting stronger. This means Bitcoin miners will necessarily seek out renewable power as time goes on, especially excess capacity or overproduction that leads to even lower prices. Mining also provides developers of renewable power sources with another potential income stream, helping push progress on the learning curve of various renewables and accelerating further cost reductions.
Besides seeking cheap renewable energy, the portability of Bitcoin mining hardware versus other power consumers (like your home or the city you live in!) means it can take advantage of power that would otherwise be wasted.
One example of currently wasted energy comes in the form of flared natural gas. Unfortunately, we still need to power our cars and planes with oil until Elon Musk can create a hive-mind of self-driving Tesla pods. Given that, explorers looking for oil often hit pockets of natural gas while drilling in remote locations. Oil is expensive enough that it’s profitable to put it on trucks and drive it from these remote locations to where that oil is refined and pumped into your car, but transporting natural gas is often not economically viable from these locations. Companies can either release the gas into the atmosphere or literally burn it off (“flare” it) — which is what governments usually mandate them to do, in order to limit environmental impact.
This natural gas is both stranded — too far from energy consumers to be useful — and wasted — because it cannot be stored once the drill hits it. This gas is a liability to the driller who hits it because it doesn’t produce any income and it actually costs them money to flare it safely.
Bitcoin mining turns flared gas into an opportunity, however. Instead of simply burning off the gas, drillers can use a gas generator to power a portable box of Bitcoin miners, turning previously-wasted energy at a remote oil well into bitcoin. These drillers don’t even need to care about Bitcoin to find this useful — they can just sell their bitcoin immediately to make an income stream off of gas that they previously had to burn off. Companies like Upstream Data, Crusoe Energy and Giga Energy are pioneering this field.
This energy usage improves the security of the Bitcoin network without causing any additional harm to the environment. In fact, part of the revenues from this type of mining could be applied to filtering flared gas exhaust, leading to less environmental impact.
Bitcoin mines are the least location-dependent consumers of energy on the planet. As a result, they can easily use energy sources that are “stranded” far from current population centers — like ocean currents or desert sun. These sources either aren’t economically viable to develop at all, or have the potential to produce more power than the existing nearby consumers can possibly use. Bitcoin mining presents an income stream that helps bootstrap funding to develop these stranded energy sources. Once energy production is up and running, these cheap sources of power can be a draw for other power consumers — like data centers, factories, even people — to locate near them.
For many miners, a large percentage of their power cost goes toward simply cooling their machines. However, this cooling cost can be significantly reduced just by putting miners in very cold climates, which are often far from population centers and likely to have excess renewable power that’s “stranded” too far from enough consumption to match production. Bitcoin technology and mining company BitFury utilizes this confluence of factors well.
> “‘Many data centers around the world have 30 to 40 percent of electricity costs going to cooling,’ explains Valery Vavilov, the CEO of BitFury. ‘This is not an issue in our Iceland data center.’” -“Why the Biggest Bitcoin Mines Are in China,” Spectrum, 2017.
Iceland’s energy production mix? Almost 100 percent renewable — with an estimated 73 percent coming from hydropower and 27 percent from geothermal. Iceland is known for having more energy resources than it can consume locally, leading to big boons in energy-intensive industries like aluminum smelting.
A major mining facility in Norilsk, Russia is another example. This city of 180,000 puts vast energy resources to work producing nickel, but the frigid temperatures and excess energy in this region make it a perfect candidate for BitCluster’s newest mining farm.
The nature of the Bitcoin protocol and mining dynamics force miners to seek progressively cheaper energy sources, and that means utilizing renewable, wasted and stranded energy. Bitcoin is not taking gas from your car or electricity from your house, it is making power production more efficient, utilizing otherwise “stranded” energy sources and helping to fund the development of renewable energy technologies.
These Are The Early Days
All that said about the production and consumption of energy related to Bitcoin, we must note that Bitcoin is still a very early and emergent technology. This may be hard to tell when the headlines are full of mentions of new price levels and whirring mining machines, but people, companies and power producers are still catching on to Bitcoin. The evolution we are watching is not a five- to 10-year process, it is a 20- to 100-year one. Focusing too closely on what’s happening today or in the last few years is missing the forest for the trees.
Energy production is a foundational, complex and deeply ingrained technology — it will not be revolutionized overnight. We must consider the long arc of history when we evaluate potential impacts of a new technology like Bitcoin as it relates to energy.
In Bitcoin’s case, the novel technology provides energy producers a radically new way to monetize energy, and as a result it will permeate every energy production site across the globe. This will push down the profitable price of energy for all miners, driving more energy efficiency as wasted, stranded and renewable sources with near-zero (or below zero) energy cost are sought out to power mining facilities.
The Casino That Saved The Earth
Bitcoin may just be a casino for degenerate gamblers, but this casino serves as the buyer of last resort for electricity produced everywhere in the world. The positive impact of the presence of a buyer of last resort in the energy market is hard to overstate.
As Bitcoin disseminates through the world, Bitcoin mining will:
- Increase energy efficiency by utilizing wasted energy
- Finance the exploration of “stranded” (and often renewable) power sources
- Push the learning and adoption curves for renewable energy
That sounds a whole hell of a lot more environmentally friendly than paper straws.
So, environmentalists, if you truly believe in saving our Earth, take a deeper look at this technology and the role it plays in energy markets. If you’d prefer to chase clout at the expense of making a real impact, crying wolf is probably easier.
Many thanks to the Bitcoin critics, supporters and observers who have done so much researching, analyzing and sharing to help us learn more about Bitcoin energy utilization and expose misconceptions.
Additional reads on Bitcoin and its environmental impact:
- “Bitcoin Does Not Waste Energy”: This post covers the problem of our broken monetary system that Bitcoin solves, and how the enormity of that problem more than justifies Bitcoin’s energy use.
- “Oil Field Alchemy: How Bitcoin Can Turn Waste, Emissions Into Proof-Of-Work”: This article dives into the stranded natural gas example used earlier.
- “The Frustrating, Maddening, All-Consuming Bitcoin Energy Debate”: This article breaks down the many misunderstandings inherent in applying the “energy use per transaction” statistic to Bitcoin to say that it’s inefficient. Bitcoin is not Visa — it is more akin to settlement systems like Fedwire, without any potential for human corruption (plus, better uptime).
This is a guest post by Evan Bayless. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or BitcoinLinux.