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Much has been said lately about Bitcoin’s impact on the environment. Mainstream media has been especially keen on declaring Bitcoin and more widely Cryptocurrencies as a potential danger for the future of our planet. It is the case of ECB’s president Christine Lagarde who blasted cryptos when speaking to lawmakers at the European Parliament in Brussels a few months ago. This controversy is what caused the recent crash in the crypto market and is due to the energy cost associated with mining.
For those who aren’t familiar with cryptos, “mining” is the process that validates transactions on a blockchain. To process this validation mechanism, it is necessary to respond to a so-called cryptographed consensus algorithm. This consensus algorithm requires a very important computing power to be solved, which is associated with a high energy cost. Climate activists and lawmakers have looked askance at crypto’s energy heavy environmental footprint, but what if this problem could be a part of the solution and a driving force in the transition toward cleaner energies?
Crypto industry advocates have argued that bitcoin and other cryptocurrencies are an essential part of developing a carbon-neutral grid. The Levelized Cost of Energy (LCOE) metric is used to measure how expensive it is to produce a type of energy. Solar and wind have fallen by 90% and wind by 71% in the last 10 years and are now less expensive to produce than fossil fuels, but these 2 energy sources are hitting deployment bottlenecks in the network, mainly due to the intermittent power supply they provide, and the congestion it causes in the grid. Solar and wind farms are often built-in rural areas with lots of sun and wind but little load nearby (i.e.end-users).
According to the White Paper “Bitcoin is a key to an abundant, clean-energy future” authored by the crypto company Square and the Asset Manager ASK, “Bitcoin miners are unique energy buyers in that they offer highly flexible and easily interruptible load, provide pay-out in a globally liquid cryptocurrency, and are completely location agnostic, requiring only an internet connection”. These qualities together create a single asset, a customer for the energy network that can be activated or deactivated at any time anywhere in the world, they are a flexible load option that could potentially help solve much of this intermittency and congestion problems.
They function as a unique energy buyer that could enable society to deploy substantially more solar and wind generation capacity. This deployment, along with energy storage, aims to facilitate the transition to a cleaner and more resilient electricity grid. This suggests that the owners of energy assets of today could become the bitcoin miners of tomorrow and develop a much more profitable business model with this additional income. Bitcoin mining presents an opportunity to accelerate the global energy transition toward renewable energies and a synergy is emerging between Bitcoin miners and renewable energy producers. The emergence of a new business model is rising.
«This is a fake issue, Cryptos & Blockchain could actually be a solution and a driver for energy transition»
Stanislas Barthelemi, Blockchain Specialist at KPMG
Many advocate that Cryptos will be a driver in the energy transition. Jack Dorsey, the CEO of Square and Twitter stated that many times, and he even gained the support of Elon Musk, Tesla’s CEO, when posting the White Paper co-authored by his company, Square, and ASK invest on Twitter.
The idea that bitcoin mining could subsidize and catalyze a greener electricity grid is already playing out. It was announced last week that Compass Mining, a startup that crowdsources hashrate, inked a 20-year deal with Oklo, a nuclear fission company that builds microreactors, to supply the crypto network with low-cost, carbon-neutral power. Set to go live in 2023 or 2024, the partnership is a “beacon” for the intersection of cryptocurrency and clean-energy development, said Oklo CEO’s Jacob DeWitte. The deal sees Compass sop up excess energy from various microreactors, with the potential for nuclear sites eventually to be dedicated to bitcoin mining.
The economic incentives of bitcoin mining allow firms to “overbuild” renewable energy sources. Solar and wind are intermittent sources of power, the sun doesn’t always shine and the wind doesn’t always blow, but bitcoin mining can easily be turned on or off during periods of peak demand or low supply.
This seems like a fanciful idea, and one that has rightfully received pushback, but it’s also happening in real-time. Square is funding a solar-powered bitcoin mining facility with Blockstream, El Salvador is looking to tap into vast geothermal reserves as a mining experiment and several crypto firms are getting more involved in carbon offset programs, and there is also the partnership between Compass Mining & Oklo. This hypothesis can sound like a cynical attempt to greenwash Bitcoin, but these elements suggest that this connection is real. Of course, there are other environmental considerations of bitcoin mining, like the dedicated computer chips for solving the cryptographic puzzles to secure the network are resource-intensive and have a short shelf life (due to competitive pressure to upgrade and also burnout).
But the theory is being put into practice: Bitcoin can complement the transition toward renewable energies, rather than curb it.
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