Is Bitcoin Mining Reshaping the Energy Sector?

Is Bitcoin mining really reshaping the energy sector? It takes a lot of energy and computational power to mine a new Bitcoin, a process in which a lot of people are engaged now.

With such a huge amount of energy required, it is natural that there would be a shortage of energy in the country.

But, crypto mining needs a constant supply of energy.

Therefore, you may quite naturally wonder where all that electricity required for Bitcoin mining comes from.

Well, this is an important question that is going around among crypto users and enthusiasts all over the world and this article will answer it.

The researchers all over the world seem to be divided on this energy issue regarding Bitcoin mining.

While a few reports say that the Bitcoin mining industry is mostly powered by renewable energy such as solar, wind, and hydroelectric power, other researchers say that most of the energy comes from other sources.

However, one particular thing that all the researchers unanimously agree on is that the Bitcoin network consumes a vast amount of electricity.

It is due to this ravenous appetite of Bitcoin that is presumed to result in a massive carbon footprint, which is a serious issue.

Therefore, the increase in Bitcoin mining and the increasing use of electricity is a serious concern for the environmentalists all over the world as well as any individual who is concerned about the deteriorating climatic conditions of the world.

However, instead of blaming Bitcoin right away, it is required to examine why Bitcoin mining needs such a huge amount of energy in the first place.

It is only then you should focus on whether or not it is reshaping the energy sector and scrutinize its clean and green energy stand.

Is Bitcoin Mining Really Reshaping the Energy Sector?

Is Bitcoin Mining Really Reshaping the Energy Sector

The Bitcoin network emits a huge amount of carbon dioxide annually which is nearly 23 metric tons, according to a report published in the journal Joule.

The report also said that the network consumed about 0.2% of global electricity.

With such a huge amount of energy consumption and emission of carbon dioxide, you, just as any environmentalist, may think whether or not Bitcoin is doing any good to the world or is it just serving the money-making greed of the people at the cost of the world.

Another study by a crypto asset management and analysis firm CoinShares, confirmed that the major part of the supply of electricity for Bitcoin mining comes from clean sources.

These, as said earlier, are solar, wind, and hydropower.

According to this report, more than 74% of the total energy requirement of the Bitcoin network comes from renewable sources.

Therefore, based on this statistic, it can be said that Bitcoin mining is ‘more renewables-driven’ as compared to any other large-scale industry available now in the whole world.

And, this results in a debate.

This is because such a finding is quite surprising which makes a few analysts more skeptical simply due to the fact that the result says just the opposite to other evaluations of where the Bitcoin miners get the required energy from.

These particular analysts who oppose the above finding that the Bitcoin network gets its necessary energy from renewable sources also warn the world and the miners that it is the need for such a huge amount of energy that may force the miners to use clean energy.

One day, this need may even push them back to ‘dirty fuels.’

Therefore, according to them, Bitcoin mining is really doing no good to the world and as of now there is no significant step taken by it to reshape the energy sector of the world.

However, the report of the CoinShares study also points out a more significant issue – how renewable energy is deployed at present all over the world.

There are quite a lot of these renewable power generators that are located poorly and are also underused.

As a result, the only feasible option to use this unused electricity is for mining Bitcoin, according to some people.

However, others oppose it. They say that, even if the electricity is lying unused, it is not worth using such energy sources that are known to be zero-emission power, especially on a volatile crypto coin such as Bitcoin.

They say that this will worsen the situation of this already warming world due to a significant increase in greenhouse gas emissions.

Therefore, it is time for all to take this issue seriously and consider whether or not Bitcoin, which is described by some as a ‘colossal pump and dump scheme,’ is doing any good to the energy sector.

The Need for Excessive Power

There are some good reasons for Bitcoin needing so much power even though it exists only in digital 0s and 1s.

It is said that the computers that are used to run the Bitcoin network are giant energy hogs because, according to the Digiconomist Bitcoin energy consumption tracker, the network uses as much as 66.7 terawatt-hours of energy per year as of now.

This is the total amount of energy required by all of the 10.6 million people living in the Czech Republic.

Though there was a slight fall in the energy consumption amount of Bitcoin in November 2018, it has climbed back once again. This huge energy appetite of Bitcoin is actually multipart into its brass tacks.

As you may know Bitcoin, as other crypto coins, do not have any central authority or bank governing it.

The network is regulated by the participants on the blockchain, a distributed accounting system.

In this Bitcoin blockchain, each transaction is recorded and is available on thousands of computers as a public ledger.

All the transactions are recorded in blocks that are linked with one another with a hash.

However, it is not an easy task to reconcile and validate each and every single occasion where the digital coins change hands.

It typically involves finding a proper cryptographic key by solving a computing problem that becomes increasingly difficult.

Still, people do take part in it and the Bitcoin network offers an incentive to them for contributing their computational power for validating transactions.

This incentive is awarded in Bitcoin to a miner who authenticates a block first.

Each new block is added to a Bitcoin network in about every 10 minutes. This is the process of Bitcoin mining.

If the right type of hardware is used along with correct cost inputs, Bitcoin mining can be quite profitable.

However, it is very competitive because only one miner will be rewarded for each new block created.

Moreover, the mining difficulty may also be raised with an increase in the number of participants in the blockchain.

This further shrinks the Bitcoin rewards with the calculations becoming more complex. The price of Bitcoin is also very unstable.

All these factors regarding Bitcoin mining creates an arms race among the miners to build far better and more efficient mining setup in order to verify transactions correctly and more rapidly.

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As a result, it eventually needs more energy which pushes the use of and demand for electricity for completing a task on the Bitcoin blockchain network.

Tracking Energy Supply

It is very hard to track the energy supply to the Bitcoin blockchain network and there are also a few good reasons for it.

It is found that about 60% to 80% of the total revenue earned through Bitcoin mining goes towards paying back for electricity consumption straight back.

Therefore, the miners want to save as much money as possible on electricity bills.

For that reason, the miner looks for cheaper sources of kilowatts and they do not mind setting up their mining shop in remote places like Mongolia or China even.

For that matter, the miners do not even mind going as far as in Iceland to harvest and use geothermal power from the sulfurous rock base to serve their purpose of mining Bitcoin.

Considering it more ‘closely,’ they do not even mind setting up their mining equipment in rural Washington State.

Apart from that, the continuous search for cheaper power sources has even resulted in electricity theft.

Also, the Bitcoin miners typically want to stay anonymous trying to keep their operations and transactions as opaque as possible.

And, they are also spread all across the globe.

Therefore, considering all these factors, figuring out the energy supply for Bitcoin is quite challenging.

The fact that the computing hardware used now for crypto mining comes with ASIC or Application Specific Integrated Circuit in it makes it more energy efficient.

This is another factor that is more extensively deployed in the mining operations.

Over time, the power grid miners also change their fuel resources between seasons.

This means that a local utility now can get either dirtier or cleaner but it will surely result in widespread greenhouse gas emissions if the demands for the fossil fuels come online.

It is due to all the changes and factors that have forced the researchers who are in the process of finding out how Bitcoin is affecting the global climate to study several other surrogates such as:

  • News reports
  • Interviews
  • Surveys and
  • Calculations based on the performance of the Bitcoin network.

It is specifically these particular sources based on which the CoinShares report mentioned before has been drafted which says that about three-fourths of the total electricity consumed by Bitcoin come from renewable sources.

Therefore, in order to evaluate the amount of energy used by the Bitcoin network you will need to consider the energy mix on the whole of the entire country.

Add to that, you should focus on particular regions of the country along with cities and provinces, and even on the individual mining services at times.

It is found through different assessments that the share of renewable energy used by the Bitcoin miners is disproportionate, and this is not just a chance but there are significant reasons behind it.

The most significant reason is that the abandoned and specifically the underutilized renewable sources are fortunately the cheapest energy that is available for using it on a large scale.

It is for this specific factor that the crypto miners tend to move to regions where there is an abundance of high-powered renewable energy.

In these regions where high-powered and high level renewable energy are available, the demand for it is pretty low.

This is because people, for some reason or the other, have moved out from these places and the local industries have also followed suit.

The void created by the population and industry exodus in these areas has enticed the Bitcoin miners to move into these places.

It is because they care less about location and population but more about the cost of electricity and they do not mind moving into regions with abundance of renewable energy even if it is in the rust belts of the world.

The Clean Up Act

There has been a significant rise in the demand and popularity of Bitcoin and other types of cryptocurrencies and the governments typically have had a mixed reaction to it.

Typically, more than the volatility and other aspects of crypto, the governments are more worried about the insatiable demand for energy to operate.

For example, the government of Quebec offers electricity at a discount in order to lure in more miners.

On the other hand, China has banned crypto mining because the government thought it was damaging the environment and wasting energy.

Now the question is whether or not Bitcoin mining is a good thing and whether it is putting energy to good use.

Few analysts say that Bitcoin mining is putting to use that energy that would have been wasted otherwise.

They also support it saying further that since it uses renewable energy it successfully alleviates its environmental footprint.

Therefore, it is good that Bitcoin uses renewable energy or else the miners would have used fossil fuels in less acceptable jurisdictions.

However, a few others are very skeptical about the use of renewable energy concepts and facts that are suggested in different reports such as that of CoinShares.

They support their views with a 2018 report of the University of Cambridge which found that most of the Bitcoin mining facilities use just about 28% of renewable energy taken together.

There are also other analysts who believe that the use of renewable energy by Bitcoin comes with its own consequences.

For example, a report in Joule says that hydropower used in this aspect in particular has had a significant effect on the environment.

It has to be backed with fossil fuels sometimes. This is because the production of hydropower is not consistent all through the year.

It is high during the wet season and dry in the winter. According to statistics, the seasonal variability of hydropower production is over 30%.

This is expected to be more in the following years due to the changes in the climatic conditions all over the world.

As in the case of other sources of electricity, the carbon intensity is much higher in comparison to hydropower and therefore the miners find that using oil, coal, or natural gas is much more beneficial.

Apart from the power aspect, another significant concern regarding Bitcoin mining is the electronic waste generated every year.

Typically, the most powerful ASIC mining equipment becomes obsolete much quickly, sometimes in less than two years, and cannot be repurposed.

This is because these cannot be used for anything else other than mining purposes.

As a result, the Bitcoin mining hardware resulting is an ever-growing volume of electronic waste, which also has a carbon emission aspect linked with it.

Though people are worried about the e-waste but are seldom found talking about the carbon emission factor, which, typically, no amount of green and clean Bitcoin mining can fix.

Therefore, it can be said that Bitcoin mining is hardly able to manage the clean up act successfully.

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And, this is going to be worse, experts think. It is because the profitability of Bitcoin mining is quite high which results in an extensive use of energy and hardware.

These will surge more dramatically if there is another price spike in Bitcoin making the situation even worse with higher use of energy.

And since no one knows how far the price of Bitcoin will go, the environmental effect therefore cannot be estimated precisely.

Roughly, it can be said that it will be directly proportional to the price spike.

This means that if the price rises by 10x, the rise in energy consumption will also be 10 times more.

Reshaping the Energy Sector

Bitcoin mining is popular among the users but it seems that the critics do not give it the credit that it is due.

No one seems to be talking about how Bitcoin mining is reshaping the energy sector.

People do talk about the negative aspects of Bitcoin mining and its adverse effects on the environment.

Undoubtedly, Bitcoin mining has a positive and potential role to play in a greener and cleaner energy system as well.

A little bit of research will make things clear.

You will gather some amazing facts and information about Bitcoin mining which might change the notion you possess about it entirely.

Talk with the people in the energy sector as well as the mining entrepreneurs, energy experts, and wholesale energy traders and you will understand how rapidly Bitcoin mining is coming together with the energy sector.

This, experts think, will result in an explosion of innovation which will eventually de-carbonize Bitcoin.

As a result it will benefit the renewable grids increasingly and dramatically.

It is expected that Bitcoin will be much more successful in achieving these goals in comparison to the other industrial load sources.

Therefore, it can be said that Bitcoin mining is not only profitable but is also suitable for renewable energy, and there is a lot of proof for it.

The Bitcoin enthusiasts always support it and have been maintaining that Bitcoin will bring in a clean and green energy transition.

They seem to have a good logic behind it.

Typically, the Bitcoin miners need a lot of energy and therefore are on the lookout for cheapest sources of energy.

If available, they buy energy voraciously.

Over the years, renewable energy sources such as wind and solar energy are getting more accessible and cheaper.

It is expected that at the rate the wind and solar energy are getting progressively cheaper, it will soon outdo the traditional thermal energy in terms of cost.

Therefore, when the Bitcoin miners use these forms of energy they will promote their build out in the process which will benefit everyone.

However, you may be a bit suspicious about it and disagree with it considering the low capacity factors of wind and solar energy.

With a low uptime, using solar and wind energy by the Bitcoin miners would not make any sense, you may think.

This may seem to be true especially when the miners need to stay ahead in the race against time to make their machine work at its best before the hash rate increases and makes things uneconomical to run.

Therefore, you may even promote the narrative that renewable sources of energy are not apt for Bitcoin mining.

However, this criticism is negated with the recent developments happening in the Bitcoin mining market.

These developments have not only made Bitcoin mining suitable for using renewable energy but has also made it beneficial for it both in the first and second order indirect basis.

Some of the key developments in this area that you should know about are:

  • The surfacing of the ‘lifecycle mining’ theory
  • The advances in the new hybrid model of Bitcoin mining and
  • The sluggish development cycles of ASIC.

A brief explanation of each of these areas of development will make it easier for you to understand.

The lifecycle mining concept refers to datacenter and energy inputs models. This is customized depending on the age of the hardware.

Typically, new units assure higher uptime and therefore are more profitable.

Hence, as a miner, you will not mind paying more for power to make the most out of the machine before the hash rate increases.

On the other hand, miners with older mining machines look for cheaper power and they will use the machine if only the economics seems to make any sense.

This means that grid energy is suitable for the new machines with a high output, and the intermittent renewable energy, even with a capacity of 70%, is suitable for the older machines.

This is because the opportunity cost is much lower in the case of the older units, which is why a cheaper energy source is more suitable.

As for the merging hybrid model of Bitcoin mining which is based partly on ‘behind the meter’ and grid mining, the miners can use energy from the providers when there is an abundance of it.

Otherwise, the necessary power can be drawn from the grid.

This means that the miners can typically monetize the renewable energy which would have been wasted otherwise being unused.

Add to that, it will allow them to maintain a high uptime at the same time.

However, when there is a scarcity of energy, the mining process can be shut off.

The net result of using the hybrid model is that it makes renewable energy usable and much more economical.

This is because the assets can be monetized even when there is no significant demand for the grid.

However, the problem with it is that the critics do not seem to understand its benefits, and some even misrepresent the reality deliberately saying that there is actually no excess renewable energy.

Even if there is any, if the Bitcoin miners use it, there will be nothing left for others to use, they say. This is outright untrue.

Much of the grid energy, most of which is wind or solar, is customarily curtailed which is why the Bitcoin miners flock to these regions.

This nullifies the claims of the critics that the miners will use obsolete fossil fuels instead of renewable energy since both have a constant supply and are cheaper.

Regions where hydropower is the only source, it is curtailed seasonally, and therefore miners look for other alternative sources of energy.

Miners are now signing up contracts with nuclear power plants but they generate surplus power only at night since the grid is less demanding.

Given such a situation, the Bitcoin miners will be left with no other alternatives but to look for the wind and solar energy producers.

It is just a matter of time for such a thing to happen.

Finally, as for the sluggish advances of the ASIC machines and with infrequent releases which is due to the transistor level has reached the physical limits, the miners are more motivated to look for cheaper energy instead of trying hard to get the latest ASIC units.

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Typically, much opposed to the claim that the ASIC machines last less than 2 years, these are lasting for a long time and their new cycles are becoming infrequent.

This means that the Bitcoin miners now have a longer window to work on to find cheaper renewable sources of energy.

Flared Gas Mitigation

You will find a lot of companies that are investing their capital and assets actively in the flared gas mitigation space.

This gas can be used in Bitcoin mining today.

It will make use of the wasted methane gas from the oil wells, which is obtained as a natural byproduct due to extraction of oil.

There is a massive burst of this gas in the short term especially during the initial production, and most of these wells are far, far away from the actual pipeline infrastructure.

This gas is not sent to the refineries because it is not economical to transport it and get it refined due to the low price of natural gas.

Therefore, the oil companies simply burn this gas up because letting it escape as it is will cause drastic effects to the environment.

Ideally the greenhouse gas is much worse than carbon dioxide, the output of combustions.

However, not all of the methane gas is burned, especially in windy conditions.

It is this gas that is captured and used by the Bitcoin miners, piped into a generator placed on the well pad, and uses it as their mining power supply.

The good thing is that not only the gas, which would have been wasted otherwise and would have impacted the environment, is consumed but it also enables the Bitcoin miners to get an alternative cheaper source of energy.

There is a high possibility down the lane that even a modular and portable pipeline will be used to capture the initial burst of gas and take advantage of it that would be wasted otherwise.

It is a high possibility because no one is going to build such a pipeline to capture the short burst of cheap methane gas.

However, the mitigation of methane gas also comes under criticism due to several aspects and objections raised against it.

One of the most common objections is the extraction of hydrocarbons in the use case of this flared gas.

This however is basically a Malthusian stance since the world has not yet moved to a non-fossil fuel energy standard.

Therefore, cutting off natural gas, as wanted by these believers, will be suicidal since it will have a lot of adverse effects such as:

  • People will not be able to keep their homes warm in winter
  • Transportation system will fail
  • Global trade will collapse
  • Farmers will not be able to grow crops due to lack of fertilizers and more.

Therefore, cutting off oil and gas extraction will result in famine and death at a mass scale.

The critics seem to be living in a counterfactual world where using hydrocarbons has ceased. Their seriousness is therefore questionable.

Therefore, until the time nuclear fusion is invented or any other energy golden bullet is found, oil and gas extraction will be the necessity of civilization.

The critics also say that, if flaring has to happen, it should be regulated.

However, this is once again questionable and illogical because it will not stop flaring but will make the process of extracting hydrocarbons all the more expensive.

If there is a ban, then countries will simply have to import oil, which will have a drastic effect on their economy.

Therefore, as long as the world needs oil, waste gas will also be produced in the oil well at the same time and it will need to be flared.

The Bitcoin miners are undoubtedly the best people to mitigate it sustainably and usefully and protect the global monetary network.

Accommodating Renewable

Finally, and possibly most importantly, there is a new feature of Bitcoin mining that has gained a lot of attention.

It is for the profit of the power grid operators.

Typically, the miners represent interruptible load.

This allows them to handle power outages without experiencing any undesirable impacts to their mining endeavor.

This is done effectively by following a unique ‘demand response’ program which allows them to curb down their demand when prices are high and the grid is overburdened.

This means that they can shut mining operations off when there is a shortage of supply of energy.

In exchange, the miners receive rebates. Therefore, such programs are beneficial economically as well.

Apart from the benefit of being a source of interruptible load for the grid, the miners also serve as a resource of ‘controllable load.’

This means that the miners can increase or decrease their energy consumption within seconds depending on the demands of the grid operator.

This means that the grid operators will not have to trigger the power sources frequently.

Therefore, such flexibility of the Bitcoin miners is useful for the energy sector on the whole. And, it has not gone unnoticed.

The power sectors are now designing ‘fast acting control systems’ called the Controllable Load Resources to make the best use of the available resources.

This means that there will be less carbon intensity.

With controllable load, the issues with intermittency are alleviated without the need of additional fossil fuels.

This will actually help in decarbonizing the grid.

Therefore, with all these said, it can be summarized that Bitcoin mining as of now seems to be entirely consistent and able to achieve the goals of the environmentalists not only in the United States but all over the world.

This is because they are the ones who are actually protecting the grids that are made unstable by the new solar and wind assets.

It also helps further in monetizing nuclear and hydro when the grid is not a bargain hunter and also helps in settling into the off-grid alcoves such as waste natural gas.

Considering all these facts, it can be said that Bitcoin mining has achieved a truly remarkable feat in helping the energy sector of the world.

It is expected to prove to be more beneficial in years to come.

Conclusion

So, as you can see, the world seems to be divided on the energy consumption aspect due to Bitcoin mining.

However, it really has some good sides apart from providing people with an opportunity to make lots of money. It is truly reshaping the energy sector.