By researching over 100 bitcoin mining companies, it’s clear that this industry is poised to promote energy consumption more than any other.
This is an opinion editorial by Ritabrata Santra, an engineer focused on energy technology.
I bought my first bitcoin in 2016. I was a college sophomore and it was my second year living in the US. While acclimating to the new way of life I found myself in, I came across an article about Bitcoin.
I had saved some money from my jobs on campus. Like someone who saw the devaluation of my parents’ hard-earned money, Bitcoin’s value proposition was immediately clear to me and I made the second biggest mistake of my life: I bought a bitcoin from Coinbase (for $1,500) instead of HODL’ing it! If you’re wondering what my biggest mistake is: Two months later, I got an internship in Germany, so I sold the bitcoin to buy myself a ticket to Berlin, and six months later, one bitcoin was worth about $16,000!
The energy trilemma and Bitcoin
One of the many things that stood out in my new way of life in the US is reliable access to electricity. Growing up in India, I witnessed how lack of energy affected health, knowledge and opportunities.
Today, developed economies consume as much energy as 12 times the average in some of the developing economies. There is more than 900 million people who do not have access to electricity but we burn enough gas each year to power all of sub-Saharan Africa. In other words, we burn enough gas (emitting carbon dioxide or CO2) to power millions of people without creating any economic value, since we don’t have the technology to profitably transport power to where it’s needed most.
I believe that the energy trilemma, the need to balance the reliability, affordability and sustainability of energy, is one of the great challenges of our lives: we need to eradicate energy poverty and meet the additional energy demand of emerging economies, while We actively decarbonize to achieve carbon neutrality.
Bitcoin mining serves as a means to capture the wasted economic potential of excess energy resources, accelerate it is otherwise an expensive but innovative renewable development and therefore lies at the center of the solution to the energy trilemma.
Trend One: When Harry Met (Stranded) Sally
Innovative monetization of stranded or excess energy resources will create positive economic opportunities and fuel the growth of bitcoin mining.
All power producers, regardless of the carbon intensity of the power they produce, have to deal with surplus power that cannot be monetized. As hydrocarbon production increases, reservoir pressure drops and producers inadvertently end up producing gas that is often expensive to transport and therefore have no choice but to burn/flare it . In fact, according to a recent articlethe amount of gas flared globally is equivalent to Europe’s total import of natural gas from Russia before the sanctions imposed for its invasion of Ukraine.
According to the IEA, we need to cut gas flaring by more than 90% to reach its goal of net zero emissions by 2030, as shown in the figure below. Similarly, renewable generators would often have to reduce their power output to meet grid demand, and in the absence of a battery, that often means wasting power.
Many power producers that lack bitcoin mining capabilities are partnering with bitcoin miners to efficiently monetize that power that would otherwise be wasted or stranded in the absence of transmission infrastructure. The oil giant ExxonMobil has already started a pilot project with Crusoe Energy to mine bitcoin. Similarly, renewable giant Nextera and bitcoin miner Marathon manage a joint installation in King Mountain, Texas.
Perhaps the only thing better than a joint venture is a vertically integrated mining company.
To minimize some of these uncertainties with the price and availability of energy, we are looking at bitcoin mining companies that own the source of energy production, that is, they produce and use their own energy by cutting out the middlemen. Examples range from companies that own natural gas (such as mining 360 and Canarian mining), to hydroelectric power (bitfarms), to solar energy (viable mining) assets and many others.
While there are previous instances where bitcoin accelerated the development of otherwise expensive renewable energy firms (such as OTEC) in the US, we are more likely to see similar instances in countries with favorable bitcoin mining policies. For example, El Salvador, which currently produces more than 50% of its electricity from renewables, it has huge geothermal power potential, as shown in the image below. Currently, there is a big push of the government of El Salvador to develop these geothermal resources for sustainable bitcoin mining.
Trend Two: Software is eating up the (mining) world
The specialized optimization software category could be an attractive investment for investors wary of capital-intensive digital infrastructure companies.
Bitcoin mining is a highly efficient capital allocation mechanism and the closest you get to the invisible hand of the free market. In the last year, various bitcoin mining companies such as scientific core, Celsius, calculate north and butterfly labs declared bankruptcy, while a couple others like Argo Blockchain and iris energy they were on the brink. The price of power and being able to efficiently capitalize on power demand from the grid has a huge effect on a bitcoin mining company’s operating profit margin; this problem creates a need for optimization and efficient use of energy.
I have created a separate category in my business market map that solves these optimization problems for bitcoin miners. Additionally, some mining-as-a-service (MaaS) companies such as lancium offers an integrated software solution to manage computing/mining operations and optimize energy use.
But building the infrastructure for bitcoin mining is a significant investment and involves risk due to the volatility of the bitcoin price and the cost of the energy needed. To reduce the risk of these investments (to some degree) by diversifying their offerings, many MaaS companies are building data centers for low-latency computing. With the astronomical boom in cloud computing, the demand for latency-independent computing has increased significantly over the past decade and is projected to increase by 10% year-over-year through 2030.
MaaS companies are well positioned to build data centers as this resonates with their existing capabilities to build efficient IT infrastructure solutions, significantly increasing their total addressable market.
Trend Three: The Swiss Army Knife of Decarbonization
Like a Swiss army knife, bitcoin mining spurs energy-efficient decarbonization in many ways. Reuse coal waste and burn it sustainably, use natural resources to preserve key wildlife habitats, landfill methane capture and using that energy to mine bitcoin creates positive economic value for society. In fact, there is more 120,000 orphan wells in the US alone emitting methane equivalent to producing 7 to 20 million metric tons of CO2 per year and threaten the life of the surrounding communities.
Assuming an average cost of $100,000 to cap such a pit and that only 10% of said pits would be suitable for repurposing using bitcoin mining, that’s a $1.2 billion market!
Bitcoin mining uses electrical power and is therefore as clean as the electricity source. However, as we integrate more intermittent renewables into the grid, the need to balance the grid increases, which could be addressed by flexible load such as bitcoin mining and data centers. in certain places.
The electrical energy used in bitcoin mining is converted to heat. Just like power producers trying to monetize their excess power by mining bitcoin, bitcoin miners can monetize wasted heat by capturing and reusing it. Here is a great example how bitcoin mining can incentivize waste heat recovery.
When creating my market map, I have seen companies that reuse bitcoin heat for agricultural purposes, such as greenhouse chambers to grow tulips, distill whiskey or by house heating. In addition to a resilient revenue model, efficient users of wasted heat and energy will be the winners.
Conclusion
Due to the decentralized nature and low barrier to entry, creative destruction is built into bitcoin mining by design. Bitcoin miners who constantly innovate to improve operational and energy efficiency will thrive in this industry.
This is a guest post by Ritabrata Santra. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.