Last month, the University of Cambridge released the Cambridge Bitcoin Electricity Consumption Index (CBECI), an online tool that estimates how much energy bitcoin mining uses. We want to praise their work on this complex topic (as seen in the wide range between their lowest and highest estimates). Their research, notably into the world of ASICs, was exhaustive, their methodologies are well explained, and they were upfront about the limitations of their study.
We did, however, want to draw attention to one topic that is not represented — the benefits that bitcoin infrastructure could bring to the power grid. It is not only a question of how much energy, it is also a question of where and how it is consumed. This is important, because while the CBECI tool provides comparisons to help visualize the amount of electricity being used by the Bitcoin network, it does not help users visualize what is returned in terms of other economic benefits and how it advances the energy sector overall.
First, let’s talk about some of the challenges in the power grid.
1. In some places, quite a bit of electricity is generated but underutilized.
2. Electricity isn’t a resource that is easily stored or transported.
3. The development of renewable assets, such as wind and solar, whose intermittent natures stresses the operation of the grid.
An unbalance between power supply and demand
Vast amounts of electricity are generated every day and go under-monetized. This happens across the grid, regardless of whether it is nuclear, coal, gas or renewable energy. Part of the issue is simply due to an unbalance between power supply and demand. An excess of local electricity production poses a global problem for the power grid operator and ultimately a local problem for the energy producer. The power grid operator has to ensure that the power production matches the power demand across the grid. Several processes and methods are implemented to reduce these imbalances at any time — it generates an associated “imbalance cost,” which is then usually distributed across all grid users. If not mitigated by the grid operator, an excess of production could ultimately force power generation assets, including renewable farms, to curtail their production — thus impacting the financial profitability of these assets.
Several well-known solutions address electricity supply challenges but have limited concrete results
When too much electricity is generated, it can either be immediately transported to another area of consumption or it could be stored for use at another time. None of these options is ideal. On one hand, transmission and distribution power lines are expensive to construct and maintain and take years to deploy. On the other hand, several storage solutions exist, such as electrochemical batteries (like Lithium-ion batteries) and electrolyzers combined with subsequent conversion processes (so-called Power-to-gas and Power-to-liquid solutions; read more about this here). Despite progress in the last few years (in particular for Li-ion batteries), the deployment of this equipment remains limited. This is because these solutions require significant upfront investment, a favorable and tailored regulatory framework, often take more than 10 years to pay back and are relatively complex to operate and maintain.
The challenge of integrating renewable energy sources into the grid
The growing deployment of renewable energies creates two challenges for the grid. First, it is harder to predict the supply and flow of renewable power due to its intermittent nature (for example, adverse weather conditions), which usually requires the dispatch of conventional energy to adjust to a variable demand. Second, most renewable energy production is far from high-consumption areas (such as nearby cities), which then requires additional transmission lines. This hinders the adoption of intermittent renewable energy which is unfortunate because it is rapidly becoming the cheapest (USD/MWh) source of electricity, not to mention its climate friendliness.
All of these challenges translate into billions of dollars in lost revenue and lackluster renewable energy adoption.
Bitcoin mining, a new class of energy asset, can help with these challenges. Here’s how.
Definition of bitcoin mining: The last few years, public blockchain technologies enabled the development of digital currencies like bitcoin and Ethereum. These blockchains are backed by networks of computers, called mining equipment. Mining equipment consumes electricity to provide computational power to a blockchain in order to ensure its security and reliability — as a reward, miners receive newly minted crypto-currencies and a transaction fee. It is often called “transacting processing” or “securing the blockchain.”
Bitcoin mining equipment is a unique energy asset, particularly when deployed on-site with a direct connection to power sources.
Challenge 1: The excess of electricity production and high costs of storage options
Solution 1: Co-location of bitcoin infrastructure at energy sources
Mining equipment provides an elegant solution to locally utilize, dematerialize and monetize produced electricity. Bitcoin mining can be deployed in sites with as low as 1-MW of power, at the size of a shipping container, and the equipment could adapt its consumption to a variable power supply. Compared to other solutions mentioned above, bitcoin mining equipment requires significantly less initial investment, less ongoing maintenance and is simpler to deploy and operate — it makes it attractive even for small power plants.
Challenge 2: The increasing challenge and costs of managing the grid
Solution 2: Fast and flexible bitcoin infrastructure
Power grid operators often have to deploy expensive and extensive resources to manage the demand of the grid. Bitcoin mining equipment can be adapted to regulate its power consumption automatically depending on supply. This flexibility can be automated in response to the performance of the grid, matching the supply and demand and adjusting consumption of electricity accordingly. This is still a recent concept in the energy industry — Bitfury has proven it at scale in Alberta, Canada.
Challenge 3: At-scale adoption of renewable energy
Solution 3: Increasing popularity makes bitcoin mining a serious opportunity for the power sector and renewable electricity
Entrepreneur Bill Tai, a member of the Bitfury board of directors, said it best last year — bitcoin mining, as an electricity-intensive enterprise, speeds the adoption of renewable energies in a way that previous technological innovations have not. The economic benefits this creates are incalculable — even before you consider the impending costs of climate change. Renewable energy is cheaper and abundant, and bitcoin mining companies (including Bitfury) are flocking to countries that offer it, such as Norway and Iceland. The more bitcoin mining increases, the more economic incentive there will be for energy producers to augment or even replace their grids with renewable energy sources.
In short — bitcoin mining does use electricity. But it is not a wasted endeavor. The benefits it brings, and can bring, to our energy grid are important, but so is bringing a censorship-free, worldwide, unstoppable financial system to people all over the world. That is certainly a valuable use of electricity (especially compared to, say, powering always-on IoT devices).
If you would like more information about our power grid projects, contact us at email@example.com.