This is one article in a collection of 52 articles published weekly throughout 2023 on the basics of Bitcoin. The series is intended for people unfamiliar with Bitcoin or people wishing to enhance their understanding of the fundamentals that underpin the technology. Please contact us, if you have any questions or comments.
There are several unique characteristics of Bitcoin’s proof of work (PoW) system that make it a strong partner to assist energy companies and projects handle excess energy load. Energy load refers to the amount of electricity demand placed on the power grid at a particular time. The demand for energy fluctuates throughout the day based on variables such as weather and the time of day. When energy demand is too high it can lead to a strain on the power grid which can lead to events such as blackouts or brownouts. These disruptions are widely understood to have significant economic costs. Situations where the supply of energy exceeds the demand can be extremely costly to energy companies as well. For example, United Kingdom consumers paid an astounding £215 million to turn off wind turbines in 2022 because the grid could not handle the amount of electricity the turbines were producing on the windiest days. That’s a gigantic waste of potential energy and money. Any alternative use of the excess energy that was bypassed by shutting down the wind turbines should be thoroughly explored to make these projects more efficient! One potential option is to mine Bitcoin. To understand how Bitcoin’s PoW system could assist these projects it is important to understand nine characteristics of Bitcoin’s PoW system which are outlined in greater detail in an influential paper written by Ibanez and Freier titled Can Bitcoin Stop Climate Change? Proof of Work, Energy Consumption and Carbon Footprint.
Flexibility of Load - Bitcoin mining equipment can be turned on and off in under a second without the need to warm up or cool down. As a result, the equipment used to mine bitcoin can be turned on and off effortlessly depending on the supply of energy in the system.
Interruptibility - A bitcoin is mined approximately every 10 minutes. Importantly, past solutions do not assist miners in mining a new block. Therefore, a miner is at no disadvantage in mining the next block even if it is turned on and off frequently!
Portability - The only two things that are needed for Bitcoin mining is an electricity source and a dependable internet connection. Additionally, the equipment necessary for Bitcoin miners to operate can be transported easily. As a result, Bitcoin mining can theoretically occur anywhere on earth.
Cost and Price Sensitivity - The primary input to profitable Bitcoin mining is the electricity price powering the ASIC machines. Furthermore, the ASIC equipment has evolved as Bitcoin has matured. The newer ASIC machines can be profitable at a higher energy price. However, older ASIC machines are still viable options if the price used to power the ASIC machines is low enough. Importantly, Bitcoin miners are able to know the profitability points (measured by the cost of energy) for each ASIC miner with exact precision. As a result, Bitcoin miners can make prudent, efficient choices on which, if any, ASIC machines should be on at various times depending on the energy price.
Scalability - A unique feature of Bitcoin mining is a miner can enter the competition to mine the next block no matter how much energy it can access. An individual wishing to attempt to mine the next block may do so with CPU from an old laptop at home. On the other end of the scale, a renewable energy project wishing to use its excess energy can run as many ASIC miners as it can on the excess renewable energy being created. Any point between these two extremes is also feasible with Bitcoin mining. As a result, the Bitcoin mining industry can serve as a shock absorber for the energy grid and lead to more efficient energy consumption.
Consumption-Level Granularity - As a result of ASIC machines having different break even points given the rapid evolution of the equipment used to mine bitcoin, the energy consumption being utilized by Bitcoin miners can be adjusted up or down with extreme precision, with great efficiency, at no extra cost. In other words, a diverse mix of ASIC miners would allow for many different levels of energy consumption.
Non-Rival Energy Consumption - If Bitcoin miners are properly integrated with renewable energy projects, the energy needed for the Bitcoin mining will not necessarily cause the need to generate more energy. Rather Bitcoin mining can help these renewable projects operate more efficiently and use energy that would otherwise be wasted. Beautifully the ASIC machines will allow the renewable projects to make a profit, through the mining of bitcoin, on energy that would otherwise be wasted with no additional emissions being released in to the atmosphere.
Uncorrelated Revenue Streams - Bitcoin mining can be a beneficial and stable source of income for renewable energy projects because the fluctuation of bitcoin prices and electricity prices follow independent processes which are not correlated, providing the option to switch outputs when it is optimal.
Heat - The process of Bitcoin mining requires the input of energy. As a result of the law of conservation of energy (which states that energy cannot be destroyed rather it can only be transferred from one form of energy to a different form of energy), the energy used to mine the next Bitcoin block is largely transformed into heat. In the early days of mining cooling procedures were developed so the ASIC machines could continue to function. However, recently miners have been looking at ways to efficiently use the heat created through Bitcoin mining for everyday items such as heating homes, schools, commercial real estate, or water. If heat needs to be created for something, creating the heat with something functional such as Bitcoin mining is more efficient. This feature of Bitcoin mining will be used in the future to make a more energy efficient grid.
The nine characteristics listed above show how Bitcoin mining can be a unique partner for energy projects. Bitcoin miners can assist energy projects to become more efficient and resilient to load issues, prevent the need to flair methane gas and instead use the currently wasted methane gas to mine bitcoin which is not only more efficient economically but also massively reduces emissions, and create a new revenue stream by accumulating bitcoin instead of letting the excess energy go unused. All energy projects could benefit from either partnering with Bitcoin mining companies or, alternatively, acquiring Bitcoin mining equipment and performing the mining themselves!
Bitcoin mining is unique because if there is excess energy in the system, additional Bitcoin mining equipment can be turned on to efficiently use the energy. Alternatively, if there is too much demand and more energy is needed, Bitcoin mining equipment can easily be turned off without any friction. The ease at which Bitcoin mining equipment can adjust to the demand for energy is extremely valuable.
For a more thorough examination of this subject please read our article titled Is Bitcoin Mining the Key to Successful Renewable Energy Projects? The Intersection Between Renewable Energy ESG Projects, Bitcoin's Proof of Work System, and the New ESG Rules for Retirement Plans.
