Someone invented a flexible way to monetise any type of energy directly at its source, without having to sell it, store it or transport it.
Any primary source of energy:
hydro, wind, solar, nuclear, geothermal, ocean temperatures.
coal, oil, gas.
methane leaks, discarded cooking oil, rubbish dumps, cow poo and more…
This new ability is creating opportunities everywhere, mostly in the energy industry but not only. Some of those opportunities are obvious, others are truly original and surprising. They happen at very different scales, both in developed economies and emerging countries.
How? Let's find out.
You can find a summary of all references and sources (links/videos/tweets/news articles) here.
3. Create incentives to collect nasty stuff
Methane capture from gas flaring, landfill, farm waste
Cooking oil
Home heating
Industrial heating
Use fossil fuels
Compete with residential users
The textile industry used to take advantage of hydro power with water mills. This is an example of directly transforming an energy source into work. We can now take the same energy source and transform it into money.
Intro
Before reading the rest of this post, take a deep breath and think about this: before 2009, the only way human beings on planet Earth could take advantage of an energy source was to either use it on the spot, store it or transport it to sell it to someone else. There was no way to directly turn it into money with a machine.
Economic incentives
The timestamping of blocks in the Bitcoin network (aka “Bitcoin mining”) is a very young industry that emerged within the last 10 years.
The resilience of the network is based on assuming that individual actors behave in a way that maximises their gains. In the context of the interaction with the energy grid, this set of incentives creates win/win/win situations.
Sounds too good to be true? Yes it does. But as a teaser, let's consider a few examples of triple wins before diving deeper:
Direct energy-to-money conversion
By rewarding miners who run Proof-Of-Work with brand new sats, someone invented a way to monetise any type of energy source (wind, solar, hydro, nuclear, geothermal) independently of location, independently of the rate of production (intermittent or constant) and independently of the presence of power lines.
A windmill in your backyard, a solar panel on your roof, a hot spring, a river with a water mill... There is a way to generate revenue out of them, without the need to be connected to an electricity grid and with minimal internet connection.
Here is another way to look at it: any energy source can be turned into something that can be transported anywhere in the world instantly at almost no cost, and stored in a way that outlasts any battery (as of today’s technology, though batteries are improving).
If this all sounds like abstract craziness to you then maybe this article has value. However the intent is to ground those concepts into reality. So let's dive into concrete examples.
Creative uses of timestamping
1. Balance energy grids
Before reading any further, it can be useful to get up to speed with how an energy grid works and what constraints is has to face. Check-out The Energy Academy maintained by UK company Modo.
What are the key problems that all electricity grids have to solve? According to Nima Tabatabai, it's power generation and grid balancing:
Generation: a grid has to generate enough energy to match peak demand. If energy demand is larger than production capacity, then power cuts and grid damage happen.
Balancing: energy produced has to match energy demand in real time. Whatever electricity is produced must be consumed on the spot, otherwise it is lost.
Wind and solar farms bring relatively new problems to the grid:
they are often far away from populated areas
they are intermittent and uncontrollable. Energy production is unpredictable and is difficult to match with demand.
Timestamping has a number of cool properties that make it a good tool to address the problems above and help balance the grid. Among which:
it is location-independent
it is interruptible
How does it help? You can place containers full of ASICs close to wind/solar farms and they can be turned on or off on-demand depending on the needs.
Balancing tools already include hydro dams and batteries. If a solar plant is fitted with a battery, a bitcoin mining container and a connection to the grid, then this plant has maximum optionality because it is able to:
store when demand is low (shift through time) - with batteries.
monetise when demand is low and batteries are full - with bitcoin mining.
sell electricity when prices are high - to the grid connection.
buy electricity and monetise when energy prices are low - from the grid connection and with bitcoin mining.
What’s in it for the bitcoin companies? Cheap electricity. Either:
less expensive than in front of the meter
free
negatively priced (as it can happen in Texas for instance).
Ever heard of a load bank? It's a device used by power stations to offload excess power. This is a just an expensive resistor that dissipates energy in the form of heat to protect the installations. It actually costs money to waste electricity. ASIC miners are the new load banks.
Some live examples of grid balancing around the world:
Grid balancing in Texas
Grid operators need a flexible consumer to release energy on-demand. Very few industries are able to adapt their energy usage when asked. Those flexible consumers are rewarded with cheaper electricity or special contracts.
ERCOT is the grid operator in Texas and proposes demand/response programs to take advantage of curtailment.
These programs give economic incentives to reduce demand.
For instance electricity customers can sell back to the grid a secured block of power when spot prices are high.
In July 2022 Riot made more revenue by selling power back to the grid than mining bitcoin. This is highly dependent on the type of contract.
Grid balancing in action: in January 2024, 25% of the hashrate went down to release energy to meet peak winter demand.
Despite relying heavily on intermittent sources (wind/solar), ERCOT managed to avoid usage of gas peaker plants. Most grids (and it's indeed the case in the UK and Europe) use gas power stations to generate electricity when demand is too high.
Electricity prices from wind/solar can sometimes be negative because of limitation of demand and transmission capacity (up to 20% of the time in some areas of central USA).
Grid balancing in the UK
There is a similar program to the US called Demand-Side Response (DSR). DSR assets can include manufacturing plants, refrigeration units, air con, energy storage. They get rewarded for increasing or decreasing their consumption on demand. Bitcoin mining can be just another type of DSR asset.
All this monitoring and on-demand control is software-heavy. Optimize Infrastructure is a UK company that specialises in software optimisers for solar/wind to manage batteries and bitcoin miners.
There are plenty of short educational videos about the UK energy grid at The Energy Academy.
Opportunities in Europe
Jaran Mellerud sees this as a possibility in the future because of the accelerated development of wind/solar. Currently high electricity prices are still a barrier to bitcoin mining in Europe, with the exception of the nordic countries (Norway, Sweden, Finland)
Norway: abundance of hydro power.
Finland: new nuclear power plant.
France: France's baseload relies essentially on nuclear energy. You hear about the need for balancing solar and wind, but not so much about nuclear that is very stable. Yet electricity produced by nuclear power plants at night is mostly wasted. It is not clear what is done with this spare power apart from lighting up motorways or pumping water back up reservoirs.
Nuclear reactors don't like curtailment: reducing their output is not good for the equipment. In an ideal world, nuclear plants would run at full capacity all the time to maximise their lifespan. Unfortunately because nuclear is such a big share of energy mix in France (75%) and because wind/solar are given priority in the grid, nuclear plants are forced to curtail in order to avoid grid saturation. Sometimes they event have to be stopped for a few days.
According to Bruno Comby, it would take in theory a handful of power plants around the world to feed the totality of Bitcoin's current energy needs.
There are even situations in France where electricity prices can be negative. Unfortunately EDF does not take advantage of this extra capacity and prefers throwing it away as explained by Florent Gabriel from Summit Mining.
Grid balancing in other countries
In the UAE, most of the electricity comes from natural gas. This is one of those countries (Singapore included) where fossil fuel represents 99% of the energy mix. Driving a Tesla in Dubai does nothing to improve CO2 emissions. So does it make economic/environmental sense to mine bitcoin there? Well here is the problem: for some technical reason, power plants are combined with desalination plants and therefore they have to run at constant capacity throughout the year. When demand is low, natural gas is burned anyway. So you might as well mine the wasted electricity and reinvest the gains in improving the technology.
Other resources
Hashrateindex has a series of in-depth research articles on the state of Bitcoin mining around the world.
Geopolitics and Bitcoin Mining is a very detailed report by the Cryptocurrency Mining Group on the state of Bitcoin mining throughout the world, country by country.
Too long to read? A twitter thread summary is also available.
Forbes article on demand/response Why No One Saw The Success of Demand Response Coming.
Note: although not directly related to timestamping, streaming electricity invoice payments over Lightning is a new idea that can help energy companies with their cash flows. Smart meters can send an automated lightning payment every hour, every day or every month. Energy customers see exactly how much they spend in real time and can take advantage of daily fluctuations in energy prices rather than being stuck to a fixed rate. Because payments are continuous and cash final, this gives a financial advantage to energy providers.
Example: Synota in the US provides such a service, as explained by the founder in this video. Austin Mitchell also described "transactive energy solutions" in greater detail during the Microstrategy World event in May 2023. The first customers of pay-as-you-go electricity meters are actually... bitcoin miners.
2. Finance energy projects
Energy can now be directly monetised. This naturally can help finance construction of new power plant projects, in particular in emerging countries. It is interesting to observe a mix between government initiatives, private companies initiatives and grassroot movements. Obviously bitcoin mining alone is not enough to cover the whole financing, but the mining revenues over the long term help projects reach break-even faster.
Examples:
Kenya: Micro hydro-plants that are part of a mini-grid.
What is a mini grid? It is a small-scale power plant not necessarily connected to the national grid. It taps into energy provided by rivers or small dams.
Why are mini grids used in Africa? Because building long distance power lines is too expensive. There is not enough population density or industry to justify the cost.
The company Gridless focuses on building equipment to finance those small power plants in various countries across Africa (Kenya, Malawi, Nigeria, Zambia). They use hydro, solar, geothermal and recently expanded to farm waste.
This video illustrates how energy producer Hydrobox partners with Gridless in Kenya to make rural energy projects economically profitable and bring electricity to villages that otherwise would be using candles and kerosene.
On Lake Naivasha, there is also potential for sustainable long-term mining of geothermal energy for decades to come.
Of course, those mini-grids serve the nearby population in priority. In this presentation, co-founder Janet Maingi explains how the GridlessOS automatically switches off miners following the power demand in the community.
Malawi: the example of the Bondo hydro operation also managed by Gridless illustrates how foreign organisations are generous with capex but do not help with operation of power sites. Why? Because those sites are not profitable if financed by local consumption alone.
Congo: 3 hydro plants in the Virunga National Park are used to help finance the park using mining. This is a great story: check out this article from MIT Technology Review and the documentary by Brave Wilderness showing the situation in the park.
Nigeria: a new government regulation encourages individuals to become energy producers up to 1MW, making it possible for communities to generate an income from their mini grids.
Oman: BBGS provides mining containers to the Green Data City project in Oman. The purpose of the project is to bring the carbon share of their electricity from 100% to 50%. Check out Sebastien Gouspillou's announcement at the Africa Bitcoin Conference (in French).
Ethiopia: in February 2024, the Ethiopian Investment Holdings, investment arm of the government, signed an agreement with a Hong Kong based data center company to allow it to start "data mining and artificial intelligence training operations". Several mining companies are attracted to Ethiopia because of GERD, their gigantic hydro dam on the Nile which is now full with water. There are plans to sell the power to local population and to neighbour countries but in the meantime, let's mine.
Bhutan: in April 2023, Druks Holdings and Investments (DHI), the investment arm of the Bhutanese government, confirmed that it had been mining hydro for a few years. In May 2023, DHI and Bitdeer announced they were raising $500 million to deploy mining equipment.
Indonesia: in May 2023, the governor of the West Java province invited miners to tap into the abundant hydro and geothermal energy resources of Indonesia. He estimates that 200GW of spare energy are available. Although payments in bitcoin have been banned for many years, this is a smart move to finance renewable infrastructure and reduce government spending.
El Salvador: the government plans a large project based on wind, solar and geothermal energy that consists in building the infrastructure from scratch in the department of Santa Ana. In October 2023, Volcano Energy announced their own mining pool Lava Pool in partnership with Luxor Techonology. They will not be working off geothermal only and will integrate with a variety of energy sources in the country. In May 2024, the government revealed in had been mining 474 bitcoins since 2021.
Canada: nuclear Small Modular Reactors (SMRs) could be financed in part with Bitcoin mining as explained by Ryan MacLeod here and here.
UK, the issue of interconnect queues: building solar and wind farms is one thing. Selling the produced energy to consumers is another. Before it can be sold, it has to be transported. It does not magically appear in your light bulb when you turn on the switch. Building power lines to connect new projects to the grid takes time. There is a backlog of projects waiting for connection. In the meantime, what could be done with this stranded power? Mmm...
US: it's always good to have academic research confirm what the industry already knows through direct experience: a study published in ACS Sustainable Chemistry & Engineering indicates "the potential for bitcoin to provide economic benefits as an alternative to grid-powered mining at planned renewable installations across the U.S. states".
Hawaii: the startup OceanBit researches energy generation based on ocean temperature differentials. It's an old idea that popped up in a Jules Vernes book during the 19th century. Because it is an offshore setup, the usual transportation issues apply and bitcoin mining is a means of financing prototypes until the plant becomes large and profitable enough to justify transportation costs. The technology is called OTEC and we are bound to hear about it in the future because it makes so much sense.
For more information, check out this report by K33 (previously Arcane Research).
Stranded Energy: the idea of monetising energy sources regardless of their location and regardless of the presence of demand can go a long way if you look into the future.
It could allow countries in the Global South to accumulate wealth without having to rely on exporting something to richer countries.
it could make it possible to build "startup-cities" in remote locations around Small Modular Reactors to experiment with new types of governments.
3. Create incentives to collect nasty stuff
Methane gets special attention because its impact on the environment was shown to be 80x worse than CO2 in terms of greenhouse effect.
Methane comes from:
holes drilled during oil exploration
rotting rubbish in landfills
cow poo and other farm waste
as described by Daniel Batten during Surfin Bitcoin 2022.
3.1 Pay oil exploration sites to flare gas cleanly
Methane escapes from the ground as a result of oil exploration. Drilling companies are required by regulation to burn it rather than release it.
Recently Turkmenistan was in the news as just a couple of oil fields had more CO2 impact in a year than the UK alone.
Processing methane for bitcoin mining is more cost effective. It is also cleaner than letting a flare burn by itself because of the controlled environment of the turbine.
According to Jaran Mellerud, gas flaring is five times more effective than wind farms in terms of emission avoidance per $1000 investment.
This video shows what a gas flaring station looks like.
Other example of flaring station in Texas
Companies active in this field:
Crusoe Energy. Crusoe was recently mentioned in a blog post by the World Economic Forum about the benefits of catching methane. It's interesting to note that the article mentions the energy is used to power "data centres", without explicitly using the term "bitcoin mining".
EZBlockchain builds equipment and solutions for gas flaring mitigation. For concrete examples of how it looks like in the wild, browse their entire use cases page with plenty of photos of bitcoin mining installations. .
Opportunities for fixing methane leaks abound. Turkmenistan, for instance, is known for having the biggest amount of super-emission events in the world. The oil companies there don't seem to care about fixing methane leaks. Maybe all they need in an incentive...
3.2 Reward municipalities for capturing methane from landfills
Similarly to gas flaring, there is a regulatory obligation in some countries to collect methane that naturally escapes from landfill. This is how regular landfill capture works.
Municipalities have to build burners to get rid of the methane.
bitcoin miners allow municipalities to:
save on gas burners
generate revenues from the methane
Examples of companies active in this space:
Vespene Energy in the US specialises in landfill methane capture (twitter: https://twitter.com/Vespene_Energy)
Adam Wright from Vespene explains in detail how this works.
Nodal Power (US) raised $13 million in August 2023 for landfill capture. In June 2024, they completed a real-size pilot project to demonstrate the feasibility.
How does it work and what equipment do you need? This report by Marathon Digital has a useful diagram showing the equipment required to exploit methane on-site with a mining container.
3.3. Reward farms for capturing biogas
Farm waste also generates gas that can be burnt into Bitcoin using an anaerobic digester.
Examples:
farms in Ireland capture biogas with some help from an Irish company called Scilling Digital Mining (twitter https://twitter.com/ScillingMining)
more about anaerobic digesters here.
Joe Hall from CoinTelegraph made a short documentary interviewing the farmer and detailing the actual set-up
in France, the company 4NK provides certification/timestamping services running on Bitcoin (as in timestamping of documents or messages). 4NK uses creative ways of hosting nodes: instead of using regular datacenters, they collocate their machines with Bitcoin mining equipment in a way that completely offsets the carbon footprint and makes them effectively carbon neutral. For instance, they partner with water treatment companies and integrate their machines within the wastewater treatment process. Sedimentation of wastewater produces a kind of brown sludge. Under the right conditions, this sludge releases methane that can be burnt on-the-spot and produces electricity which is in turn monetised by the mining machines. In other instances, they also take advantage of heat re-use.
Datafarm Energy in France builds infrastructure to collect gas from biowaste. In order to accelerate the development of their units, they burn the collected gas and mine bitcoin as explained by Stephane Petibon. They also encourage farmers to heat up greenhouses with ASICs instead of buying gas from the grid.
3.4 Reward people for not throwing away used cooking oil
What? Yep, as in the low-grade oil used to fry chips. Here is the background: somewhere in Guatemala, villagers do their cooking with oil then throw it away and it ends up in a nearby lake. LakeBitcoin had the idea of collecting the used cooking oil, burn it and power a home-made bitcoin mining mini-op.
Check out the full story.
watch this video: we are far from the huge clean mining data centres from Texas, which makes it even more cool.
3.5 More resources
Surprising twist of the ESG narrative in this report by KPMG: Bitcoin Role In The ESG Imperative
Bitcoin Network To Reduce More Emissions Than Its Energy Sources Produce (Forbes)
Everything You Need To Know About Bitcoin And The Environment (Forbes)
Research by the Institute for Operational Risk Bitcoin and the Energy Transition from Risk To Opportunity
“Bitcoin mining is the only economic incentive on the planet to reduce your energy waste and reduce your emissions that is not funded by government subsidies."
(Benjamin Gagnon from Bitfarms)
4. Reduce heating bills
ASICs dissipate heat and it’s usually a major problem that miners tackle with noisy fans, immersion cooling or cold climates. But heat can also be a feature.
An ASIC is a specialised hardware designed to spit out SHA256 all day. But from an electrical point of view, it’s just a fancy resistor. We can assume that 1kW sent through an ASIC generates about as much heat as 1kW sent through an electric heater (minus some energy dissipated as electromagnetic radiation).
In winter, the opportunity is obvious. Even if electricity prices are too high to make mining profitable, the net result is a reduced electricity bill.
Home heating
Space heaters: when everyone in Europe is moaning about winter heating costs, this is the first application that comes to mind. As of May 2024, a number of companies sell home air heaters that can realistically compete with Dyson in terms of price.
Austrian company 21Energy ships a heater that could pass as a coffee table (one that keeps coffee warm). You pay €710 for a 800W heater packing an actual Antminer S9.
Heatbit promises a home heater for a price that is not too shocking ($799 for a 400W unit). The simulator on their site suggests how much you could save though I don't think this is relevant. Since your bitcoin heater is not costing you more in terms of electricity bill, there is no need to sell the bitcoin immediately. We are talking about non-KYC history-free bitcoin here. You would keep them for your old days, your kid's education or so that your grand-kids don't need to work at all.
Hestiia is a company based in France that makes the myEko, an elegant 1000w wall unit for a single room (€990).
For larger homes, both 21Energy and RY3T sell massive heating devices.
Water boilers: the same principle can be applied to water heating. For instance, HeatCore makes water boilers of difference sizes, starting with the HS20 that is suitable for home central heating. I was told this one costs less than USD3000.
DCX Bitpod silent mining enclosure for home use
check out this guide from Braiins
Coindesk discussion on home mining
How to build it yourself
It used to be a niche DIY thing but now you can find a variety of solutions that are easy to install with a reasonable upfront cost. In 2024 we have reached a point where, if you are still using electricity for heat (air or water) without mining, you are missing out.
Industrial Heating
Because Bitcoin mining scales so well, the case for industrial heating makes even more sense. Greenhouses need heat. Buildings need heat. Entire districts need heat. Why use expensive fuel when you can use electricity with a bitcoin discount? Check-out Jaran Mellerud's comments on heat re-use.
Desalination plants: in the UAE, desalination plants produce fresh water and require energy in the form of heat. In the Emirates, those plants use gas and there are plans to migrate to solar. Solar generates energy surplus → Surplus is monetised with mining → Mining heat is re-used by desalination plant. Nothing goes to waste 🐿️.
Desalination tech: the company Flowsolve developed a microcontroller that optimises the process of water distillation using the free heat from Bitcoin miners. You could look at it from another angle: water evaporation has a cooling effect (your grand-ma's grand-ma used to keep food cool inside a wet bag exposed to wind). This cooling effect can help cool down miners. The result of this desalination process is dry salt and pure water. But why stop at desalination? The process can be generalised to improve any chemical reaction that happens to be endothermic (that uses heat as opposed to generate heat).
District heating: district heating with digital boilers from Mintgreen discretely stored in a mechanical room. (twitter https://twitter.com/MintGreenHQ).
Agriculture heating + district heating in the US with liquid cooling boilers built by Sai Tech.
Dried fruits: in Africa there is an industry around the preparation of dried fruits which requires the production of hot air. Sebastien Gouspillou explains how BBGS works on a project in Congo looking at using the heat produced by ASICs to dry up fruits. This is cheaper than using diesel generators. Latest update on this topic from Surfin Bitcoin 2023 (in French).
Shrimp farming: heat is re-used to keep water warm as explained by Fred Thiel from Marathon Digital.
Greenhouse heating: example of flowers in the Netherlands
Warehouse heating: a warehouse heated by Bitcoin Brabant in the Netherlands.
Hotels: hotel rooms heated by DCX Immersion Mining
Spas: a spa in New York heats up its water pools with mining equipment. Check out some pictures here.
Whisky: a whisky distillery in Canada uses a custom-made whisky tumbler made by Mintgreen. Check out a video of this special boiler here.
Non Sustainable Uses
Some situations are not so Disneyland. But with time they should eliminate themselves because they're not viable economically.
1. Compete with residential users for the same electricity source.
Example: State of New York: metered electricity was very cheap because of the presence of hydro power in the region. A few years ago, miners took advantage of those low prices, which resulted in higher prices in some situations. Local citizens complained. In some cities, authorities declared a moratorium on bitcoin mining until new special tariffs are worked out. This year in 2022 a new moratorium was proposed to suspend mining that is not based on 100% renewable.
Counter-example: Europe. If you live in Europe in 2022 and you are suffering because electricity prices are too high and you don’t know whether you can afford heating your home this winter, no need to get angry at the timestamping industry: you are not competing for electricity with them. They don't want your electricity. Unlike residential consumers, bitcoin miners are not a captive audience and can move their rigs wherever power is cheap. There is very little bitcoin mining in Europe precisely because electricity is too expensive. According to Jaran from K33, mining in Europe happens only in
Northern Sweden (hydro and wind), presence of a demand/response program
Northern Norway (100% hydro)
Iceland (geothermal and hydro)
2. Use fossil fuels
Now fossil fuels represent a minority of the energy sources used to produce the electricity used by Bitcoin mining globally.
Depending on the sources and methodologies, energy mix is 54.5% sustainable according to a January 2024 estimate by Daniel Batten, 58.8% sustainable according to the Q4 2022 BMC report.
It's also interesting to look at a breakdown of the energy mix (by Daniel Batten). You can see that coal is still the number two energy source at 22.92%. It used to be number one at the time when mining was happening in China.
In theory fossil miners will be the first to turn off their ASICs when the bitcoin price is too low or the network difficulty is too high and therefore will disappear over time as explained by Sebastien Gouspillou here and here. As a miner, you want to be the "last man standing".
Mining with fossil can’t be profitable in the long term because of rising oil and gas prices.
Fossil fuels are normally the most expensive part of an energy distribution stack and are typically used in peaker plants (power plants that activate only at peak times, when demand is too high and cannot be met by the other cheaper sources).
Coal/fuel/gas are controllable sources therefore do not offer the same opportunities as intermittent sources:
no excess energy to negotiate down the price
no demand/response programs
depending on the jurisdiction, there is political pressure to get away from non renewables (regulation, fines, extra taxes, moratoriums, bans).
Clearly using fossil is not a great strategy for Bitcoin mining, unless we're talking about:
methane escaping from oil drilling sites
methane that escapes naturally (yep, that also happens)
methane captured from landfill
gas captured from farm waste.
gas that is burned anyway for technical reasons (such as with UAE gas desalination plants for instance).
Why use so much energy anyway?
“Bitcoin mining” is the process of timestamping validated transactions in batches. Proof-of-Work is the mechanism that makes this timestamping fraud-proof.
Why timestamp?
If we know the sequence of transactions then we can't double-spend.
Why proof-of-work?
To make it too expensive to fraudulently modify past timestamps.
To be allowed to broadcast a block of transactions, a Bitcoin node has to complete a proof-of-work challenge: find a value that, when run through a SHA256 hash function, gives an output below a given target. A hash function takes any piece of data as input and computes a fixed-size fingerprint. There is no way to know the input data from the fingerprint. The only way to guess such a value is to try all possible numbers at random from 0 to 2^32 until one gives a result below the target.
For a much better explanation of Bitcoin mining, take the time to go through the Mining and consensus chapter in Andreas' book.
All Bitcoin nodes validate and forward transactions. A subset of those nodes are mining nodes: they broadcast blocks. Blocks are batches of timestamped transactions.
The actual broadcasting of a block is usually done by the node managing a mining pool. This is a machine running a Bitcoin client (most of the time this client is Bitcoin core). It is not the machine computing the hashes, although it used to be at the beginning during the first few years of the network. The expensive computations are delegated to ASICs that remotely connect to the pool node to communicate the result of their attempts.
This technical detail hides an important point: ASICs don’t have to be co-located with their pool node and they can sit absolutely anywhere: in a container under a dam in Congo, in a greenhouse in Holland, in a whisky mill in Norway, outside a solar plant in a desert in Texas, at the back of a coal power station in Kazakstan… Usually ASICs are located as close as physically possible to a power source to bring down electricity costs.
It is those ASICs that collectively use an estimated 348 TWh every year.
Sounds wasteful? Only if you fail to consider that this mechanism is the foundation for the most resilient and neutral payment network on the planet. We have been using various forms of money for roughly 5000 years and have always been facing the same problem: whoever controls the issuance of money cannot help creating some for themselves. The existence of inflation-proof money brings something new: for the first time in human history, regular people have a way to save for the long term without having to resort to expensive real-estate or complex portfolios of stocks/gold/bonds. Citizens of any country have a new option to protect themselves from bank runs, currency devaluations, hyperinflations, government seizures, regime changes, wars, floods, droughts and earthquakes.
This is well worth the timid 0.21% share of global energy production.
Actually one would wish that this energy usage was even higher: indeed electricity grids are currently producing large amounts of energy that cannot be sold, that has to be thrown away and that nobody uses. This is a pure loss if not monetised.
Conclusion
Weird isn't it? You usually can’t rely on economic incentives alone for an industry to do good. Relying only on the predictable tendency of individuals to maximise their gains does not always turn out for the best. For instance:
The pharmaceutical industry benefits from people getting sick.
The food industry has an incentive to over-process to cut costs and rely on sugar to increase addiction.
The banking industry has an incentive to take risks with client deposits and lend more than it has.
Within the last decade, a new industry was born where economic incentives tend to align with positive outcomes for everyone. Unusual.
Initially Proof-of-work was supposed to be the mechanism that makes timestamping blocks strictly forward-only and non-repudiable. This was a requirement to make decentralised peer-to-peer cash possible. Back in 2009 no-one could have predicted that this security mechanism would grow into a new industry and how this industry would merge with the energy grid and even become an accidental actor in the human adaptation to climate change.
You can find a summary of all references in this article on github.
@CodingInLondon
All content on this blog is for education purposes only and should not be taken as professional financial advice or recommendation to buy or sell any asset. No guarantee is given regarding the accuracy of information on this blog.
Also I am not endorsing any company or product mentioned in this article and I am not paid by any company behind any of the products or websites mentioned.
The value of bitcoin is variable, can go up or down, cannot be guaranteed and can be highly volatile. Do your own research before making any investment decision. Past performance is not an indicator of future performance.
Comments