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How Mining Bitcoin will Change the Energy Sector

Despite bitcoin existing only within the digital world, a gigantic physical operation called 'mining' is happening behind the scenes.

How mining works is explained extensively here but simply put, miners are mining for a lucky number and upon finding that number are rewarded freshly minted bitcoin for their work.

The mining operation involves a network of computers working together to not only find these lucky numbers but also to secure the network. Basically, the more energy bitcoin consumes the more unhackable it becomes.

But now the energy cost is the number one criticism of bitcoin, even Elon Musk has said that energy costs are ‘insane’, albeit Elon seems to be coming around to scaling on second layers.

The mining power consumption is measured to be about the same energy requirements of a small nation like New Zealand. Undoubtedly this has sparked heated debates around the ‘wasteful’ nature of bitcoin mining.

And it does sound super wasteful doesn't it... or is it?

If we really want to quantify the energy costs they should be compared at scale to the existing financial systems.

When measured against banking operations, coin minting and currency printing, the estimated activity is combined to be 1,200% larger than bitcoin mining as illustrated in the table below.

It is a simple breakdown showing just how small mining is in comparison to the other systems today (for more information visit source from Dan Held).

So if the scale of energy consumed is tiny why is there such a big fuss over the topic?

Because many would argue that bitcoin mining may grow unsustainably, superseding banking or even government.

To come to that conclusion all you need to do is measure the mining power consumption of bitcoin and project that measurement into the future and you get something that looks like a global warming death machine.

But that is a lazy extrapolation that does not consider various types of energy and sources.

The truth is mining operations need to stay lean, green, and sustainable and they often do that by tapping into stranded energy sources which will be explored more in this blog. We shall explore why green energy may now have a fighting chance against oil thanks to crypto's inbuilt energy mining reward system.

So, let’s drill into it!

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🔶Bitcoin mining utilizes stranded energy

A growing number of energy providers have realized they can use their stranded energy to mine crypto at no additional cost to the environment.

 

The above image shows how oil and gas companies can reduce carbon emissions through bitcoin mining. Onsite image sourced from UpstreamDataInch.

Many forward-thinking energy companies are now integrating crypto mining into their operations by simply deploying a container of bitcoin mining computers onsite. These containerized mining rigs essentially cost nothing to run as the energy used is free and would otherwise be burnt into the atmosphere or at least left to waste.

These innovative energy companies are now simply offsetting excess energy into bitcoin.

Energy companies now have an interesting way to diversify their existing operations into new and innovative revenue streams. Acting as an energy producer, crypto miner, and quasi-crypto financial service, all the while reducing emissions. 

By integrating mining into their business, these energy companies can now select the most profitable option out of selling their energy or using it for mining crypto. The mining hardware can be switched on to be the energy buyers/consumers of last resort, which is perfect when market demand for energy drops off or when there is an unreliable or intermittent energy source.

This new alignment of incentives also means green energy companies that typically can’t scale and suffer from intermittent energy sources can still profit and compete against oil, coal, and gas energy producers.

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🔷Crypto mining to go green and mainstream

But how about today? Is mining bitcoin warming the planet? Turns out, contrary to popular belief, that the energy behind mining bitcoin has a minuscule effect on CO2 levels globally.

The main reason for this is because mining bitcoin or any cryptocurrency for that matter requires cheap or free energy in order to be profitable. It is a business that naturally lends itself to energy efficient practices. Bitcoin miners either go green or go bust.

UpstreamDataInc a company specializing in portable mining equipment, in the above video source shows how methane emissions that would otherwise be released into the atmosphere are now reduced thanks to crypto mining.

It is not impossible to imagine crypto mining making renewable energy investments more attractive because of the financial benefits of crypto assets.

Big energy companies see the writing on the wall, maybe as a potential way out of the fossil fuel trap or maybe because of the bitcoin. The Norwegian oil giant Aker ASA has very quickly become a large bitcoin holder and direct investor in various bitcoin-related operations including mining.

And, it’s not just energy companies but investment firms and financial companies like ARK Invest and Square that are realizing this and saying:

The bitcoin and energy markets are converging and we believe the energy asset owners of today will likely become the miners of tomorrow. Utility executives, sustainable infrastructure funds, and grid-scale storage developers are well-positioned to expedite this future by aligning their strategic roadmap and deploying large-scale investments into the emerging synergy between bitcoin mining and clean energy production.” in a joint paper between ARK Invest and Square, Inc. 

Cathie Wood from Ark Invest strongly argues against Elon’s claims that mining uses excessive fossil fuels and instead says mining is environmentally beneficial the more energy producers learn to collaborate with crypto operations.

This collaboration between energy and crypto could lead to a bigger demand for business crypto wallets that miners and energy producers will inevitably require in order to handle crypto transactions, which begs the question, how will all this affect the existing crypto-financial markets going forward?

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🔷Energy producing countries and their effect on crypto mining and exchanges

All energy-rich nations are beginning to see the value of a crypto strategy. Venezuela and Iran have both officially declared their intentions to mine crypto, and the heavy energy-producing Middle-Eastern nations are planning for their own launch of their CBDC. The US within Texas is slowly becoming a crypto hub for miners from around the world.

All these moves are showing us that energy-producing regions have little choice but to participate in the mining of digital currencies.

The existing energy sector with its already highly complex set of structures will likely need to outsource most of the work required to integrate crypto. Crypto energy specialists have begun to emerge like GAM and Layer1, and many more like them are now established entirely to provide specialized crypto integration services to the big energy companies.

The convergence of these industries is likely to increase demand for more crypto broker platforms like exchanges or other similar crypto-financial services. This could mean open blockchain tools could be in high demand to facilitate more collaboration between businesses in the energy and crypto/blockchain technology space.

Another thing to consider if the energy sector continues to integrate crypto is that exchanges might start getting acquired. By owning and operating a digital asset exchange or by leveraging new open-source financial technology, the mining operations and energy companies alike can vertically integrate.

Vertically integrating crypto mining and exchange tech would drastically reduce third-party risk and decrease logistical inefficiencies inherent to the energy sector today.

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⚡Merging money, crypto, and energy

If money is a type of energy, it makes complete sense to combine the energy sector with the digital asset industry. The biggest challenge is getting the experts from both fields to speak the same language, which they don't. 

The good news is money is the universal language and never before has there been a greater incentive to explore renewable energy solutions.

The Crypto Climate Accord is just one initiative showing the potential for a zero-emissions crypto industry and potentially can unlock revenue streams for green energy solutions thanks to crypto assets' tendency to be a highly profitable industry.

As industries merge, one thing is certain, those starting bitcoin exchanges and mining operations are going to play a big role, and with open-source crypto exchange technology on the rise, we may see more and more crypto services propping up to position themselves in front of the big energy shift.

 

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Comments: (2)

Simon Gegen
Simon Gegen - Holla-Tech - Tbilisi 24 May, 2021, 03:23Be the first to give this comment the thumbs up 0 likes

Seems like the energy sector has no choice but to enter the crypto game at some point.

Imagine energy companies acting crypto money minter/printer and a financial institutions in the future.

Richard Peers
Richard Peers - ResponsibleRisk Ltd - London 25 May, 2021, 14:401 like 1 like

Interesting!  Green hydrogen is expensive i had wondered if the green premium cost could be absorbed by becoming a crypto miner.  Thanks for sharing.

Adrian Pollard

Adrian Pollard

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