Bitcoin has attracted the attention of cryptocurrency investors, climate campaigners, and energy experts alike. The currency has been reported to use an awful lot of energy; it currently consumes around 110TW hours per year, placing it at 0.55% of global electricity production or roughly equivalent to the annual energy draw of small countries like Malaysia or Sweden.
“In general, more than half of the bitcoin mining power consumption globally is in China now. And the Chinese Government, as well as others, have recently been catching up with miners to limit that by using industrial tariffs, which might be consuming lots of energy from the grid and increasing overall demand,” says Zula Luvsandorj, project finance advisor to the UK Cabinet Office.
“For smaller emerging market countries, this is a potential threat, as energy consumption can easily go up and the grid could [struggle to] cope with demand from other industrial users.”
However, studies like ARK Invest and Square’s ‘Bitcoin as key to an abundant, clean energy future’ and CoinShares’ Bitcoin Mining Report have suggested that cryptocurrency mining could drive investment in renewables and produce more energy available to the grid.
“A world with bitcoin is a world that, at equilibrium, generates more electricity from renewable carbon-free sources,” the first study says.
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By GlobalDataBut can bitcoin mining and renewables work together for a more stable grid and a conscious spending of energy?
The basics of bitcoin mining and energy consumption
With the evident interest in bitcoin and its mining has come plenty of research related to the amount of energy it will consume in a few years’ time, provided the trend rises steadily.
Over the past few years, several reports have claimed that bitcoin energy consumption has been spiralling out of control. For example, one report has suggested that the bitcoin network will start using as much electricity as the entire world does today.
“I think it’s worth noting that some of the forecasts of energy consumption have been wrong,” says Chris Bowden, managing director of clean energy firm Squeaky.
“Perhaps the key point to highlight here is that mining bitcoin consumes a lot more energy than using it. In fact, once coins have been issued, the energy required to validate these transactions is minimal. This means that the energy costs associated with mining and using bitcoin will therefore not grow exponentially,“ he adds.
The mining starts with an online decentralised ledger, blockchain, that records transactions. The process of bitcoin mining then adds individual blocks to the blockchain by solving sophisticated mathematical problems, meaning that the process requires considerable computing and electrical power, which is why resource-intensive, powerful hardware is required to mine it.
“While many miners compete to add each block, the miner who solves the problem will actually add the block, along with its approved transactions, to the blockchain. This miner then receives a reward of bitcoins, which can change over time,” Bowden says.
The questions around whether this process is deemed as a priority and if its use of excessive energy is being justified is open to interpretation depending on how people perceive bitcoin mining. Reactions largely relate to whether one believes in its long-lasting impact on contemporary monetary systems or if it is simply a craze.
Myths and reality – bitcoin and its friendship with renewable energy
Without a doubt, the overwhelming amount of energy used for bitcoin has attracted opposition. However, the ARK Invest and Square study focuses on the opportunities to incentivise development of renewable energy. For example, during times with an energy surplus on the grid, a renewable energy developer could make money mining cryptocurrencies.
A popular opposition to this argument is that bitcoin cannot realistically partner with renewable sources and the coin’s mining epicentre – China uses a considerable amount of coal-generated energy for the process, one of the reasons that recently prompted the CEO of Tesla Motors, Elon Musk, to change his mind and stop accepting bitcoin at Tesla.
Sticking to the middle ground, Bowden says: “Bitcoin’s carbon footprint or use of stranded energy resources isn’t easy to calculate by any stretch, but there is data that bitcoin miners do seek out both clean and stranded energy sources, which should support renewable generation technologies.”
He firmly supports the notion that energy transition can go hand in hand with the bitcoin mining industry: “Some industrial processes like the smelting of aluminium are located close to cheap energy sources, as this is the main processing cost.
“This approach has been copied by bitcoin miners and now some forward-thinking energy companies that have stranded energy assets, such as flare gas from an oil rig. As a result, they are now integrating crypto mining into their operations by deploying bitcoin mining computers onsite.
“These containerised mining rigs essentially cost nothing to run as all the energy used is free. It’s worth noting that this energy would otherwise be burnt into the atmosphere or left to waste.”
Adding some level of self-regulation, Luvsandorj says that bitcoin has become more expensive to mine because of the prevalent competition, so there is a natural process of balance in demand and supply.
“Some miners are suspending their operations, because it’s just not profitable enough for them to mine. Since the energy consumption is high, bitcoin and other cryptocurrency technologies are sharpening up. Beyond bitcoin, ethereum is moving to a low-energy technology model, which has significant processing power and consumes much less energy.”
Luvsandorj also shared that investors from US hedge funds have been offering to invest into a renewable energy plant, with offtake of significantly cheaper tariffs, to supply bitcoin mining. However, the plant has not yet been built and it depends on the supply and demand of bitcoin, rather than energy consumption to realise this project.
“I don’t see the bitcoin mining as undermining the progress on renewable energy technologies or having an effect on renewable energy technologies in general. In fact, there are potential opportunities for renewable energy developers, such as hydro, to sell excess energy to bitcoin miners. But the price has to be affordable and not threating the demand from other industrial users,” she says.
Possibilities and prognoses
Despite the concerns around bitcoin mining and renewable sources, it is clear that the profitability of mining highly depends on the cost of electricity. This is prompting miners to find and use the cheapest energy sources available.
Bowden explains: “This is evident in the shift of mining operations to parts of China in the wet season. During this time, massive amounts of clean energy are wasted every year in Sichuan and Yunnan, as production capacity significantly outstrips local demand and the cost of grid infrastructure to transport this energy to urban areas doesn’t make economic sense.
“As a result, it makes a lot of sense to shift bitcoin mining operations to these areas in the wet season and this is why China is responsible for almost 10% of global bitcoin mining in the dry season and 50% in the wet season.”
While governments are chasing after miners that are using consumption from the grid at industrial tariffs, miners have some alternative opportunities, like the chance to collaborate with the hydro power industry.
“Usually, the collaboration with the renewable energy comes in a form of small to micro-scale hydro projects, which are completely off-grid and used only for bitcoin mining. Other technologies such as solar and wind are still subject to study and expensive options for the miners.
“However, in countries like the US and Canada, there have been good collaborations with their excess energies, such as hydro, which they could not sell otherwise. They provide a good collaboration with the bitcoin mining industry,” Luvsandorj says.
As bitcoin mining activities outpace the availability of stranded energy, the debate over whether the energy consuming process is essential enough to be justified deepens, especially while the energy market is making great strides to decarbonise.
For this reason, it might be crucial for the crypto community to consider and address the environmental concerns attached to the activity, similar to the way in which big technology companies, as well as oil and gas producers, are shifting their focus to decarbonisation.
“Either way, it doesn’t seem likely that bitcoin mining is going to cease any time soon and that’s unfortunate, from an energy point of view, and amazing, from a technical point of view,” Bowden concludes.
