Bitcoin Mining Needs to Clean Up Its Act - Mitchell Dong

Bitcoin mining is a dirty business. It’s simply too energy-intensive like steel, aluminum or glass making. Collectively, the entire bitcoin network uses the same amount of electricity as a small European nation. Furthermore, the majority of the electricity used is from fossil fuels just like other power-thirsty activities which use coal and gas-fired power. As China shuts down its mining operations in Sichuan Province, the amount of hydropower used for mining will sharply decline, further exacerbating the environmental problem.

Bitcoin miners need to go green in a big way. Many large financial institutions have paused investments in bitcoin because mining is not consistent with their ESG goals. Miners must set aggressive targets, for example, commit to carbon neutrality by 2030. In my opinion, this goal is achievable.

I have spent over two decades in developing hydro, solar and cogeneration power plants and more recently seven years in the crypto trading business. My vast experience in these industries has provided me with ideas for possible solutions on the growing and critical role of renewable energy in bitcoin mining.

Background

According to the Cambridge Center for Alternative Finance, the bitcoin network consumes over 100 terawatt hours of electricity annually, which is equivalent to the amount of electricity consumed by medium sized countries such as Sweden, Argentina, Malaysia or Ukraine, and represents about 0.5% of global electric production. According to a recent Forbes article, the energy use by bitcoin mining is also comparable to that consumed by the banking industry and the gold mining industry.

Bitcoin mining uses a lot of electricity because thousands of computers are needed to confirm millions of transactions per day. The Proof of Work process employed in bitcoin mining is extremely computationally intensive. However, there is hope that the shift to an alternative process called Proof of Stake, will reduce the energy use by 99% someday, which is the current plan for the Ethereum network.

It is also estimated by the Cambridge Center that 40% of this electricity was from renewable energy sources. China represents over 75% of all the mining capacity of the world, and over half of that capacity uses hydropower from Sichuan and Yunnan Provinces which have excess hydropower during the wet seasons.

Elon Musk accelerated ESG concerns about bitcoin mining recently by tweeting that Tesla would no longer accept bitcoin as payment for its cars because of the mining’s negative environmental impact. This was immediately followed by China’s announcement to ban bitcoin mining which uses in part, coal-fired electricity, as this is inconsistent with its goal of zero carbon by 2060. To make matters worse, China is also banning bitcoin from using hydropower, so most of the 40% renewable energy currently used by miners has disappeared.

As a result, Bitcoin miners are scrambling to move out of China, looking for new locations with cheap electricity sources. This provides a huge opportunity for miners to seek clean energy sources. Unfortunately, most miners are seeking low-cost electricity rather than environmentally sustainable energy sources. In the view of this author, these goals are not mutually exclusive.

Green Solutions for Bitcoin Miners

Fortunately, there are new mining sites that include electricity which is both green and cheap. For example, there are places where there is “excess hydro” during rainy seasons, like Itaipu, the largest hydropower facility in the world. In addition, Quebec Hydro and Ontario Hydro in Canada and the large Federal dams in the US Pacific Northwest might have excess hydropower during the wet season.

Low hanging fruit would be existing power plants with excess capacity. For example, Texas has excess wind power at night when the demand is low and the wind is blowing, but this is limited to certain times of the day and year. Many miners are moving to Texas but the electricity source will come primarily from natural gas and coal, since wind and solar represent only 25% of Texas’ electricity energy sources.

Other examples of existing facilities that could be used for bitcoin mining would be renewable energy projects built 15- 20 years ago where their long-term Power Purchase Agreements (PPAs) are expiring and there would be little or no rebuild of the existing facilities. Places to look would be Western Europe and the US where wind and solar development were very popular in the 1980s and 90s.

Bitcoin miners might also seek out nuclear power from facilities that are nearing their useful life and can be extended. Many nuclear facilities are being phased out because of the growth of renewable energy and the low prices of natural gas rendering them uneconomic as their refurbishment costs are rising. If bitcoin mining could use baseload nuclear power, this might be the justification to keep a nuke from being shut down. The advantage to bitcoin mining is the low marginal cost of a nuclear power plant and its tremendous scale of 1000 MW as a typical size unit. The US, France, UK and Japan, have the most nuclear units in the world.

In the long term, brand new renewable energy facilities would need to be built to satisfy all the global mining needs. For example, new solar and wind power facilities could be built and dedicated to bitcoin mining. The advantage here is that these renewable facilities can be built regardless of existing transmission facilities since bitcoin only needs an internet connection rather than new electric lines or new pipelines. The other advantage is that the mining facility can be used as the “off taker” or the source of revenue to pay back debt and give a return on equity to the solar or wind investor. The disadvantage is the intermittency of renewable energy and the need for the prohibitively high cost of battery. For example, to store half of the energy from a solar plant would cost five to ten times the cost of installing the solar PV panels. However thermal storage using molten salt technology might be more economic in the intermediate future.

Geothermal is a renewable source that does not need energy storage and can provide bitcoin mining with 90% capacity factor. The cost of a geothermal power plant is $2500 per installed kW and its operating cost is 1 to 3 cents per kWh. These figures are affordable for a 100 MW bitcoin mining operation. Iceland is a prime example of using geothermal energy to produce electric power for bitcoin mining. The Pacific Ring of Fire has excellent geothermal resources which can be exploited for bitcoin mining, as does Italy, California and Nevada. Wherever there are active volcanoes and regular earthquakes is a good sign of geothermal resources near the earth’s surface. The disadvantages of developing a geothermal power plant is the long lead time for drilling, the geothermal resource studies and the time it takes to build the power plant which can be 3–5 years.

Flared or vented gas is another energy resource being exploited by new bitcoin miners. This wasted gas is a by-product of oil production located in remote areas where the gas cannot be piped economically to a place where it can be used. Examples include offshore oil production which is over 10 to 100 miles from land, such as offshore Texas, Mexico, Nigeria, Angola, Norway, UK, Brazil and Saudi Arabia. Another example is in Alberta, Canada, where there are tens of thousands of remote oil wells which vent or flare their unusable gas. This wasted gas is an environmental disaster as it produces potent greenhouse gases such as methane and less damaging but still harmful CO2 emissions. This gas can be run through a piston engine or a reciprocating engine to make electricity which can be used to drive a data center containing bitcoin mining equipment. The advantage is that the energy cost is cheap or negative if you include the environmental benefits and the cost of an engine is relatively low at $ 1000 per kW to install and 2 to 3 cents of operations and maintenance cost. Another advantage is that it can be installed very quickly, e.g. in 3–6 months.

Conclusion

Elon Musk set a goal for bitcoin miners to have 50% of their electricity coming from renewable energy. Currently, approximately 40% of the electricity is coming mostly from Chinese hydropower, but it has declined as China shuts down these hydroelectric sourced miners. So, the amount coming from renewables has easily slipped to less than 5% in the short run.

Miners should set a goal of using not only cheap electricity but also renewable sources. These two goals are not mutually exclusive.

Miners should be prepared to pay a lot more for their electricity, e.g. 4- 6 cents per kWh in order to get green power. In fact, they are taking advantage of cheap coal or gas-fired power generation because environmental costs are not fully factored into the per kWh price. This externality must be closed with a proper carbon tax.

Developers of wind, solar and geothermal plants should look to bitcoin mining as their new “PPA”. Developers can take advantage of locating the best sources of wind, sunlight and geothermal heat, without regard to the location of electric transmission lines as bitcoin can be moved over the internet.

The intersection of bitcoin mining and renewable energy will be a boom to both industries.

Other solutions will come from the bitcoin mining hardware manufacturers in making equipment that is a lot more energy-efficient and from the software developers in making the mining process less energy-intensive, e.g. ETH shifting from Proof of Work to Proof of Stake which uses 99% less energy.

As solar and wind power costs have dropped 90% over the past 20 years, bitcoin mining must do the same both in terms of energy usage. Battery storage must also drop by 90% before its economic shift to solar and wind power to times of the day when it’s most needed.

Bitcoin miners must set aggressive environmental targets, e.g. be carbon neutral by 2030 and achieve at least half that goal by 2024 and three-quarters of that goal by 2027. According to me, this is not only practical but necessary.

About Mitchell Dong: Mitchell is a solar power developer and cryptocurrency miner and trader. He has been developing solar, hydro, cogeneration power facilities for 40 years in the US, Africa and China. He has also been a trader of physical uranium and electric power for the US and Scandinavia. He runs a hedge fund that trades cryptocurrency on behalf of bitcoin miners in Asia and USA and is actively sourcing low cost power for bitcoin miners globally.

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