3 Reasons Why Bitcoin Is Actually Good for the Environment
Bitcoin has gotten a lot of hate recently because of its energy consumption and carbon footprint, but—quite counterintuitively—it might be the missing piece to a cleaner future.
In early 2021, some prominent people have spoken out against Bitcoin stoking fears and causing crypto markets to tumble. In February, Bill Gates said in an interview with Andrew Sorkin that “Bitcoin uses more electricity per transaction than any other method known to mankind, and so it’s not a great climate thing.” And Elon Musk said in May “We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.”
Not only are both statements misleading (upwards of 75% of Bitcoin mining is fueled by renewable energy at the time of this writing), they demonstrate that Gates and Musk might be behind the curve when it comes to crypto. New and counterintuitive ideas are emerging that position Bitcoin and other Proof of Work (PoW) cryptos as essential to reducing humanity’s carbon footprint.
Feeding the Monkey
Proof of Work cryptos like Bitcoin, Litecoin, Ethereum Classic, Monero, and many others need a lot of energy. Like the name suggests, transactions are validated on their respective blockchains by dedicating computing power to solve problems of staggering complexity. These problems are so hard to solve, no computer or group of computers could do it on their own. Only the community’s collective computing power could feasibly do so, meaning a transaction is considered valid only if it has the support of the community via its computing power. This prevents bad actors from trying to manipulate the blockchain, as they could only do so if they controlled more than 50% of the computing power, which, for a blockchain like Bitcoin, is virtually impossible. The collective computing power at the moment for Bitcoin is around 100 TH/s.
While this is a clever idea, one big problem is that Bitcoin is now consuming more energy than the entire country of Argentina. And it’s only going to get worse, as the problem that needs to be solved to add another block of transactions to the chain of other blocks becomes more difficult with each new one. This means that the people and companies running the Bitcoin blockchain, for which they are rewarded with a geometrically decreasing amount of newly minted Bitcoin (hence the term ‘mining’), need an increasing amount of electricity. Even if a majority of this electricity comes from renewables, Bitcoin still has an alarming carbon footprint.
For many, this is Bitcoin’s main drawback, but it could be a benefit.
The Mallard in the Room
Bitcoin and other PoW cryptos offer a unique opportunity for energy producers to sell excess energy during peak production hours, making them more profitable and more attractive to investors.
Solar, for example, only produces energy when the sun is up and produces nothing when the sun is down. In areas that have heavily invested in solar energy, this means that it overproduces during peak day hours and then forces traditional powerplants to make up the difference as the sun goes down. In fact, in areas like California, so much solar energy is produced that it can’t be incorporated into the grid, as grid operators need to curtail solar powerplants. This means that the economic and environmental benefits from solar are partially wasted, as solar powerplants sit idle. For investors, this is makes solar unattractive.
Likewise, hydroelectric power produces too much for the electrical grid to handle during peak times because it produces more during the wet seasons and less during the dry seasons, especially in areas affected by monsoons. For example, in the southwestern Chinese province of Sichuan, so much hydroelectric power is created during the summer months that it just gets dumped. One report claims that “the wasted hydro-electricity in Sichuan per year between 2012 and 2016 were 7.6 billion kilowatt-hours (kWh), 2.6 billion kWh, 9.7 billion kWh, 10.2 billion kWh, and 14.2 billion kWh respectively.”
Furthermore, when a new power plant comes online, grid operators must conduct lengthy interconnection studies to understand its impact on the grid, again leaving the plant idle. Bitcoin mining, though, would allow the plant to bring in income while waiting for what could be months or years. According to a whitepaper from Square and Ark Invest, “There are >200 GW of delayed solar and wind capacity currently in just three U.S. grid interconnection queues. These are solar and wind projects which have developers and financing readily available, but which grids physically cannot accommodate.”
Throwing away clean energy and idling renewable power plants during peak production hurts the push to incorporate renewables into the grid because it reduces their profitability. Solar farms, hydroelectric dams, etc. are expensive, and when they are not operating at full capacity and able to sell as much energy as possible, they become a less attractive investment option. However, if renewable energy producers began selling energy to miners “behind the meter” then they would have a profitable way to unload unused energy, thus making them more profitable and attractive to investors.
Catching the Phoenix
If you’ve ever driven down the Texas coast near Houston, you’d be familiar with the ominous flames flickering on the many refineries in the area. These are gas flares, and their purpose is to do a controlled burn of the natural gas escaping from the refinement process. Although we don’t normally see them, they are also common on oil rigs and other production sites, and they are major source of pollution. Some estimates claim “gas flaring contributes approximately 1% of man-made atmospheric carbon dioxide emissions globally,” and not only that, “In the Permian Basin alone, about US$750 million worth of gas was wasted in 2018, without any public benefit.” The oil industry is able to harness some of this energy, but they struggle to so so effectively, mainly due to its profitability and grid connection issues.
However, Bitcoin mining offers a unique solution to this problem because it can be profitably done on site. That is, it provides a feasible incentive to harness gas flares, turn them into electricity on site, and profit off of validating Bitcoin transactions, while reducing harmful emissions. Such an idea is already being implemented in North Dakota with Equinor’s operations on the Bakken oilfield. It’s backers include known crypto-enthusiasts Winklevoss twins and Bain Capital. Internal communications between Equinor and their partner Cruseo claim “Mining cryptocurrency requires a lot of electricity to power computers, while a valuable commodity is wasted, and carbon emissions are created when we flare. By connecting these inverse pains, we can satisfy both needs with no cost to market expense.”
Chasing the Dragon
PoW miners are always on the hunt for cheap electricity. Due to the amount of computing power needed to validate transactions, miners can only make a profit in areas like Sichuan, China that have so much electricity they can offer it at rates fall below the rest of the world. Now that the Chinese government is putting the squeeze on mining operations, some are relocating to Kazakhstan, where electricity rates are still profitable for them.
Because of this, miners are turning to renewables, solar in particular, due to the fact that it’s now the cheapest form of energy. In late 2020, the International Energy Agency put out a report detailing how new solar facilities are cheaper to build than oil and gas, at least in most countries. Two big reasons for this is the rapid decline in the cost of producing them and their ever increasing efficiency. Therefore, miners have the perfect incentive for switching to solar, thus helping wide-scale adoption and weening us off of fossil fuels. This is already in the works in Montana with Atlas Power, who is planning on a new large-scale mining operation. The owner said “Now, the only barrier for data centers like this is power, and I believe green energy is the answer.” Likewise, Jack Dorsey’s Square and their partner Blockstream are investing $5 million in a similar project. Square claimed on Twitter “Together, we’ll be creating a public-facing dashboard to serve as a transparent case study for renewable energy and bitcoin mining. As we continue to explore the synergies between the two, we’re excited to share our ongoing learnings and real-world data points.”
The Future and the Crypto Climate Accord
Despite the FUD (fear, undermining, and doubt) about Bitcoin and other PoW cryptos, the industry is moving forward quickly. Modeled after the Paris Climate Agreement, the Crypto Climate Accord is an initiative to decarbonize everything related to crypto by 2030. Many high profile private entities have already signed on, with the list growing everyday. They recommend fostering the transition to more energy efficient consensus mechanisms when possible, using 100% renewable energy, using open source technology to measure and share data, among many possible solutions.
So crypto is not the environmental enemy some make it out to be. Rather, it seems to be an integral part of ushering in a cleaner future.
Support The Happy Neuron by clicking the links below:
