- Bitcoin advocates have argued that mining could preserve surplus energy by turning it into an alternative store of value.
- Projects around the world are looking to use surplus energy from hydropower, wind power and natural gas to mine Bitcoin.
- In practice, however, the priorities of Bitcoin miners and renewable energy developers are not aligned.
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Bitcoin’s thirst for energy is well-documented. Current estimates have the global Bitcoin mining industry consuming 7.64GW, equivalent to around 64.08 terawatt-hours of energy consumption—the output of seven nuclear power plants.
The likes of Nic Carter, Andreas Antonopoulos, and Dan Held have all lent support to the idea that Bitcoin is "a super commodity" which "transmutes electricity into digital gold" and stores otherwise wasted renewable energy.
Bitcoin’s utilization of the electrical capacity consumes magnitudes less electricity than existing fiat systems which not only have power requirements, but also military and political machina. The energy tradeoff is a “net positive” outcome.https://t.co/SFYksJUEES
— Dan Held (@danheld) April 3, 2019
Is the idea of a cryptographic "energy currency" a legitimate idea, or just a Bitcoin maximalist's pipe dream?
The "stranded renewables" theory
It’s not an entirely original idea; almost one hundred years ago, Henry Ford wrote to the New York Times proposing to build a hydropower plant on the Tennessee river and replace gold with a currency based on "the world's imperishable natural wealth.' This, he hoped, would not only create a more sustainable basis for the economy, but also "end all wars".
As an industry, Bitcoin mining is unique in that it's geographically independent; miners can choose their location based on the cheapest cost of electricity. That electricity often happens to come from renewable sources—hydropower, geothermal heat, and natural gas—that would otherwise go to waste, due to poor central planning leaving them disconnected from distribution networks.
On March 4th, 1922, the Washington Herald ran a column titled "Ultimate Money" whose author advocated for a new form of electricity money.
— CoinShares 👩🚀 (@CoinSharesCo) July 31, 2019
There might be a 50-megawatt plant running outside a village with only 15 megawatts of demand, or a hydropower plant which has nowhere to send its electricity once the lights in the neighboring city go out. And, because electricity is impractical and expensive to transport over long distances, it cannot easily be transmitted to the nearest demand.
A CoinShares report first made the case that Bitcoin mining could preserve surplus energy by turning it into an alternative store of value. It’s similar to the way aluminum smelting has been used in Iceland—ore is shipped in, smelted using abundant renewable energy, and then shipped out, effectively exporting energy without needing to run an enormous power cable under the sea from Iceland to Europe.
Will #Bitcoin mining boil the oceans anytime soon? 👀 Newly released Mining Report has the details...
— CoinShares 👩🚀 (@CoinSharesCo) June 6, 2019
Without aluminum or Bitcoin to soak up the surplus energy from renewables in remote locations, it would remain untapped. Thus, the argument goes, Bitcoin can have a positive environmental impact by storing otherwise lost renewables as a form of embedded energy, just as plants convert sunlight into fuel through photosynthesis.
By converting energy into coins which can then be saved to purchase goods and services at a later date, the dilemma faced by remote wind, solar, and hydroelectric solutions all over the world is—theoretically—solved. The global energy network, "liberates stranded assets and makes new ones viable," as Carter put it in a blog post. He added: "Imagine a 3D topographic map of the world with cheap energy hotspots being lower and expensive energy being higher. I imagine Bitcoin mining being akin to a glass of water poured over the surface, settling in the nooks and crannies, and smoothing it out.”
At worst, this turns Bitcoin from an environmental disaster into an environmental subsidy. And at best, it drives the decentralization of energy production, which Antonopoulos claims is "one of the most important trends in human history."
Flocking to renewable energy
Several projects are already aiming to make this concept into a reality.
The Golden Goose project in Paraguay aims to skim surplus electricity from the world’s most powerful hydroelectric plant on the Itaipu river, and use it for Bitcoin mining. Elsewhere, Soluna is aiming to test the same hypothesis in a remote Moroccan location between the Sahara and the Atlantic Ocean.
Here in the desert, far from distribution networks, Soluna is planning a wind farm combined with a Bitcoin mining operation that plans to use mining to get profitable, and then gradually shift power to the local economy over time as transmission networks are laid out.
"[Bitcoin mining] changes the economic proposition of power production," said Michael Toporek, managing general partner at Brookstone, the private equity firm backing Soluna. "As a power producer, we then have a lot of flexibility. We can sell our power or consume it onsite with our data centers."
A challenging economic proposition
Realizing the vision of Bitcoin's green new deal, however, appears to be more difficult.
As of yet, the Golden Goose in Paraguay has yet to lay a golden egg, and the Soluna project is still at the planning stage, with glossy promotional videos promising to better the world using renewable energy. Max Fiege, Director covering Bitcoin and blockchain at Signum Growth Capital, suggests this is because Bitcoin mining doesn't realistically represent a renewable energy subsidy.
Fiege told Decrypt that the priorities of Bitcoin miners and renewable energy developers are not aligned. Bitcoin miners prefer having 24/7 energy access to quickly recoup their investment in expensive ASIC miners amidst a volatile Bitcoin market, while retaining the flexibility to jump ship and migrate operations when cheaper electricity becomes available. The financiers funding renewable energy development, on the other hand, have historically underwritten developments with long-term Power Purchase Agreements of between 10-30 years.
"It always struck me as unlikely that a miner would commit to the lengthy buildout of a renewable resource, that a financier would accept Bitcoin mining revenues as stable enough to back an agreement, and that communities would be ok with rolling out the red carpet for a mine that could just up and leave when better situations arose elsewhere." said Fiege.
A similar conclusion was reached by geography professor Nick Lally, who argued in a 2019 study that the Bitcoin mining industry often "functions in a parasitical relationship to existing infrastructure while failing to contribute to its building or maintenance".
Bitcoin: an energy parasite?
While the idea of Bitcoin mining partnering with renewable energy is a beguiling narrative, in practice it seems that Bitcoin can no more distinguish clean energy than it could illegal dorm room electricity in the early days.
With the laying out of more long-distance transmission lines, Fiege expects North American oil and gas to be the next cheapest source of electricity. Bitcoin miners offer oil producers the tantalizing prospect of reducing their emissions and making money by diverting would-be-flared gas. In this way, Bitcoin newsletter writer Marty Bent told Decrypt, Bitcoin mining "provides an incentive to be more efficient" with unrenewable energy.
It’s already underway in some locations; in New York State, Greenidge Generation is already using excess behind-the-meter electricity to mine Bitcoin, while Denver-based Crusoe Energy Systems is using surplus natural gas to mine Bitcoin at shale drilling sites across the US, and is reportedly teaming up with petroleum multinational Equinor.
Roving parasite or renewable subsidy?
Even if flexible financing turns Bitcoin mining into an effective subsidy, however, it will still have to contend with rapid advances in grid-scale battery technology. And if Bitcoin mining is to successfully act as a subsidy for truly renewable forms of energy, Fiege suggests we need to see the development of more flexible financing terms for combined renewable energy and Bitcoin mining farms.
This might be aided by the development of Bitcoin hashrate futures from companies like BitOoda and FTX—allowing mining operations to make cash flow more predictable by locking in future prices, and new merchant banking terms allowing miners to sell power output directly to the market.
Ultimately, though, while Bitcoin mining might help oil and gas companies behave more efficiently, it can't greenwash an otherwise environmentally-damaging industry. And as governments pass legislation mandating a shift to renewables, supporting a peer-to-peer network by embedding energy in Bitcoin is unlikely to take precedence over delivering electricity to where it's needed.