Researching over 100 bitcoin mining companies, it’s clear that this industry is poised to advance energy consumption more than any other.
This is an opinion piece by Ritabrata Santra, an engineer specializing in energy technologies.
I bought my first bitcoin in 2016. I was a sophomore and this was my second year in the United States. As I was getting acclimated to the new lifestyle I happened to be living, I came across an article about Bitcoin.
I had saved money from my jobs on campus. As someone who has seen the devaluation of my parents hard earned money, bitcoin’s value proposition immediately became clear to me, and I made the second biggest mistake of my life: I bought bitcoin from Coinbase (for $1,500) instead of mining and trading it. store cold! If you’re wondering what my biggest mistake is: two months later I got an internship in Germany, so I sold bitcoin to buy myself a ticket to Berlin, and six months later one bitcoin was worth around $16,000!
The Energy Trilemma and Bitcoin
One of the many things that stood out in my new way of life in the United States was reliable access to electricity. Growing up in India, I witnessed the impact of a lack of energy on health, knowledge and opportunity.
Today, developed economies consume as much energy as 12 times the average in some developing economies. There is more than 900 million people who do not have access to electricity but we burn enough gas every year to power all of sub-Saharan Africa. In other words, we burn enough gas (emitting carbon dioxide or CO2) to supply energy to millions of people without creating economic value, because we do not have the technology to transport the energy cost-effectively where it is needed most.
I believe that the energy trilemma, the need to balance energy reliability, affordability and sustainability, is one of the great challenges of our lives – we must eradicate energy poverty and meet the additional demand for energy from emerging economies, while actively decarbonizing to achieve carbon neutrality.
Bitcoin mining serves as a means to capture the wasted economic potential of excess energy resources, accelerated otherwise costly but innovative renewable development, and is therefore at the center of solving the energy trilemma.
Trend 1: When Harry Met Sally (failed)
The innovative monetization of stranded or excess energy resources will create positive economic opportunities and drive the growth of bitcoin mining.
Every energy producer, regardless of the carbon intensity of the energy they produce, has to deal with a surplus of energy that cannot be monetized. As hydrocarbon production increases, reservoir pressure drops and producers end up inadvertently producing gas that is often expensive to transport and therefore have no choice but to flare/flare it. Indeed, according to a recent articlethe amount of gas flared around the world equals Europe’s total natural gas import from Russia before the sanctions imposed following its invasion of Ukraine.
According to the IEA, we need to reduce gas flaring by more than 90% to reach its goal of net zero by 2030, as shown in the figure below. Likewise, renewable energy generators would often have to reduce their power output to meet grid demand, and in the absence of a battery, this often means wasted energy.
Many energy producers lacking bitcoin mining capabilities are partnering with bitcoin miners to effectively monetize this otherwise wasted or stranded energy in the absence of transmission infrastructure. Oil giant ExxonMobil has already launched a pilot project with Crusoe Energy to mine bitcoin. Likewise, renewable energy giant Nextera and bitcoin miner Marathon manage a common 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 observe Bitcoin mining companies that own the source of energy production, i.e. they produce and use their own energy in removing intermediaries. Examples range from companies holding natural gas (such as 360 mining And Canarian Mining), hydropower (Bit Farms), solar powered (Viable mining) assets and many more.
Although there have been previous cases of bitcoin accelerating the development of otherwise expensive firm renewables (such as OTEC) in the United States, we are more likely to see similar cases in countries with anti-corruption policies. favorable bitcoin mining. For example, El Salvador, which currently produces more than 50% of its electricity from renewables, has huge geothermal energy potential, as shown in the image below. Currently there is a huge thrust of the Salvadoran government to develop these geothermal resources for sustainable bitcoin mining.
Trend 2: Software is eating the (mining) world
The specialized optimization software category could be an attractive investment for reluctant investors in capital-intensive digital infrastructure companies.
Bitcoin mining is a highly efficient capital allocation mechanism and as close as possible to the invisible hand of the free market. Over the past year, several bitcoin mining companies such as Basic scientist, Celsius, calculate north And Butterfly labs declared bankruptcy, while a few others like Argo Blockchain And Iris Energy were on point. The price of energy and the ability to efficiently capitalize on grid energy demand have a dramatic effect on the operating profit margin of a bitcoin mining company; this problem creates a need for energy optimization and efficient use.
I have created a separate category in my market map for businesses that addresses these optimization issues for bitcoin miners. Additionally, some mining-as-a-service (MaaS) companies like Lancium offer a bundled software solution to manage IT/mining operations as well as optimize power consumption.
But building the infrastructure for bitcoin mining is a major investment and involves risk due to the volatility of the bitcoin price and the cost of the energy required. To reduce the risks of these investments (to some extent) by diversifying their offerings, many MaaS companies are building data centers for low-latency computing. With the astronomical rise of cloud computing, the demand for latency-independent computing has increased dramatically over the past decade and is should increase 10% year-on-year to 2030.
MaaS companies are well positioned to build data centers, as it aligns with their existing capabilities of building efficient IT infrastructure solutions, thereby significantly increasing their total addressable market.
Trend 3: The Swiss army knife of decarbonization
Much like a Swiss army knife, bitcoin mining encourages energy-efficient decarbonization in several ways. Recovering coal waste and burning it sustainably, use natural resources to preserve key wildlife habitats, capture methane from landfills and using this energy to mine bitcoin creates positive economic value for society. In fact, there are more 120,000 orphan wells in the United States alone that emit methane equivalent to producing 7 to 20 million metric tons of CO2 per year And threaten lives in surrounding communities.
Assuming an average cost of $100,000 to plug such a well and that only 10% of those wells would be suitable for repurposing using bitcoin mining, that’s a $1.2 billion market!
Bitcoin mining uses electrical energy 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 solved by flexible load like bitcoin mining and data centers. in certain places.
The electrical energy used in bitcoin mining is converted into heat. Much like energy producers trying to monetize their excess energy with bitcoin mining, bitcoin miners can monetize waste heat by capturing and reusing it. here is a great example of how bitcoin mining can incentivize waste heat recovery.
While creating my market map, I’ve seen companies repurpose heat from bitcoin for agricultural purposes such as greenhouse chambers For grow tulips, distill whiskey or for heating of houses. In addition to a resilient revenue model, efficient users of wasted energy and heat will be the winners.
Due to the decentralized nature and low barrier to entry, creative destruction is built into the design of bitcoin mining. Bitcoin miners who constantly innovate to improve operational and energy efficiency will thrive in this industry.
This is a guest post by Ritabrata Santra. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.