Bitcoin is either the great polluter of the digital age or a lucrative tailwind that renewable energy needs.
Two stark and opposing viewpoints.
After all, as Elon Musk famously tweeted in May, in explaining his rationale for Tesla suspending vehicle purchases using bitcoin: “We are concerned about rapidly increasing use of fossil fuels for bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel … we are also looking at other cryptocurrencies that use less than 1 percent of bitcoin’s energy/transaction.”
Separately, Twitter’s Jack Dorsey said he was investing in a bitcoin mine that runs on solar power.
Stephen Pair, CEO of BitPay, told Karen Webster that bitcoin-related activity will drive renewable energy simply because it requires energy to process – and economics demand cheaper production, which leads naturally to an embrace of cost-efficient sources of electricity. It’s a virtuous cycle, in other words, where the adoption of bitcoin increases the adoption of renewables, and the adoption of renewables paves the way for a more widespread embrace of cryptos.
The precedent is there. As CoinShares estimated in its report titled “The Bitcoin Mining Network: Trends, Average Creation Costs, Electricity Consumption & Sources,” roughly 73 percent of bitcoin miners harness some form of renewable energy in order to power the hardware and software that ultimately creates bitcoin.
But then again, the crackdown on mining is in place, depending on where you look.
China, of course, represents ground zero for the production of bitcoin, where data indicate that the country is responsible for the production of more than half of the marquee crypto.
As Pair said, the great energy debate is not necessarily being manufactured as a way to criticize or attack bitcoin. But of the actual economics of production, he added, “there’s a lot of misunderstanding.”
And in its starkest terms, the true energy tradeoff can be viewed in this way: Yes, energy is used in the production of cryptocurrency. But bitcoin, he said, operates as a store of value. And a store of value defers consumption from today into the future – thus offsetting the energy being used in production right now.
“My personal thesis is that anything that serves as a useful store of value must be a net conservator of energy,” Pair explained. “If it didn’t do that, it wouldn’t hold its value, because the system would constantly need people selling it to fund the energy usage.”
Drilling down a bit deeper into the different angles of the debate, the nitty-gritty sparring of bitcoin opponents and proponents over clean vs. dirty sources and the environmental impact, he said that crypto production is an intensely competitive industry.
PYMNTS’ own research bears out the desire for consumers to use crypto in everyday purchases, which will spur creators and miners to keep operations humming in order to satisfy anticipated demand … and to keep operations humming, they’ll look toward cheaper inputs to production.
Keeping Margins in Mind
Competition “forces miners to find the cheapest sources of electricity” to maintain production and boost margins, said Pair.
Increasingly, those pressures are leading miners toward renewables. With renewable sources such as water and wind, there tend to be excess levels of energy that wind farms and windmill operators can sell off to miners in an effort to earn revenue. Wherever there’s excess energy that would otherwise be wasted, that’s where miners would find the cheapest energy.
“Bitcoin mining is playing a more and more important role in renewables – because mining is changing the economics of renewable energy,” he maintained, thus encouraging the use and production of renewables. Miners are gravitating toward solar power, he said, and the money they spend for that energy eventually spurs innovation in the form of better and cheaper solar panels.
Where the Miners Will Go
With a nod to where the mining will go, now that such a large swath of production is banned in China, said Pair, the mining will migrate outside the country, perhaps into people’s homes.
“The mining equipment is worth a lot of money, and I’m sure it will be sold off and go elsewhere in the world to be utilized and brought back online,” he noted. The pace of bitcoin production may be slowed, but since the output is finite, as embedded in the source code, the system will always adjust.
“You’re still getting one block every 10 minutes, and the same supply of bitcoin will be brought into the market as you had before,” he said.
Mining serves an important function, which is to secure that blockchain production system. Right now, there’s a small subsidy that gets paid to miners, but that decreases over time. Ultimately, the miners are paid money tied to transaction fees that users pay as bitcoin changes hands. Market forces will decide how much energy is ultimately needed and how secure that blockchain really needs to be, Pair predicted.
The decentralized nature of bitcoin production also benefits from the decentralized nature of energy production itself, he stated. A proof of work blockchain like bitcoin, he said, “is ultimately a very secure blockchain,” because pretty much anyone can obtain solar panels, install them and run a bitcoin miner – anywhere in the world. (Proof of work helps validate bitcoin production and keeps multiple chains, which might have differing information, from being created.)
There are other ways the crypto ecosystem can continue to shift the embrace of renewable energy sources. According to Pair, governments can impose taxes on non-renewable forms of energy and environmentally destructive forms of energy, making them cost-prohibitive to use in bitcoin and crypto production.
“That will shift not just bitcoin mining, but all electricity usage, to those more renewable forms,” he said.