Index
Introduction to the Bitcoin Network and Mining Activity
The most famous cryptocurrency of all time, Bitcoin, despite being declared dead countless times since its inception in 2009, has shown remarkable resilience in the face of often complex macroeconomic environments. As many are aware, its functioning relies on a decentralized network of nodes validating transactions through a “proof-of-work” protocol, via a process known as mining, which involves solving complex mathematical calculations to ensure the security and integrity of the network. In return, participants receive new bitcoins and transaction fees included in the successfully validated block. This is a crucial aspect of this cryptocurrency’s economy, which involves seeking a careful balance between the network’s security needs and environmental concerns of regulators and society.
Over the years, mining activity has grown exponentially, requiring an ever-increasing amount of energy and raising concerns about its environmental impact. The main cost driver of mining is the cost per kWh of electricity, and at least in Bitcoin’s early years, the energy used came from non-renewable but cheap sources such as coal. On the other hand, mining activity constantly seeks the cheapest available energy, and although initially the best price was offered by energy from fossil sources, the recent energy context has pushed this industry towards seeking cost-efficient solutions in various contexts.
In this article, we will provide an overview of the main drivers of energy consumption in mining activity and how the industry is increasingly transforming itself in a more sustainable and efficient manner, following a mere market logic. At this stage in Bitcoin’s development, the question to ask is: beyond mainstream information about its environmental impact, is mining this cryptocurrency merely a waste of electricity or does it also generate opportunities?
Mining and Evolution of its Energy Impact
In recent years, Bitcoin mining has seen explosive growth, but this success has been accompanied by a significant increase in energy use. To clarify, the main unit of measurement of this activity is the hashrate, which quantifies the processing power of the Bitcoin network. A hashrate of 10 Th/s indicates that the network is capable of performing one trillion calculations per second. Each miner uses different hardware, each corresponding to a particular calculation speed. The higher this speed, the faster it can submit the correct input and mine new Bitcoins. At the end of operations, the miner receives a reward (currently equivalent to 6.25 BTC), which is halved at regular intervals during “halving” operations. This event occurs every 210,000 blocks of validated transactions, approximately every 4 years considering an average validation time of about 10 minutes per block. Mining bitcoin is therefore a competitive activity in which participants must solve increasingly complex algorithms, resulting in the need for more “work.”
In its early years, mining could be performed on personal computers, but it soon became evident that general-purpose hardware was not sufficient. This led to the adoption of Graphics Processing Units (GPUs) offering superior performance. Subsequently, Application-Specific Integrated Circuit (ASIC) hardware became the industry standard. Although ASICs are known for their high energy consumption, they are much more efficient at solving mining algorithms compared to GPUs or CPUs. This transition to ASICs has contributed to improving energy efficiency in the sense that less energy is now needed to mine the same number of Bitcoins.
Another strategy to optimize the energy efficiency of mining has been the search for cheap and abundant energy, such as that produced from hydroelectric or geothermal sources. Industry operators naturally follow market logic and choose to place their mining farms in areas where energy is accessible and economical. The industry is indeed exploring solutions to recover wasted energy in increasingly innovative ways, in addition to exploring new technologies that could make the conversion of energy into computing power more efficient, necessary to make the Bitcoin network more robust and secure.
Despite a general trend towards optimizing energy consumption in this industry, over time, it has absorbed a significant amount of energy and contributed to carbon emissions, against which major international organizations are fighting through global initiatives against climate change. Mainstream media has often raised highly impactful comparisons between Bitcoin’s energy consumption and that of entire nations, such as Iceland, the Netherlands, or Argentina, along with doubts about the justification of such massive energy consumption for a single economic activity.
Overall, the surge in energy use in Bitcoin mining is a significant challenge that requires a balance between technological innovation, network security, and environmental impact. The debate on the environmental effect of Bitcoin mining remains highly contentious, with positions ranging from open criticism to more conciliatory positions on possible solutions to mitigate the problem. However, it is undeniable that there is increasing pressure to make this industry more sustainable, prompting many companies and industry operators to explore greener energy alternatives and extremely interesting solutions to harness wasted energy. But beyond the perception that each of us may have regarding the utility of spending precious energy to maintain the Bitcoin network stable and secure, is Bitcoin mining proving valuable in creating economic value where energy would be available but is wasted? Is there another side to the coin?
Mining: Converting Waste into Value
Currently, we are surrounded, albeit with minimal media visibility, by virtuous examples of converting wasted electrical energy into computing power. This conversion generates financial value, which in many cases supports the performance of activities in economic sectors affected by a decrease in cash flows. Below are some significant experiences of monetizing wasted energy.
From compost to mining: the case of Tom Campbell 3
Tom Campbell, an Irish farmer, has adopted an unusual approach to monetize through Bitcoin mining a by-product of his agricultural activity: compost. Using anaerobic digestion generated from the decomposition of biodegradable materials, Campbell collects the methane produced, turning it into electrical energy to power his farm. However, when surplus unused energy is produced and cannot be exported to the grid, it is absorbed by a small bitcoin mining farm built inside a shed.
In a context where the Irish government has set a goal of reducing greenhouse gas emissions by 25% by 2030, the agricultural sector, responsible for over 35% of such emissions, faces significant challenges. With 7.3 million cows nationwide, ecologically managing their waste becomes crucial. Campbell’s solution to harness the energy from the gas produced by compost production could significantly contribute to producing enough electricity for every home in Ireland if 41% of farms adopted this technology.
Campbell’s choice to engage in Bitcoin mining may seem unusual, but with the increasingly meager returns of agricultural activity, it is an effective strategy to mitigate the risks of his main activity. Campbell thus harnesses the energy produced by compost and not absorbed by self-consumption, selling it to the grid or using it for bitcoin mining. This approach demonstrates that innovative solutions balancing farmers’ economic interests with the need to reduce greenhouse gas emissions are possible. With the increasing adoption of energy sources like this, there could be an increase in farmers turning to mining to harness their surplus energy.
The problem of renewable energy curtailment
Renewable energy has been elevated as a beacon of a sustainable future worldwide, and numerous public funds to increase its production have been allocated in recent years. However, there is a problem with renewables that is often not mentioned: the existing structure of electrical grids. In Europe and beyond, electricity transmission infrastructures have been designed for a stable supply source, able to adapt to demand but not to supply, according to a centralized model and with limited capacities to store energy to manage the quantity fed into the grid. Since the sun does not shine and the wind does not blow 24/7, renewable energy does not have a constant production volume. This means that much generated electricity is wasted when demand is insufficient, and renewable energy generators are forced to disconnect from the grid until demand increases (so-called “curtailment”). The inability of grids to manage supply and demand fluctuations means that many renewable energy projects are prevented from adding their excess capacity to the grid, resulting in loss of revenue and higher costs.
Bitcoin mining has a unique characteristic, namely the ability to locate itself in remote areas without major difficulties, places where energy production infrastructures are typically located. Since transmitting energy over long distances causes energy losses (for example, in Italy in 2022, network losses accounted for 10.20% of raw material for all low-voltage users) 4 , the ability to use electricity near the source, even before it is fed into the grid or there is partial transmission loss, is much more efficient. Bitcoin mining can therefore play an important role in using this wasted energy and turning it into economic value, stabilizing the grid when renewable energy production exceeds demand and making this type of investment even more attractive.
The “wasted” methane from oil extraction: White Rock Management 5
Gas flaring is a common practice in hydrocarbon extraction activities and involves the on-site combustion of methane near oil wells and extracted (and accidentally) together with crude oil. The combustion of gas is essential in that case to release CO2 into the atmosphere instead of the more dangerous CH4 (pure methane, precisely). To give a scale to the “flaring” phenomenon, approximately 140 billion cubic meters of natural gas are burned annually worldwide. This practice represents a significant source of CO2, methane, and black soot emissions, with harmful impacts on health. In 2022, the volume of gas burned globally decreased by about 5 billion cubic meters, reaching 139 billion cubic meters (a reduction of about 3%). Flaring has generated annual greenhouse gas emissions equivalent to 500 million tons of CO2 in 2022 6.
In the vast panorama of the extractive industry in Texas, White Rock Management emerges as an innovator, adopting a revolutionary strategy that can not only help transform the sector but also offer a sustainable model for energy production. Gas flaring activity is used to produce on-site electrical energy, recovering otherwise wasted resources, to also power a mining farm and monetize the recovered and unused energy for other purposes. This not only provides White Rock Management with an efficient energy source but also reduces the environmental impact associated with gas flaring, helping to mitigate greenhouse gas emissions and adopting a more sustainable approach.
White Rock Management’s initiative marks a significant evolution in the cryptocurrency mining sector, as it demonstrates that it is possible to combine profit with environmental responsibility. At a time when the Texas energy industry is under critical observation for its environmental impact and challenges to the security of the electrical grid, using gas flaring to power cryptocurrency mining offers an innovative solution. Not only does it represent a sustainable move, but it could also help address electricity supply issues within the industry.
Conclusion and Future Perspectives
n a world grappling with climate crises and increasing energy demand, finding innovative solutions to address these problems is becoming increasingly urgent. Bitcoin mining, often considered energy-intensive activity, could instead be a crucial element in solving these challenges. A recent dialogue between Bob Burnett, CEO of Barefoot Mining, and Alana Mediavilla, director of the film “Dirty Coin,” explored the potential role of bitcoin mining in addressing energy crises 7. Burnett emphasized that many mining operations use energy resources that would otherwise be wasted, such as unused gas and biomass. He also stated that bitcoin mining can help stabilize the grid, providing an economic path to utilize energy during demand peaks. Mediavilla added that bitcoin mining can also be used to finance new energy infrastructure and promote community growth.
In conclusion, the bitcoin mining industry is proactively addressing the challenges of its energy impact, exploring sustainable solutions and seeking a balance between competitiveness and environmental responsibility. The transition to renewable energy sources and the optimization of energy efficiency are crucial to ensuring that bitcoin mining can thrive in a context of growing environmental awareness. Bitcoin is where there is wasted energy in any form, to convert it into economic value as never before.
1 https://charts.bitbo.io/mining-difficulty/
2 https://digiconomist.net/bitcoin-energy-consumption
3 https://cointelegraph.com/news/how-irish-farmers-turn-cow-dung-into-digital-gold-bitcoin
4 https://www.brokerperlenergia.it/perdite-di-rete/#pesano
6 https://www.iea.org/energy-system/fossil-fuels/gas-flaring#tracking
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