Bitcoin has been in the news for the past few months due to its staggering price rise within a year. COVID-19 has had an indirect effect on its rise, many believe with strict lockdowns and work-from-home culture, people have invested heavily in Bitcoins.
Bitcoins can be mined using renewable energy like wind and solar and take advantage of the excess energy produced during the off-peak periods. Thus, benefiting from the lower price of the grid due to oversupply of energy and in turn, get the return from Bitcoin mining. So basically, the renewable sector can be rewarded in Bitcoins by utilising excess electricity in mining, which might have been grounded.
But there are many caveats regarding Bitcoin mining incentivising renewable energy, which I have tried to discuss in this article.
- Why is Bitcoin mining so energy-intensive?
- How much Energy does Bitcoin consume?
- Is Bitcoin Harmful for the Environment?
- Bitcoin as a Battery
- The Bitcoin Clean Energy Initiative (BCEI)
- The Future of Bitcoin Mining
Why is Bitcoin Mining so Energy-Intensive?
In brief, the energy intensity of Bitcoin mining actually helps the network to be secure, if mining would have been easy then the network would have been compromised.
To mine a Bitcoin, you will need to have specialised hardware, a cooling system, the internet and a cheap source of energy. Mining Bitcoin requires the computer to simply guess a 64-bit hexadecimal solution to an equation. This 64-bit hexadecimal solution is called a hash. The first to guess the solution to the puzzle gets rewarded with a BItcoin at the current market price assigned to it. This concept of mining Bitcoin is called “Proof-of-work” and the technology upon which it functions is called Block-chain.
The initial investment to mine Bitcoin is very high as the hardware needs to be GPU intensive and also with additional cooling systems. The mining of Bitcoin can only be profitable if the value of the mined Bitcoin is more than the operational cost. The “miner”, a person or an organization, can only cut down its cost of operation to increase profitability by choosing a cheap source of electricity.
How much Energy does Bitcoin consume?
According to Cambridge Bitcoin Energy Consumption Index (CBECI), Bitcoin consumes about 0.58% of the total energy of the world i.e. 25,082 Terrawatt-hour (TWh) produced or 146.38 TWh per year. (By definition, 1 Terrawatt hour is equal to 1 trillion watts of electricity consumed in an hour.)
The percentage of energy consumption might seem less, but it stacks up high compared to other power consumers. If Bitcoin were a country it would rank at 27th position in energy consumption, in front of Sweden and behind Malaysia.
Is Bitcoin Harmful for the Environment?
Many, including Elon Musk, consider that Bitcoin mining is harmful to the environment and that its major source of energy is fossil fuels. As more and more people/ organizations are joining the mining race, the increase of greenhouse gas emissions will damage the environment even more. This will inevitably result in an increase in the global temperature by 2 ℃.
To understand the impact we must first need to know what is the source of energy for mining.
A study made by the 3rd Cyptoasset Benchmarking 2020, shows that 62% of the surveyed hashers revealed that they use hydroelectricity as the source of mining. Which is a renewable source of energy but has harmful impacts on the environment. One can argue that it is less polluting than a fossil-fuel plant of the same capacity but can be even more harmful.
Is Hydroelectricity a clean source of energy for Bitcoin Mining?
No, hydroelectricity is not a clean source of renewable energy for mining Bitcoin. In fact, the ecological damage caused due to its construction, water level rise and methane gas emission are dangerous to the environment. According to the Intergovernmental Panel on Climate Change’s (IPCC) report on hydropower, it states that there are three major gas emissions which are Carbon dioxide, Methane and Nitrous oxide. It also states that Methane gas has a greater greenhouse effect than Carbon Dioxide in the long run. Due to the decomposition of vegetation submerged underwater, it releases methane bubbles into the atmosphere. Studies have shown that the emission of methane gas from dams can be more in a tropical type of climate than a temperate climate.
China has been leading the way in Bitcoin mining, the government has been keen on diverting the excess energy produced to mine Bitcoins. A Chinese city called Ya’an, which has an estimated Bitcoin computational power of over 50% of the world’s network, seeks firms to burn its excess hydropower to mine Bitcoin.
Is Coal still a major part of Bitcoin mining?
As a matter of fact, yes coal is still being used for BItcoin mining and is one of the major contributors to greenhouse gas emissions. Finding out the exact source of fuel for the hash rates might be difficult as the miners are spread over the globe and remain anonymous. Assessment is done to see if the seasonal change of the local grid source has a clean or dirty source of energy. The carbon footprint will vary by the source of energy in every season. Miners in general will have to choose the cheapest source of energy to have a profit margin.
In Sichuan province of China in particular has overconstructed its hydropower plants leading to excess production of energy. These excess energies are utilized by miners during the summer season. During the dry winter season when the dams are dried up, coal is burnt to meet the demand. Inner Mongolia, which is considered the Mecca of Bitcoin mining, has coal as its major source of energy.
Coal is inevitably involved in the mining process of Bitcoin and adding up to the carbon emissions. In the recent U-turn by Elon Musk, who has been promoting Cryptocurrencies, have tweeted that Tesla will suspend its vehicle purchase using Bitcoins.
This lead to many criticisms as to why they had accepted it in the first place just a few months ago. After Elon’s tweet, the price of Bitcoin has crashed significantly.
Can Variable Renewable Energy Source be the Future for Bitcoin Mining?
Variable renewable energy or VRE, which consist of Solar and wind energy, have proven to be a very cheap source of energy as the price of solar panel has declined. The main advantage of cryptocurrency is that it is decentralised and mobile. A miner, whose main focus is to source cheap energy and location is not a concern, can travel to the source of energy and set its plant.
Solar and wind energy are one of the cleanest sources of renewable energy out there. But no energy source is perfect. Both solar and wind are a variable source of energy, which means it does not have a constant or reliable output.
In the case of solar energy, miners can utilise the excess energy produced during the off-peak timings of the day when demand is low but has zero production at night. Solar has a lot of potential in being an emission-free source of energy but suffers from pollution caused by photovoltaic cells.
Likewise, wind energy is also a clean source of energy but suffer from intermittency and damage to wildlife due to huge wind farms.
Related article: The Problem of Variable Renewable Energy
The major constraint for solar and wind is the variability and battery technology still in its early stage of development, Bitcoin mining cannot fully depend on it. But on the contrary, Bitcoin incentivises miners to use cheap source of energy to get more profit margin. If the cost of the battery technology decreases over time then a self-sufficient and green Bitcoin mining might have a larger share in the global hash rates.
Bitcoin as a Battery
This concept might seem ridiculous but bear with me for a while.
To understand this first we have to know what is a battery.
Electrochemically, batteries are used to store energy by converting electrical energy into chemical energy and vice versa when discharged.
So basically what it does is stores energy that can be converted to another form of energy and can be used any time when required. Taking this theory forward, we can say that any form of storage that does store and converts energy can be termed as a battery.
Bitcoin cannot be used to store electricity but instead, it converts and stores electrical energy into value. Moreover, rather than wasting the excess energy generated during off-peak periods miners can utilise it to mine and store it in units of value. This value can be used afterwards and/ or can be transferred via the internet.
If we take Iceland into perspective, the country has mastered the use of geothermal energy not only to generate electricity but directly converts geothermal energy into aluminium. Then this aluminium is shipped in exchange for value.
In simple words, any material, object or product which is formed by the conversion of energy (charge) and can be converted or transferred to another form (discharge), be it electricity, heat or value can also be termed as a battery.
A dam is also a battery as it stores water to generate electricity, the same goes for a pumped hydropower plant or fossil fuels.
Related Article: Grid Energy Storage Solutions
The Bitcoin Clean Energy Initiative (BCEI)
The BCEI is a project which was launched by Square in December 2020, an initiative to popularise the idea of mining Bitcoin using clean and renewable energy. In collaboration with ARK investor, they have made a model to prove how Bitcoin mining will incentivise the use of renewable energy and storage technology.
You will find the full report here:
- Square, Inc. Announces Plans to be Net Zero Carbon for Operations by 2030
- Bitcoin is Key to an Abundant, Clean Energy Future
- Solar + Battery + Bitcoin Mining
Here are few points in brief on the collaborative initiative
- They believe that investors and developers will profit by combining generation from renewable energy with mining and storage in comparison to only generation and storage. This will help in using the excess energy to mine Bitcoin and can entirely help in eliminating the intermittency of wind and solar will few hours of storage.
- This help to fast track the deployment of solar and wind projects before the completion of transmission lines to the designated station, which might take up a lot of time. In the meantime, while the connection is being made, miners can take over the plant thus avoiding operational loss.
- Can supply a sudden and sharp rise in demand, commonly known as the Black Swan Events. A recent example of such an event was the blackout in Texas in early 2021 due to a severe cold wave.
- This will in turn boost the solar and wind industry as more and more deployment occur and will decrease the Levelized Cost of Energy (LCOE) even further. Making the cost of wind and solar technology even more affordable.
- Affordability of this technology will help build many profitable projects they predict, like desalinating water, extraction of CO2 from the atmosphere, or production of green hydrogen
- They also have predicted that it will have a major impact on greening the Bitcoin mining sector
- They also point out that not in all days miners will be able to use the curtailed renewable energy to sustain profitability and might have to switch to other non-renewable sources
- Ark Invest’s model predicts that Bitcoin mining will incentivise the renewable energy sector and will meet 99% of the net grid demand
The predictions of this model at this point might seem very ambitious but can only be achieved if miners are influenced by profit, to sustain their operation. Corporate and market influencers who are into cryptocurrency have to make bold decisions to make way for a sustainable future.
In a series of tweets, Elon Musk has been defending his position on why Tesla has opted out of accepting Bitcoin as payment. In one of the tweets, he has mentioned about the power consumption related to mining in the past few months has been astronomical and there should a carbon tax.
— Elon Musk (@elonmusk) May 13, 2021
It is high time there was a carbon tax!
— Elon Musk (@elonmusk) May 13, 2021
The Future of Bitcoin Mining
Bitcoin mining is driven by profitability and to ensure that miners need to source cheap electricity. The pricing of electricity is not the same in all countries and are priced as per consumer demand rather than supply. No energy source is perfect for Bitcoin mining at this moment and it cannot come at the cost of climate change. We are pouring in tonnes and tonnes of CO2 every year, all of which are adding up into the atmosphere. We have to at least be carbon neutral if not carbon negative to save us from reaching the 2 ℃ global temperature rise.