Renewables and energy efficiency are being used to address the rising energy usage of cryptocurrency mining, such as Bitcoin, which ranks among the top 30 energy consumers.
While Bitcoin mining is by no means the greatest consumer of electricity, its high prominence draws attention to the power sector’s overall carbon intensity.
The increased attention this space attracts may be leveraged as a catalyst for achieving larger renewable energy shares in the power sector, making cryptocurrency mining a potential accelerator, not a bottleneck, of a renewable energy transition.
What is Bitcoin?
Bitcoin is a decentralized digital currency that does away with the need for middlemen like banks and governments. For example, consider a group of ladies selling beaded jewelry who must rely on a third party to exchange money. An individual in the United States can purchase a necklace through a website and the money is transferred, but the money must first be exchanged through a third party: someone must have access to the bank account through which the money is received. Money is transferred to the business once it has been processed by the bank.
Problems emerge when the women who operate the businesses do not have access to a bank account and must rely on someone in the community or an outside, typically international, source.
The usage of Bitcoin solves this difficulty by removing the need for a third party: someone who is “banked.” The cryptocurrency enables peer-to-peer transactions in which money is transferred immediately. These transactions are borderless, safe, private and quick, and they need minimal technical knowledge or experience. Anyone with a cell phone has access to direct financial transfers, giving them more influence over their finances and the business itself.
How does it work?
Bitcoin miners, or participants in the peer-to-peer network, use high-speed computers to independently confirm bitcoin transactions.
Bitcoin miners, also known as “nodes” operate high-speed computers that independently confirm each transaction and add a completed “block” of transactions to the ever-growing “chain”which contains a complete, public and permanent record of every bitcoin transaction.
Miners, or participants in the peer-to-peer platform, independently confirm the transaction using high-speed computers, usually within 10 to 20 minutes.
Cryptocurrencies employ a proof-of-work (PoW) technique to validate network (or blockchain) transactions, which often take substantial computing power to accomplish.
The proof-of-work mechanism used by miners requires them to utilize their hardware and power to assist the network in processing and verifying a transaction by solving a tough puzzle. Miners are compensated with a predetermined amount of bitcoin for solving the problem and therefore validating the transaction.
Because of the rising interest in digital currencies and assets, more energy is necessary to power the networks that support them. Nevertheless, certain networks are less demanding than others. Mining and using cryptocurrency may be incredibly energy-intensive, and with millions of people using, trading, and mining cryptocurrency every day, it’s simple to see why the energy consumption and the carbon footprint of cryptocurrency are such popular topics.
How can renewable energy impact the Bitcoin industry?
While the Bitcoin mining algorithm pushes miners to seek for the cheapest electricity, renewable energy is a huge opportunity to power the Bitcoin industry in a cost-effective and environmentally friendly manner.
Bitcoin’s energy consumption differs from that of most other industries in that it may be mined anywhere. According to IP addresses from so-called “hashers” who used certain Bitcoin mining pools in 2021, China has accounted for the bulk of Bitcoin mining to date. This is most likely due to global energy prices: Germany’s electricity prices were more than ten times higher than those in China. Bitcoin requires electricity for hashing, or the PC computational power needed to build the blockchain. Simply said, the more hashing that occurs, the more Bitcoin that is mined, and the more energy consumed. But as countries throughout the world work to reduce carbon emissions by moving to cleaner energy sources, it stands to reason that the energy needed to power cryptocurrencies such as bitcoin will become cleaner as well, cutting operating and consumption costs.
Almost all the energy consumed in the world must be produced relatively close to its end users, but Bitcoin has no such limitation, allowing miners to access power sources such as renewable energy that are inaccessible to many other applications.
One example would be the presence of hydro power in significant mining regions such as Southwest China and Scandinavia, where more than 40 percent of Bitcoin’s energy use was carbon neutral. With renewable energy use in the Bitcoin industry of around quadruple the amount of the US grid.
Renewable energy will be critical in the future of Bitcoin’s energy usage, which is distributed over the worldwide bitcoin network. This implies that the mining process is divided across bitcoin miners, and energy usage is distributed as well. It is logical to predict that as the popularity of bitcoin grows, so will its carbon footprint if it is not powered by renewable energy.
It is estimated that a significant percentage of crypto mining happens in China, and with coal-fired power plants accounting for around 57 percent of China’s electricity output, the crypto carbon footprint offers a significant concern.
However, because of the presence of hydro power in significant mining regions such as Southwest China and Scandinavia, more than 40 percent of Bitcoin’s energy consumption was carbon neutral.
In its inaugural report, the Bitcoin Mining Council reveals the findings of its analysis of over 32 percent of the current global Bitcoin network, demonstrating that participants utilize electricity with a 67 percent sustainable power mix. According to their research, the overall sustainable power mix might be as high as 56 percent, making Bitcoin mining one of the most sustainable industries in the world.
To put this in context, the United States now utilizes power that is just 30.5 percent sustainable. In China, that percentage is less than 15 percent.
Bitcoin uses a lot of energy, but if it’s a use of energy that would otherwise be going to waste then it’s not really a problem. And that’s a lot of the so-called stranded assets. But in a lot of cases those assets happen to be fossil fuel. China recently banned Bitcoin mining because these Bitcoin miners were ultimately responsible for the revival of coal mines.
Alternately, every year, significant amounts of renewable hydroelectric energy are wasted in Sichuan and Yunnan during the rainy season. In some regions, output capacity vastly outstrips local demand, and without utilizing battery technology, storing energy from these centers isn’t feasible.
These regions most certainly constitute the world’s single greatest stranded energy resource, and it’s no accident that these provinces are the heartlands of mining in China, accounting for over 10 percent of worldwide Bitcoin mining in the dry season and 50 percent in the wet season.
Another sustainable resource widely utilized by the bitcoin industry is solar power, as it is a cost-effective way to mine. In places with strong insolation and low construction costs, solar plants can supply power at a lower cost than grid power. Because there are no fuel expenses and consequently no volatility, the price of power is known with certainty over time.
During the project’s 25-year life, a 1-megawatt solar installation could provide power for around 5 cents per kilowatt-hour or less (substantially less than the approximate 10 cents per kilowatt-hour national average).
But solar farms, being “intermittent” sources of energy, don’t always produce the amount of power that energy customers want, particularly during peak-demand hours. It is certainly true that the consistency of solar depends on your area’s climate. But there have been strides in both technologies that are already helping solve this problem without bitcoin’s help. A large majority of states employ net metering policies to benefit customers who install grid-connected solar panels, allowing these customers to directly feed any excess energy they produce back into the grid while earning a credit from their utility for giving back this energy, thus saving them costs and distributing electricity back into the system for all- around use, not just mining.
But if solar producers and battery makers and bitcoin miners join forces, the combination could satisfy 99 percent of the grid’s needs while “maintaining profitability.” Increased mining power will allow solar panel producers to build more capacity without the need to worry about wasted energy, because that will be directed to the data centers for mining; meanwhile, battery system capacity will also increase over time. Notably, the paper says that batteries will still be the most critical technology in storing inexpensive mid-day solar power for evening peak demand.
Bitcoin and other cryptocurrencies have had a significant influence on traditional financial institutions and the economy, even though they have only been existing for a decade or less. And as the cryptocurrency industry continues to grow, they have the potential to revolutionize the country’s energy infrastructure in the future.