How Bitcoin mining can fuel the green energy revolution
We started this series with a concrete example of how Bitcoin can help geothermal energy in Kenya to be more successful, and then discussed how Bitcoin’s energy consumption really relates to other industries.
Now let’s have a closer look at Bitcoin and renewable energy. We can probably all agree that using renewable energy is better than burning fossil fuels and should play a higher role in energy production.
More and more of the energy used for Bitcoin mining already comes from renewable sources. According to a study by the Bitcoin Mining Council, the percentage of Bitcoin mining running on renewable power increased by 1% to 58.5% in the fourth quarter of 2021.
“This quarter we saw the trend continue with dramatic improvements to Bitcoin mining energy efficiency and sustainability,” Michael Saylor, founder and CEO of MicroStrategy comments. “That’s due to advances in semiconductor technology, the rapid expansion of North American mining, the China Exodus, and worldwide rotation toward sustainable energy and modern mining techniques.”
This is no surprise. Renewable energy is often cheap, especially when it comes from hydroelectric or geothermal sources. Bitcoin mining companies are always looking for the cheapest energy sources, as electricity is one of their most important cost factors, so using renewable energy makes economic sense for them.
However, more interesting is the mutual benefit both industries could have by working closely together. The Bitcoin Clean Energy Initiative has published a whitepaper with an interesting thesis. It claims that Bitcoin mining could be a crucial factor for renewable energy to become economically viable.
The problem with many renewable energy sources: they are not steadily available. Photovoltaic cells only generate energy during the day when the sun shines and much less when it’s cloudy. Wind turbines only generate electricity when the wind blows. The windiest areas might also be far away from industry and population centres where electricity is needed. If we want to use renewable energy, we need to manage its extreme peaks and valleys.
Unfortunately, electricity grids often do not have the capacity to handle surplus energy during peak hours, when both the sun shines and the wind blows. They would overload or collapse if too much electricity is fed into them.
Germany, which is heavily subsidising green energy with taxpayers’ money, frequently has to give away peak electricity for free or even pay its European neighbours for receiving it, in order to avoid its grid to collapse. What a waste!
For the USA, the Bitcoin Clean Energy Initiative’s whitepaper mentions three connections to power grids, where renewable energy expansion of 200 gigawatts is being blocked because the grids don’t have enough capacity. People would be willing to put up more renewable power stations, but the lack of grid capacity is holding them back.
Even more stable electricity from hydroelectric or geothermal sources is often not needed the moment it is produced, as we have seen in the case of geothermal power in Kenya.
Theoretically one could store surplus energy in huge batteries, but they are very expensive and there are significant losses in the charging and discharging process. Furthermore, the production of batteries costs a lot of energy and uses rare materials such as nickel, lithium, graphite or cobalt, often produced through child labour.
Bitcoin can fix this.
Surplus energy of peak hours may be used to mine Bitcoins which can be invested into expanding electricity grids, or to buy energy from other sources, such as nuclear power, in times when renewable energy is low. The Bitcoin mining process is technically not complex. Mining machines can be switched on and off instantly, without endangering longer lasting processes as in other energy intensive industries.
Bitcoin mining can therefore be the missing link to make renewable energy production economically viable. Other blockchains which use less energy intensive but less secure methods such as Proof of Stake (instead of Bitcoin’s Proof of Work) cannot fill this role, as no coin generates the value Bitcoin does. It would be a risky gamble for an energy company to bet on an altcoin with an uncertain future!
It might sound counterintuitive, but the fact that Bitcoin mining consumes electricity is good for the green energy revolution that we must bring forward to save the planet.
By Aaron Koenig