Hi folks, Alex here. You have probably heard that Bitcoin mining uses A LOT of energy: roughly 150 to 200 terawatt-hours (TWh) every year for the entire Bitcoin network. This is comparable to the energy use of a mid-sized country like Argentina or Norway. Wow! That must be a lot, right?! Is it though!? To understand the electricity used by Bitcoin mining, we need to first understand how electricity production works. Let’s look into it!
If you are not familiar with Bitcoin, in a nutshell, it is a payment network with its own currency: bitcoins. Bitcoin is digital property. Some people call it “digital gold”. Anybody can exchange their bitcoins via a peer-to-peer decentralized network on the Internet. Transactions are validated by specialized computers (called miners) that compete to solve a complex mathematical problem. When a miner successfully solves a problem, it is rewarded with newly created bitcoins and transaction fees. Essentially they transform energy (in the form of electricity) into bitcoins and secure transactions. As of recording this video, one bitcoin trades around 115,000 USD. Because it uses a lot of electricity and is limited in number (there can be only 21 million of them), bitcoin has a floor price, it is deflationary by design and stands as an alternative to the current monopolistic and inflationary monetary system.
Bitcoin critics often say that its mining is an environmental issue.
First, money is energy. To work well over a long period of time, it needs to take a lot of energy to produce and to accumulate. That was the case under the gold standard for many decades: it took lots of energy to locate, to extract, to move, to refine and to mold into bars. We have seen over the past 100 years that if money (paper or digital) can be printed infinitely, it leads to a loss of its value. Your house and your groceries are not worth more than 10 years ago. It is your money that is worth less. So the large amount of energy needed to create bitcoins and validate transactions is actually a good thing: it makes it a hard money, potentially solving many challenges the world is actually facing today.
Now let’s look at the energy it uses.
The main problem with electricity is that we are not very good at storing it and transporting it over long distances. So electricity networks have to be able to provide on-demand where and when it is needed. Typically, peeks of electricity use occur in the morning and evening when people are at home with their lights and appliances on, especially in the winter when it is colder out and days are shorter. Therefore, the infrastructure is designed to produce a lot more electricity than is needed 70% of the time.
Stock energy (fossil and uranium) can be controlled by saving the stock when demand is low to use it later whereas flow energy (solar and wind) cannot be controlled yet. If the sun shines when you don’t need electricity, there is a surplus. Hydro is a hybrid source of energy since it can be stored in the dam for some time but when it is too full, gates need to be opened and the flow of potential energy is released unused.
This is very important for two reasons:
- If you deliver more electricity to the grid than is needed, you can get a surge and blow the grid. So what do you do with the extra electricity? In some countries, highways are lit up at night. This is also why it is a false environmental issue when stores and offices keep their lights on at night since this energy would be unused anyway.
- During the low-demand hours of the day, electricity producers don’t make very much money but their fixed costs are the same, which drives up the average price of electricity for users.
This is where Bitcoin miners can get into action. They LOVE surplus electricity.
- They can start working almost instantly and absorb as little or as much extra electricity as the grid needs, avoiding surges and stabilizing the grid;
- They can transform surplus energy into revenue anywhere, increasing profitability for producers and potentially reducing the price of electricity for people.
And this technology is ready to be deployed. We don’t need to wait!
Once their machines are purchased, 90% of the expenses of a Bitcoin miner is electricity. Therefore, their goal as a business is to get the cheapest electricity possible to generate the largest margin. So they don’t buy expensive electricity in large urban settings. They make deals with electricity producers to run their machines when the electricity is the cheapest, during the hours of the day when demand is the lowest. Bitcoin is actually the best candidate to use the infrastructure when the demand is low. YouTube and Amazon data centres are always close to populated areas and cannot shut down for a few hours when electricity demand is high. Bitcoin miners can.
Let’s look at a couple of examples!
After the 2021 Winter Storm failure, Texas has leveraged bitcoin mining to enhance grid resilience. Utilizing about 3.5 GW of capacity, miners act as flexible loads, shutting down during peak demand to reduce strain, absorbing excess power during low-demand periods and keeping prices low for Texans as noted by Texas Grid’s former CEO Brad Jones in 2022. Riot Blockchain actually earned $31.7 million in August 2023 just for pausing operations.
Ethiopia recently built the Grand Ethiopian Renaissance Dam located on the Blue Nile River. It is the largest hydroelectric dam in Africa and generates 6 gigawatt hour of renewable electricity. Enough to power around 5 million average American households. As you can imagine, most of this electricity is surplus since the Ethiopian’s grid is not able to use all this electricity but they sell the excess renewable hydropower priced at 3-4 cents per kilowatt-hour to bitcoin mining companies, turning surplus into a much needed revenue estimated at $55 million in 2025.
But wait. Are you worried about greenhouse gas emissions? Bitcoin mining can significantly reduce them. How? By turning off flare stacks. You have probably seen these stacks with a giant flame on top before. Oil rigs produce a lot of methane, a gas that is 80 times more potent than carbon dioxide. Around 40% of it can be burnt and turned into CO2 which some producers do. But alternatively, this methane could be turned into electricity using a generator. Few rigs do that (especially offshore rigs) because they are often far from any city or industry able to use or monetize the electricity. But bitcoin miners can. This is a great win-win solution: the methane is kept out of the atmosphere and the oil rig generates extra revenue in the process by selling bitcoins.
So I hear you ask: “Can’t you do something else with all that wasted energy?” Maybe, but the real question is “can you do something else with that wasted energy that is profitable?” And the answer is often “no” so no one does it.
Because it can use electricity from flows of renewables such as hydro and solar, bitcoin mining is great at making the most of renewable energy even during the hours of low demand. It can enhance the integration of renewable energy into power grids by leveraging its flexibility to operate during periods of low electricity demand. By utilizing excess power from renewable sources which might otherwise be curtailed due to oversupply, mining incentivizes the expansion of renewable infrastructure. This profitability encourages grid operators to invest in more renewable capacity, as miners can absorb surplus energy, stabilizing the grid and reducing reliance on fossil fuels during peak hours when demand is high. As counter intuitive as it may sound, we need more energy use that is flexible. Not less energy use as a principle.
Bitcoin mining also helps finance renewable infrastructures. For instance, a 50 MWH solar plant has a return on investment of about 8.1 years. If you add Bitcoin mining to it, it goes down to 3.5 years!
In a nutshell, Bitcoin mining does not compete with your heating, cooling, washing machines, hair dryers, etc. It uses inexpensive surplus electricity. In more than 15 years, no new electricity production facility has ever been built to serve Bitcoin specifically. Additionally, around 53% of bitcoin mining electricity does not produce GHG emissions (primarily hydro power and nuclear) which makes it one of the most sustainable industry in the world. And Bitcoin’s financial return of 1000:1 in 2024 (2 trillion dollars of value for 2 billion dollars of energy cost) is impressive compared to most technologies available today.
Bitcoin can solve a lot of other sustainability problems that we will discuss in future videos so stay tuned and let me know what you think in the comments below!
