The Future of Bitcoin Mining: Embracing Renewable Energy Sources
Mining, the process through which new bitcoins are created, provides an incentive for operators to perform the computation necessary to verify transactions and maintain the blockchain. However, recent environmental concerns about the carbon-intensive electricity sources utilised by the industry are prompting operators to reduce the energy footprint of their operations, by moving to locations where energy is abundant and less carbon-intensive. The majority of energy consumed by the Bitcoin network presently comes from coal-fired power stations. Mining an estimated $5.38 billion value of new money in 2017, Bitcoin is an energy-intensive asset class that extracts a disproportionate impact on the planet. A geographically distributed blockchain system fulfils many of the requirements for a perfectly efficient model of computation, similar to those described by economists Paul Romer and William Nordhaus for the global economy. In 2017, mining operators consumed more than 37 terawatt-hours of electricity (roughly the equivalent energy consumption of the nations of Hong Kong, Ireland or Columbia). However, the impact of their energy consumption on the climate is disproportionate to this figure, since the majority of energy consumed by the Bitcoin network presently comes from coal-fired power stations. This possesses a 100-year climate impact that is roughly double that of other fuel sources.
The Current State of Bitcoin Mining
Bitcoin mining is an energy-intensive process. Each confirmation of a bitcoin transaction – called a block – requires ‘miners’ to solve a needle-in-a-haystack computational problem. It’s difficult work. As they say: you don’t get something from nothing. And ‘something’ in this case requires a lot of electricity. Since the system was first implemented, ‘mining’ has been done almost exclusively using fossil fuels. The reasons for this are straightforward: fossil fuels are still relatively cheap energy, for now. But as growing global awareness about climate change mounts, reliance on such energy sources has become something of a no-go.
Why Shift to Renewable Energy?
Another reason that renewable energy is taking a greater share of bitcoin mining is that investors are reaping financial rewards in other ways. Shrinking energy costs mean more yield, and this attracts investments. Pressure to lower carbon footprints and prevent climate change is also pushing the industry in this direction.
Second, the financial advantages are starting to come into view. Unsubsidised renewables are becoming increasingly price-competitive with fossil fuels, in particular when the total lifetime cost of an energy infrastructure is considered. Also, using renewables means more predictable energy prices for miners, which is important for profitability given the volatility of bitcoin prices.
Global Trends in Renewable Energy Usage for Bitcoin Mining
Poor countries that have plentiful natural resources for renewable energy – such as Iceland, which has an extraordinary amount of geothermal and hydroelectric power, or parts of Canada, which has abundant hydroelectric power, cheaper than virtually anywhere else in the world – are now becoming bitcoin hotspots, as are regions of China that have plentiful hydropower.
Challenges and Opportunities
However, as the sun shines brightly across the earth, and wind blows accordingly, it also means that renewable cannot be available all the time. Different regions have different capacities to generate power and heat using renewable energies (solar panels are more effective in sunny areas) and, unless existing plants are retrofitted with carbon-capture technologies, some power will still be needed for backup instead of cleaner, less polluting renewables. The set-up costs for renewable energy are higher than conventional technologies, although they have a lower operational cost.
Yet these difficulties also present certain opportunities. Technological change could make renewable energy easier to work with. Better battery tech to store energy is a major objective if we are going to exploit the huge potential of solar and wind power. Moreover, we can use the blockchain technology itself to produce ‘gridless’ energy systems – ie, local renewable energy microgrids that are much more efficient than the current centralised system.
Conclusion
Bitcoin miners are inevitably on a path to renewables. Eventually, the world will decarbonise, because it has to. The growing eco-anxiety and the ever-present news around climate change will make that inevitable. Industries will be forced to decarbonise. Miners will have little choice but to follow suit. This will present an opportunity for the Bitcoin mining industry to lead the way in wider adoption of green technology. If miners embrace renewable energy, it will not only help the future of Bitcoin mining but it will also support the future of less carbon-intensive energy use on a global scale.
