Bitcoin mining: As venture capitalist Nic Carter posits in the foreword to Arcane Research’s report on Bitcoin mining, the industry is often maligned, but in his view, unfairly so. Arcane Research provides a defence of the sector, arguing not only that the criticisms are unwarranted, but also that Bitcoin mining could revolutionise the energy sector and accelerate growth of renewable energy sources. Lofty claims, but where does the truth lie?
Bitcoin mining – energy guzzler or catalyst for innovation? Opinions are divided
Carter argues that this is so because:
“It [Bitcoin mining] straddles two bold ideas which are deeply offensive to the Davos technocrats which govern western nations: the first, that a global sound money system is possible and desirable; and the second, that energy generation and consumption is not morally reprehensible.”
One of the more frequent criticisms of Bitcoin has been its energy consumption, particularly of late. Critics argue that the Bitcoin network’s energy consumption is either “wasteful” or “excessive”, or alternatively, that its energy composition is not sufficiently “green”. The Bitcoin Mining Council, which accounts for roughly half of Bitcoin hashrate, has found that the industry uses 58% renewable energy, more than double most industries. Notwithstanding, prominent politicians are among the most vocal opponents:
In response, the Bitcoin industry has offered a range of responses. Some challenge the underlying premise, namely that there is an amount of energy that isn’t wasteful. These Bitcoiners say that any amount of energy justifies the utility of a decentralised, non-state scarce digital asset.
Others argue that energy consumption is necessary, since Proof-of-Work (PoW) is the only viable means to achieve digital scarcity. Others yet focus instead on the energy composition of the network and the positive benefits of Bitcoin mining on the energy sector.
Bitcoin mining in the real world
One such example is listed US Bitcoin miner Bitfarms. The company has distinguished itself from competitors by focusing on renewable energy sources, predominantly hydro-electric, most evident in a recent hydro power plant acquisition last year.
To be sure, it’s challenging to wrap your head around Bitcoin mining and the energy sector, in and of themselves, let alone how they interact. Furthermore, there are a range of deep philosophical questions some have raised, including:
- Who gets to decide what is or isn’t a good use of energy?
- What is the appropriate energy composition of an industry, and who makes that determination?
- Is there a moral dimension to energy consumption?
It’s not clear why the Bitcoin mining industry’s energy consumption is under focus when the same isn’t necessarily true for most other sectors. Nobody really asks questions about Google or Amazon servers’ energy use and composition. We don’t, for example, have frequent debates about the morality of streaming The Kardashians, much like we don’t usually debate whether the use of a tumble dryer is moral when outdoor drying will suffice. Using Australian government data and streaming estimates, five hours of YouTube streaming has the same carbon footprint as driving one kilometre, yet these figures aren’t usually in the headlines.
Irrespective of where one falls on the spectrum, virtually everyone agrees that Bitcoin uses a lot of energy. Estimates vary, but one frequently used metric is that Bitcoin uses more energy than numerous large countries, including Argentina. Of course to be fair, if one believes that Bitcoin’s intrinsic value is zero, any energy use would necessarily be considered excessive.
In response to claims that Bitcoin is utilising a disproportionate share of scarce energy, proponents argue that the network by design is attracted to stranded or wasted energy – that is, energy unavailable or otherwise inaccessible. In that sense, proponents claim that Bitcoin’s energy consumption is not in competition with other sources of energy, since stranded energy is the most affordable, which is what attracts miners in the first place. Former sceptic turned proponent Troy Cross explains in a short clip below.
Against that backdrop, Arcane Research’s latest report purports to provide evidence of a growing symbiosis between Bitcoin mining and the energy sector. Unlike what many may believe, Bitcoin mining may actually be a net positive for the environment.
Could Bitcoin miners alter energy systems for the better?
The report identifies four areas where Bitcoin miners can positively affect energy systems and/or improve the economics of energy production.
A unique combination of five power consumption characteristics makes bitcoin miners uniquely flexible energy consumers:— Jaran Mellerud (@JMellerud) September 1, 2022
1) Price-responsive 📈
2) Interruptible ⏱️
3) Location agnostic 🌎
4) Modular 🧱
5) Portable 🚛
Strengthening electricity grids with Bitcoin mining
The supply and demand in electricity systems work hard to remain in balance as a mismatch negatively impacts the system’s reliability. Historically, fossil fuels provided the necessary flexibility by increasing supply after an expected demand.
However, one of the biggest challenges we face today is replacing electrical grids’ lost flexibility due an increasing share of renewable energy sources. This issue is likely to compound further as non-controllable energy sources (i.e. renewable) become an increasingly larger percentage of global electricity generation.
Arcane Research suggests that Bitcoin mining could be one of our best alternatives for demand response due to its low cost of reacting, the possibility of responding immediately at the needed granularity and the constant demand for electricity.
At times when the grid is under strain, Bitcoin miners can switch off at a moment’s notice, and, in the process, provide stability to the grid. When demand on the grid is low, Bitcoin miners can step in as a buyer of first resort.
This isn’t just theoretical. Bitcoin miners went offline earlier this year in response to extreme weather that put the Texas state grid under enormous strain. At present, the Texas grid operator works with Bitcoin miners to ensure flexible load stability.
Improving the economics of renewable energy with Bitcoin mining
As the move towards renewable energy accelerates, some of the bigger challenges facing new projects are how to make them economically feasible from day one, and further, how to deal with wasted or stranded energy.
Bitcoin mining’s “combination of location agnosticism, interruptibility, and modularity makes it the perfect purchaser of stranded renewable energy”, the Arcane Research report argues. Miners can seek out areas with excess wind and build right-sized facilities to capsure surplus energy. While reducing waste, it also vastly improves the economics of the project.
In short, Bitcoin mining can actually be integral to the green energy transition as it acts as a flexible customer — a buyer of both first and last resort.
Mitigating natural gas flaring with Bitcoin mining
Natural gas is the byproduct of oil drilling, however it is not always economically viable to harness this energy. This results in producers burning the gas through flaring, emitting CO2. Bitcoin monetises carbon emissions by creating an economic value for the flared CO2.
Since Bitcoin mining is location agnostic, portable, flexible and scalable, it represents a viable alternative to energy companies that are currently burning flared gas. Rather than pumping emissions into the environment, energy companies, such as Crusoe Energy, can themselves (or working with Bitcoin miners) capture the flared gas and use it to power up a generator to mine Bitcoin. Aside from the economic benefits that accrue to the miner, the energy company also enjoys the benefits of CO2 reductions.
Again, this is not just theoretical — some of the world’s largest energy companies are already participating in flared gas Bitcoin mining, including ExxonMobil and ConocoPhillips.
Repurposing waste heat from Bitcoin mining
Worldwide, heating is reportedly the single largest source of greenhouse gas emissions, accounting for some 40% of the world’s CO2 emissions. Heat is a byproduct of Bitcoin mining, and miners are starting to see the potential of leveraging it in households and industry.
Naturally, most of the innovation is coming from colder climates such as in Canada and Northern Europe. Earlier this year, North Vancouver became the first city to be partially heated by Bitcoin mining. There are conceivably a number of advantages of repurposing heat from Bitcoin mining.
The first is that it subsidises the cost of electricity used to produce the heat. In addition, to the extent that the electricity source for Bitcoin mining is renewable, it helps reduce carbon emissions. And finally, repurposing Bitcoin heat energy is essentially using the same energy twice, meaning less overall demand and fewer carbon emissions.
Upbeat in a down market
Since declining from its all-time high of around US$69,000, Bitcoin has remained somewhat trapped over the past few months in the US$20,000 range. However, plenty of Bitcoiners remain optimistic about the protocol’s long term prospects, with many of their core beliefs articulated in this short explainer. Looking beyond the price action, Bitcoin’s growing role in energy systems is undoubtedly one of the positive developments in the space, despite the contrarian views.
Based on the research, it’s evident that despite miners being under financial strain, there are other opportunities in the current bear market, which arguably were not so readily apparent during the bull market, when energy at any price made sense.
The symbiotic relationship between Bitcoin miners and the energy industry is becoming a fascinating one to watch. Some commentators have even argued that, in time, the two sectors will become one.
One thing is clear, however: the shift towards renewables is gaining further momentum around the world. The key question is: how do we shift to a more sustainable energy grid without compromising its stability?
Bitcoin mining could facilitate that transition. If so, it would represent a dramatic shift in narrative from “Bitcoin is bad for the environment” to “Bitcoin helps us transition to a green economy”.