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Summary

Summary

- Advocates of Bitcoin argue that mining conserves surplus energy by turning it into another store of value.

- Projects around the world are looking to mine Bitcoin using surplus energy from hydroelectricity, windpower, and natural gas.

- However, in practice, the priorities of Bitcoin miners and renewable energy developers do not align.Bitcoin's strong appetite for energy is well documented.according to current estimates

, the global Bitcoin mining industry consumes 7.64 GW of electricity, which equates to approximately 64.08 terawatt-hours of energy consumption — the output of seven nuclear power plants.

This makes the ecologically conscious against cryptocurrencies in principle, but Bitcoin maximalists claim that Bitcoin can actually help the environment through more efficient resource allocation.

Are so-called encrypted "energy currencies" a legitimate idea, or a delusional idea of ​​Bitcoin maximalists?

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The "stranded renewables" theory

It’s not an entirely original idea: About a hundred years ago, Henry Ford proposed to The New York Times that a hydroelectric plant be built on the Tennessee River, replacing gold with a currency based on “the immortal natural wealth of this world.” This, he hopes, will not only create a more sustainable foundation for the economy, but also "end all wars".

As an industry, bitcoin mining is unique in that it is geographically independent; miners can choose their location based on the cheapest electricity costs. This electricity often comes from renewable sources such as hydroelectric, geothermal and natural gas, resources that would otherwise be wasted – and poor centralized planning results in these resources being disconnected from the distribution grid.

For example, there might be a 50 MW power plant operating outside a village with only 15 MW of demand, or a hydroelectric plant with nowhere to distribute power once the lights go out in a neighboring city. And, because transporting electricity over long distances is inconvenient and expensive, it is difficult to get it to the nearest point of demand.

A report from CoinShares has suggested for the first time that Bitcoin mining could conserve surplus energy by turning it into another store of value. It's similar to how Iceland uses aluminum smelting: ore is brought in, smelted with abundant renewable energy, and shipped out, effectively exporting energy without the need for huge power cables running under the sea from Iceland to Europe.

Without aluminum or bitcoin to absorb excess renewable energy in remote areas, it will remain untapped. As such, it has been argued that Bitcoin could have a positive impact on the environment by storing otherwise lost renewable energy as an embedded source of energy, in the same way that plants convert sunlight into fuel through photosynthesis.

At best, this turned Bitcoin from an environmental catastrophe into an environmental subsidy; at least, it drove the decentralization of energy production, which Antonopoulos claims is “one of the most important trends in human history.” one".

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Passionate about renewable energy

Several projects are already working to turn this concept into reality.

Paraguay's Golden Goose project aims to extract excess electricity from the world's largest hydroelectric plant on the Itaipu River and use it for bitcoin mining. Elsewhere, blockchain firm Soluna is looking to test the same hypothesis in a remote region of Morocco between the Sahara Desert and the Atlantic Ocean.

"[Bitcoin mining] changes the economics of electricity production," said Michael Toporek, managing partner at private equity firm Brookstone, which backs Soluna. "As a power producer, we have a lot of flexibility. We can sell or consume power on-site at the data center."

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Challenging Economic Proposition

However, realizing the vision of Bitcoin's green new deal appears to be more difficult.

So far, Paraguay's golden goose hasn't laid a golden egg, and the Soluna project is still in the planning stages, with only a good-looking promotional video promising to make the world better use renewable energy. Max Fiege, director of bitcoin and blockchain at Signum Growth Capital, believes that's because bitcoin mining doesn't actually represent a renewable energy subsidy.

Fiege told Decrypt that the priorities of bitcoin miners and renewable energy developers do not align. Bitcoin miners would prefer to have a 24/7 energy supply to quickly recoup their investment in expensive ASIC mining rigs in the event of bitcoin market volatility, while retaining the flexibility to migrate operations as cheap power supplies are discovered. On the other hand, financiers funding renewable energy development have historically secured development projects with long-term power purchase agreements of 10-30 years.

Geography professor Nick Lally has come to a similar conclusion, noting in a 2019 research note that bitcoin mining is often "parasitic with existing infrastructure but fails to contribute to its construction or maintenance." contribute".

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Bitcoin: An Energy Parasite?

While the idea of ​​Bitcoin mining working with renewable energy is very appealing, in practice, Bitcoin seems incapable of distinguishing clean energy, just as it was illegally using dorm room electricity in its early days.

This is already underway in some places: In New York state, power company Greenidge Generation is already using excess electricity to mine bitcoin, while Denver-based Crusoe Energy Systems is using surplus natural gas to mine bitcoin. Shale drilling sites across the United States are mining bitcoin, and the company is reportedly partnering with oil multinational Equinor.

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Mobile parasites or renewable subsidies?

However, even if flexible financing turns bitcoin mining into an effective subsidy, it will still have to contend with the rapid development of grid-scale battery technology. If bitcoin mining is to succeed as a subsidy in the form of truly renewable energy, Fiege suggested, we need to see more flexible financing terms for both renewable energy and bitcoin mining farms.

This could be helped by the introduction of Bitcoin hashrate futures by the likes of BitOoda and FTX — which allow mining operations to make cash flow more predictable by locking in future prices — and new merchant banks that allow miners to sell electricity output directly to the market terms.