Erik Weijers, a year ago
Among environmentally-conscious people, Bitcoin has a somewhat poor reputation. Understandable, because surely the high energy consumption of the network is a problem if we want to reduce CO2 emissions? This story is a bit more nuanced than you might think: the bitcoin network is increasingly becoming a "garbage collector of the energy market”. In fact, Bitcoin is already acting as a subsidy mechanism for green energy projects.
Notorious this year are the tirades of U.S. Senator Elizabeth Warren, who warns us, "[we need to] crack down on environmentally wasteful crypto mining practices." Remarkable, such venom. Especially when you consider that Bitcoin mining accounts for only about one-tenth of one per cent of total global energy consumption. That's comparable to the energy consumption of all cruise ships worldwide, an industry that nonetheless contributes less to the S and G of the ESG (Energy, Social & Governance) criteria that companies must increasingly meet. Or are we missing something, and are the floating pools of the ocean helping over a hundred million people to become independent of central banks?
For starters, there is good news for Bitcoin's critics: Bitcoin's energy consumption as a percentage of the total value of the network is decreasing over the years. So the network is becoming more energy efficient. In 2013, 14% of the total market value was still spent on miners' energy and hardware bills. Today, it is around 2%. Suppose Bitcoin becomes a resounding success in the coming decades. Then energy consumption is estimated to increase by another four or five times. Should Bitcoin continue to muddle along without significant user growth, energy consumption will fall: this is due to the block subsidy halving every four years. In any case, energy consumption will not skyrocket under any scenario. On a global scale, it remains a rounding error in terms of energy usage.
Bitcoin miners are basically machines that turn energy into money. Because there is enormous competition in the global mining market, they scour the earth for the cheapest forms of energy. Running a mine is only profitable when the price of electricity is far below what consumers pay: think four or five cents per kWh.
This means, first, that we don't have to worry about miners snatching away electricity for vital use cases like our microwave dinners. And second, it means that miners are the garbage collectors of the energy market: only if energy is a residual product is the price low enough to be attractive. One example is the Texas oil fields on which Bitcoin mines run on natural gas. Natural gas is a byproduct of these oil fields that would simply be vented into the air if the mines would not be there.
Ok, so Bitcoin is already cleaning up greenhouse gases bubbling up from oil fields here and there. But we want to get rid of that industry anyway. What about green energy? The hallmark of that is that the supply is not constant. The sun sometimes shines and sometimes doesn't, and the wind isn’t reliable either. To make green energy workable, you therefore have to install a considerable overcapacity, part of which is not green: think gas plants and nuclear power plants. This is the only way to guarantee that there will always be sufficient energy available, even at times of lesser green production. This overcapacity makes the investment in green energy inefficient and therefore unattractive to investors... were it not for the fact that we now have miners. These buy up the excess energy and thereby subsidize green projects. Another example is the integration of bitcoin miners into the greenhouse.
A related benefit of integrating bitcoin miners into the power grid is that it becomes more stable. Miners can switch on and off depending on the circumstances. For example, is there a high demand for electricity due to special weather conditions? Then the miners supply their electricity to the grid instead of using it themselves. At other times, as described above, they buy up surplus capacity.
But don't miners have to run continuously to be profitable? That depends. The older, already depreciated generation of ASICS miners can still be profitable even at intervals - as long as the energy costs at the site are low enough.
All of these examples do not take away from the fact that, as we speak, there are still Bitcoin mines running on coal-fired power plants. But an increasing number of the above dynamics show that Bitcoin mining is increasingly leaning toward a form of energy recycling rather than energy consumption. Has Elizabeth Warren received the memo yet?
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