At first, Bitcoin users argued that Bitcoin’s energy use is not enormous compared to the use of energy by the regular financial system. By now, this argument has mostly passed into obsolescence. The new argument made is that Bitcoin mining might use an awful lot of electricity, but electricity used to mine Bitcoin doesn’t have to cause ecological harm, because Bitcoin can simply use renewable energy. There are a number of different issues with this idea, that I would like to explain in this essay.
The main issue however can be summarized as following: The “green Bitcoin mining” scenario underestimates how much effort it takes for us to create a low-carbon electricity grid in the first place. Many different industries have to implement measures to drastically reduce their electricity use. For a new economic sector to pop up on the scene whose proponents have no desire whatsoever to reign in their electricity use is irreconcilable with our effort to transition to a carbon-neutral economy. Every solution proposed by the cryptocurrency community that does not involve reducing the amount of electricity required to operate cryptocurrencies is a non-solution, for reasons I will go on to show today.
To start with, we have to understand that Bitcoin mining is a negative-sum game. Bitcoin mining delivers no measurable benefit to society. As the amount of energy devoted to Bitcoin mining increases, profit for Bitcoin miners decreases, while Bitcoin users see no measurable benefit from the increase in energy use. In fact, the shrinking profit margins of Bitcoin miners is a cause of concern for Bitcoin users. Once the block reward halves, Bitcoin may suffer a so called “heart attack“, as all Bitcoin miners suddenly find their business model unprofitable, potentially destabilizing the system. The risk of a “heart attack” increases, as the ratio between costs and revenue from mining approaches 1:1. For this reason (and many others), Bitcoin in its current implementation can’t serve as a reliable payment system.
Another problem we have to comprehend, is the nature of Bitcoin mining and the manner in which it relates to renewable energy. Bitcoin mining is an economic endeavor that carries certain unique characteristics. Bitcoin mining is an electricity-intensive economic activity, that uses relatively little human labor and does not depend upon the time of day. The environmental conditions under which Bitcoin mining takes place favor relatively low temperatures, as this reduces the expenses devoted to cooling. Estimates of Bitcoin mining in China suggest that at least 20% of electricity costs are devoted to cooling.
Finally, it’s important to comprehend the following: Bitcoin mining is an uncertain economic activity. Governments will not make investments in public infrastructure to support Bitcoin mining activities, because governments have strong reason to believe that Bitcoin mining will no longer be a widely practiced phenomenon ten or twenty years from now. For this reason, Bitcoin miners will have to flock to currently available opportunities, whereas companies like Amazon and Tesla find themselves faced with government support when setting up their endeavor, as governments believe this will lead to long-term economic prosperity for their citizens.
This leaves us with a few conclusions to draw: For one, Bitcoin miners will have a difficult time making use of most forms of renewable electricity. Solar and wind power are intermittent forms of electricity, that need to be stored if we want to use them during winters or during the night. A Bitcoin mining operation runs 24 hours per day, 365 days a year. Many companies are currently adapting changes to their business schedule, to enable them to shift energy-intensive business activities to time periods when electricity is cheap. In Britain and Germany, demand-flexibility is an important method through which industrial producers cooperate in the renewable energy transition. These companies time their energy-intensive activities to coincide with periods when a lot of electricity from wind or solar is available. A Bitcoin mining company can’t do this, because the Bitcoin mining company has a single economic activity that it pursues for 24 hours per day.
So, perhaps the solution then would be for Bitcoin miners to avoid renewable electricity sources, in favor of base load green electricity? This is indeed what we see happening in practice. There are two types of low-carbon electricity production that currently attract a lot of Bitcoin miners: hydropower and geothermal power. Both of these forms of electricity generation however are currently in high demand, as our society has a lack of low-carbon base load electricity production.
To build a new hydroelectric power station or a geothermal power station for the purpose of Bitcoin mining is something that’s simply not going to happen. The amount of new Bitcoins produced will likely drop by 50% within the next few years, only to drop by another 50% four years later. Industrial-scale Bitcoin mining might still be around by then due to a massive increase in price, but the odds are heavily against it. For a government or utility company to build a hydroelectric power station for the sole purpose of attracting Bitcoin miners means it’s almost certain they’re making an investment that won’t pay off. This principle applies to nuclear energy too.
Could a hypothetical green Bitcoin mining company decide to move to a country like Germany and turn the miners off during periods when the sun doesn’t shine? The answer is no, because to do so means delaying the point at which your Bitcoin miners break even. New Bitcoin mining machines are continually developed that manage to mine Bitcoin at improved efficiency. When these new mining machines are released onto the market, old mining machines can no longer keep up and stop being profitable. If you buy a Bitcoin mining machine and decide to mine for no more than a few hours per day, you can be sure you will never break even.
So, the hypothetical green Bitcoin mining industry would have to make use of currently available green base load electricity production. This leaves us with geothermal electricity and hydropower electricity. How is this going to work? The answer is that it’s not going to work. To start with, the amount of geothermal electricity available for “green” Bitcoin miners is a drop in a bucket, compared to the amount of electricity Bitcoin miners use. In 2009, geothermal electricity globally available was 67.2 TWh, which is roughly as much electricity as the Bitcoin mining industry uses in a year. A hypothetical green bitcoin mining industry would thus readily usurp the world’s geothermal capacity.
Bitcoin miners could also use hydropower, but this wouldn’t be a green endeavor either. To start with, hydropower capacity is reaching limits. We simply don’t have a lot of rivers left that haven’t been dammed yet. The electricity produced by rivers today is electricity that’s already used by the economy. Consider that Quebec has a lot of hydropower, but this hydropower is exported to deliver low-carbon electricity to Massachusetts. Use Quebec’s hydropower for Bitcoin mining and you’ll find that Massachusetts is forced to look for other ways to get electricity.
Bitcoin mining is a race to the bottom. Bitcoin miners will scoop up whatever electricity can be delivered to them for low prices, because this is what their business model depends on. For this reason, we find that Bitcoin mining depends on coal. This makes perfect sense. Coal plants are shutting down in many places, because of insufficient demand for coal and its poor ability to respond to fluctuating demand. Natural gas is better capable of interacting with the flexible production from solar and wind than coal.
But suddenly, in 2017 a new actor arrived on the scene, willing to pay for electricity 24 hours around the clock: The bitcoin miner! In contrast to other industrial consumers, the Bitcoin miner doesn’t care if your coal plant is located in the middle of a desert, because the Bitcoin miner has very little personnel. The bitcoin miner doesn’t need to have access to fresh water, the bitcoin miner doesn’t need railroad access or any other services that might attract people in other industries.
What we see is as following: The Bitcoin mining industry makes coal-fired power plants financially viable in places where coal-fired power plants would otherwise have to shut down. Consider the recent case in Australia, where a coal power plant opened up again, because demand from Bitcoin mining made the power plant economically viable again. This is due to one single reason: The economic properties intrinsic to Bitcoin mining. If we want to reduce the carbon footprint of the cryptocurrency industry, we should not promote the myth of “green” Bitcoin mining. We should discourage the “mining” of cryptocurrencies in general and encourage a migration towards low-energy alternatives, like proof of stake.
How about using the waste heat of Bitcoin mining, in other economic activities? This might sound nice in theory, but is economically non-viable in practice and will never happen on a significant scale. The reason we don’t see people around the world jumping on the opportunity is because it’s not an opportunity, it’s a pipe dream. There are a number of reasons it doesn’t work.
-Greenhouses often use waste heat to grow vegetables, but they generally don’t need waste-heat year-round. This would mean turning the miners off during summers. We already discussed why that won’t work.
-Bitcoin mining is primarily economically viable in places where other economic activities are not economically viable. We won’t see greenhouses pop up in rural Mongolia, as the water and manpower simply aren’t available.
-Greenhouses generally tend to use fuel burners, because the growth speed of plants is also enhanced by the emitted carbon dioxide. The cost of using natural gas for this purpose is also generally lower than the cost of using electricity.
-There is already a lot of waste-heat available that currently goes unused. From an environmental perspective it’s preferable to utilize currently unused waste heat, than to produce new waste heat.
-Using cryptocurrency mining machines is an up-front investment with very significant risks. Will the machines still pay anything a year or two from now? Nobody knows.
-The efficiency of cryptocurrency mining machines continuously seems to increase, which leaves me in a difficult situation. Do I buy the machines available today, machines that are already outdated? Can my business afford to wait for the next generation of mining machines?
-Cryptocurrency mining is economically profitable when practiced at a large scale. The kind of mining factories owned by Bitmain generate far more waste heat than regular greenhouses need.
-The mining machines aren’t designed to be used for the waste heat they generate. The machines break down often and need constant maintenance and repairs. Does a farmer want to hire people who can fix his mining machines for him? What kind of effect does the humidity of a greenhouse have on Bitcoin mining machines?
For these reasons, using the waste heat produced by cryptocurrency mining won’t happen at any significant scale, except by a limited number of hobbyists.