There’s a new Bitcoin (BTC) initiative on the table that would see miners as energy buyers, providing complementary technology for clean energy production and storage, better return to investors, and excess energy, as well as help solve solar and wind intermittency and congestion problems, potentially leading to the greening of the bitcoin mining industry. Not everyone agrees with this, while Ripple Co-founder and Executive Chairman Chris Larsen suggested to “reconsider” the proof-of-work algorithm now used by Bitcoin, Ethereum (ETH), and some other crypto networks.
Major financial services company Square and active management firm Ark Invest published a whitepaper titled ‘Bitcoin Is Key To An Abundant, Clean Energy Future.’ It discusses Bitcoin mining’s ability, in conjunction with renewable energy and storage, to facilitate and accelerate “a transition to a cleaner and more resilient electricity grid” – with miners capitalizing the most on this development.
The paper goes on to explain that the Bitcoin network, or more precisely its miners, are unique energy buyers that could enable society to deploy substantially more solar and wind generation capacity, while “the energy asset owners of today can become the essential bitcoin miners of tomorrow.”
The miners offer highly flexible and easily interruptible load, provide payout in a globally liquid cryptocurrency, and are completely location agnostic, needing only an internet connection, it said, adding:
“These combined qualities constitute an extraordinary asset, an energy buyer of last resort that can be turned on or off at a moment’s notice anywhere in the world.”
While solar and wind are the least expensive energy sources, they’re suffering from deployment bottlenecks, mostly due to their intermittent power supply and grid congestion. Also, they provide more power than society typically needs for a few hours a day and not nearly enough when demand spikes.
Bitcoin mining can therefore serve as a complementary technology for clean energy production and storage, while the miners may help solve much of the intermittency and congestion problems, resulting in grids deploying more renewable energy.
Per the paper, combining miners with renewables and storage projects could:
- improve the returns for project investors and developers, moving more solar and wind projects into the profitable territory;
- enable the construction of solar and wind projects while waiting for the lengthy grid interconnection studies to be completed;
- provide the grid with readily available ‘excess’ energy for increasingly common black swan events like excessively hot/cold days, which will also be useful as society’s electricity demands increase with the rise of device electrification and electric vehicles.
Long-term, the whitepaper sees two large implications if Bitcoin mining becomes normalized as an energy buyer of last resort:
- the amount of solar and wind energy on the grid cold increase dramatically;
- there could be a sizable transformation and greening of the bitcoin mining industry.
Deploying more solar and wind, these generation technologies will likely fall further down their cost curves, bringing them closer to zero marginal cost energy production, said the paper and added:
“But if solar and wind become even less expensive and constitute an increasingly large portion of baseload power, the ultimate trend would continue moving quickly toward renewable dominated hashrate. We believe deploying such a large amount of new, geographically diverse hashrate would also have the second order consequence of strengthening the security of the Bitcoin network, potentially further entrenching bitcoin as a sound currency for all.”
This research collaboration debunks the myth that Bitcoin mining is damaging the environment, according to Cathie Wood, the founder of Ark Invest. “Instead, as crypto mining, energy storage, and AI technologies converge, the adoption of renewable energy is likely to accelerate,” she said.
While critics say the computation required to secure Bitcoin is environmentally damaging, Ark claims “that the opposite is true: a world with bitcoin is a world that, at equilibrium, generates more electricity from renewable carbon-free sources.”
With Twitter and Square chief saying that Bitcoin incentivizes renewable energy, Tesla‘s chief Elon Musk chimed in with a simple agreement:
“Tesla’s mission statement is literally “to accelerate the world’s transition to sustainable energy”,” said Steve Lee, project manager for Bitcoin development at Square Crypto.
Per Nic Carter, Founding Partner of blockchain-focused venture capital firm Castle Island Ventures, BTC just accelerates the reality that “computation will be the largest single global consumer of energy within a decade or two, and rightfully so.” He added that in hindsight, thinking of large-scale computation as wasteful will be seen as absurd.
This is simply a reality we’re transitioning towards, the challenge lies exclusively with policymakers to equip the grid for more computation. Selectively banning certain types of compute is an unworkable pipe dream
— nic carter (@nic__carter) April 21, 2021
But there was again a debate on terminology and phrasing, especially given the space’s young age. BlockTower Capital founder Ari Paul said he would not call proof-of-work (PoW) computation in the given context, because it “just invites the obvious (and reasonable) critique that you’re not computing something useful as we usually think of it.” Rather, it’s better to frame it as direct security spend, he said.
Sure it does…that’s the whole point. We’re discussing cost vs benefit of the spending of scarce resources. Presumably we’d all agree that it’d be wasteful to consume 20% of the world’s available electricity to hash numbers with no purpose.
— Ari Paul ⛓️ (@AriDavidPaul) April 21, 2021
@elonmusk @jack If clean power is cost competitive with dirty power, it will grow. If not, it will require artifici… https://t.co/F0MeqPfKwa
Meanwhile, Bloomberg hit back at claims by Dorsey, Wood, and Musk, saying that these are “not exactly true.”
According to the authors, there’s still the fact that the mining devours massive amounts of power, while the idea that a renewable power project could be built without a grid connection, just to power a Bitcoin operation, is not viable too.
“But part of the rapid decline in the price of renewables has also been thanks to cheap financing. A bank would probably want to charge a higher interest rate on a project that plans to sell power to a Bitcoin miner than it would if the customer were Google,” they said without providing specific calculations.
The Financial Times went even further:
“So, best to just accept this “white paper” for what it is: a bunch of people who have attached their names to a destructive asset class desperately trying to reverse ferret without actually reverse ferreting. Or, as it’s known in the industry, “greenwashing”,” they said.
Also, Stephen Isaacs, Chairman of the investment committee at London-based advisory firm Alvine Capital, told CNBC, that Bitcoin’s energy usage will be its downfall “if anybody’s serious about climate change.”
“This is a very dirty product, and it’s getting dirtier by the minute, because the amount of energy that is required to mine additional supply is going up,” he was quoted as saying.
At the same, another Ripple executive criticized Bitcoin mining.
Ripple’s Chris Larsen argued that cryptos that use PoW should consider a code change to another validation method such as Proof-of-Stake (PoS) or Federated Consensus (or something third yet to be developed), which, according to Larsen, “have proven effective” in securing their stored value but while using a tiny fraction of the energy.
Those advocating for Proof of Stake are advocating for more Cantillon Effect.
Federated Consensus is being used by Ripple’s XRP Ledger.
“Today, non-PoW-based coins (including Ethereum’s anticipated switch) make up 43% of all cryptocurrencies by market cap, and the majority of new cryptocurrencies introduced today choose to eschew PoW. It’s clear which way the trend is moving. I would argue that such a change is critically important for Bitcoin to remain the world’s dominant cryptocurrency,” Larsen wrote.
He also stressed that companies are now committing to climate action and “they will undoubtedly face pressure (from consumers and regulators alike) to reduce or divest their PoW crypto holdings — including bitcoin.”
“The Bitcoin community should see this as a significant risk and work to address it,” the Executive Chairman said.
And it seems like this is exactly what Square and Ark are doing now. As they concluded in their whitepaper, it is “merely the beginning of what we hope will be a fruitful exploration of solutions to help usher in an abundant, clean energy future.”
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