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Bitcoin and the energy industry

Bitcoin mining changes the game for energy scalability

Thanks to Bitcoin mining, we have the demand to build the energy grids of the future

Photo by Matthew Henry on Unsplash

How the energy industry works

Energy is one of the most complex commodities. Proximity and time play a critical role in electricity production that they don’t do in any other process.

Indeed, power generation is about finding and exploiting energetic resources, transferring them to when and where demand for that power exists. Sounds simple enough, but it can be very cumbersome.

Enter Bitcoin mining

With the rise of Bitcoin mining, humanity has — for the first time ever — a stable and at-scale demand for energy.

Additionally, Bitcoin mining is location-agnostic. Miners can settle down anywhere in the globe as long as they have energy and an internet connection.

You’re probably wondering what this has to do with energy grids and production. Even if it doesn’t seem like much, stable demand for energy solves a decades-long problem for the energy industry.

Photo by NASA on Unsplash

Bitcoin miners; kilowatt poachers?

Energy production isn’t a perfect process. From raw material extraction to consumption, a significant amount of electricity is lost in transmission, conversion, wasted byproducts, etc.

Those losses — which we refer to as inefficiencies — represent a unique opportunity for collaboration between energy producers and Bitcoin miners.

We can think of Bitcoin miners as kilowatt poachers, “lurking” around the energy grid, searching for cheap energy prices and inefficiencies to exploit for their benefit.

Being location-agnostic, Bitcoin miners can set up camp wherever there is a loss of energy to take advantage of it.

On the other hand, energy producers can benefit from eliminating inefficiencies, increasing productivity and cost–effectiveness and capitalizing from otherwise wasted electricity.

Through the dynamic between miners and energy producers, we can greatly reduce energy inefficiencies and waste.

But that’s not all of it. Bitcoin mining can also provide the necessary stability to make our energy grid not only more efficient, but also cleaner and more robust.

Challenges of renewable energy

Renewable sources of energy have a critical weakness that prevents us from building green energy grids: variance.

Despite their exponential growth over the years, renewable energy is very inconsistent. Generation fluctuates according to weather conditions, geographical location, and time.

Photo by Waldemar Brandt on Unsplash

Renewable energy’s costs are low and profitability is high, but it doesn’t offer any certainty on load.

Because consumption has to match load, the instability of green sources of energy makes it cumbersome to build a global-scale renewable power grid.

High load, low demand

If load is higher than consumption, the grid can overload, increasing the electric frequency of the grid. As a result, power plants — designed to operate within a certain frequency range — can disconnect from the grid after a period of time.

Low load, high demand

If demand overweighs electricity load, people are consuming more power than what the grid can provide. The divergence between load and demand causes frequency to drop, leading to power shortages. Furthermore, if the situation doesn’t improve, the grid collapses and a blackout occurs.

Bitcoin mining and renewable energy

The steady electricity demand for Bitcoin mining can provide the necessary balance to develop a global, reliable energy grid powered by renewable sources.

How is this possible? We can build at-scale renewable energy generation facilities, like wind and solar farms or even nuclear plants. Then, when demand for electricity starts decreasing, we can use Bitcoin miners to keep power consumption high.

Furthermore, energy producers can set up mining operations in their own facilities, eliminating the losses from electricity transmission and increasing efficiency.

What about when demand for electricity grows beyond load? During high electricity demand times, its price often increases, which would make Bitcoin mining less profitable.

As the situation scales, miners would be less incentivized to run their computers, gradually losing profitability and turning them off.

In turn, energy producers would make better profits by selling electricity at higher prices than by mining Bitcoin at augmented costs.

The very dynamics and economics of the energy industry and Bitcoin mining would balance supply and demand and maintain stability.

Long-term implications of Bitcoin and energy

Photo by Anthony Indraus on Unsplash

Humanity’s development and growth requires increasing energy generation and consumption.

However, it’s fundamental to address the need for energy from an environmental perspective that puts green, low-carbon energy sources first.

In a system where demand for energy increases non-stop and certain flexibility is supported, Bitcoin mining incentivizes developing renewable energy to the point of surpassing the current capacity.

In that scenario, however, energy transmission becomes a bottleneck. That is why geographically distributed generation will play a critical role in the energy grid of the future.

Bitcoin can also help achieve this by providing the necessary power demand to set up facilities practically anywhere in the world, provided there’s an internet connection.

Photo by Tejj on Unsplash

In turn, the Lumerin Protocol will help large-scale miners like energy producers fully capitalize on their hashrate, enabling them not only to achieve better efficiency and profitability on their energy business, but also on their mining operations.

Closing thoughts

Of course, the points expressed in this article outline the potential Bitcoin has to enhance our energy structures. Bitcoin on its own doesn’t solve our energy problems. It is us who must exploit this potential.

As you may know, Bitcoin has repeatedly been a target of criticism because of its intensive energy consumption. However, there’s more to the debate than how much power Bitcoin uses.

Bitcoin’s energy consumption is neither a positive or negative feature, it’s what we make of it.

While some will argue that it’s “wasted energy”, others see the capabilities Bitcoin mining has to build a sustainable renewable energy structure at a global scale. Time will tell if we can take advantage of those capabilities.

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