Bitcoin is known as a completely digital phenomenon, which still turns off some people who prefer their financial system to involve something which they can hold in the palm of their hands. However, the reality is the bitcoin network very much interacts with the physical world via the mining process. In fact, the energy-intensive nature of bitcoin mining makes bitcoin an essential component of the future of global energy markets due to the way it changes the demand side of the equation for energy producers.

While creating an ultimate buyer of last resort is the most critical change that bitcoin mining brings to energy markets, there are also second order factors to consider. Whether it’s improving the economics of renewable energy sources or enabling nation states to better capitalize on their local energy production, it’s clear bitcoin mining is having a massive impact on global energy usage. And this is all despite the large amount of fear, uncertainty, and doubt regarding the bitcoin industry which has been heavily promoted in the mainstream press.

So, what’s the reality of bitcoin’s impact on the future of global energy? And why does the bitcoin network require so much energy to function in the first place? Let’s take a deep dive on the matter, including real world examples of how the bitcoin mining process is already changing the energy market.

Why Bitcoin Uses So Much Energy

The key innovation with bitcoin was finding a decentralized solution to the double-spending problem, which enabled the first form of a decentralized digital cash system. Previous attempts at the development of digital cash had failed, as the entities in control of ordering transactions and preventing the same money being spent more than once were centralized. Gold-backed digital currencies that did not surveil their users, such as E-Gold and Liberty Reserve, were shut down by the U.S. government, and a decentralized solution was needed to make a digital cash system resistant to legal and regulatory attacks.

Bitcoin creator Satoshi Nakamoto solved the double-spending problem by launching a decentralized network of miners who would take on the task of ordering transactions in a digital cash system. To prove their value and trustworthiness to the network, miners expend energy in an easily provable way via a process known as proof of work (PoW). By finding the solution to a math problem, a miner can prove they have spent a certain amount of energy on computational resources.

Since the miner is expending resources and incurring these upfront costs, they are incentivized to act honestly in exchange for newly-issued bitcoin and transaction fees. It should be noted that, contrary to previously held beliefs by some bitcoin users, miners do not have control over users of the bitcoin network and are simply needed to order transactions properly in a chain of blocks (commonly known as the blockchain).

In other words, bitcoin’s impact on the global energy industry is a direct result of the PoW mining process that is used to order transactions on the network in a decentralized manner, which has resulted in a large amount of energy usage.

Over time, the amount of energy expended by miners through this PoW mining process has exploded. While early bitcoin users were able to mine bitcoin with nothing more than a single laptop, the mining process has grown into a specialized industry these days with hardware built specifically for use in the bitcoin mining process, and access to cheap electricity becoming a key component of a profitable mining operation. In fact, there are now a number of bitcoin mining companies that are publicly traded on various stock markets around the world.

Currently, the bitcoin network hashrate is estimated at roughly 650 million terahashes per second. This amounts to implied energy usage of 2% of all energy use in the United States and 29% of the energy used in the United Kingdom, according to Digiconomist. In fact, the bitcoin network’s total energy use is estimated to be somewhere around that of Kazakhstan and/or the Philippines, as examples.

Disputing The Attacks On Bitcoin’s Energy Use

Most of the discussion around bitcoin’s energy use in the mainstream press up to this point has been rather negative in nature, and it makes sense to refute some of these claims before going further down the bitcoin energy rabbit hole. There are three common ways in which this relatively new use of global energy has been attacked so far.

Firstly, many people tend to view bitcoin’s use of energy as a strict negative, with many commentators referring to bitcoin’s energy use as wasteful. Secondly, bitcoin has seen heavy criticism related to the kind of energy that is used to power the network’s hashrate. In other words, the second concern revolves around bitcoin mining’s potentially negative impact on the environment and climate change. Thirdly, it is often stated that alternative mechanisms for solving the double-spending problem, such as proof of stake (PoS) or traditional, centralized databases, can do the same things as bitcoin while using much lower amounts of energy.

Myth #1: Bitcoin Mining Wastes Energy

The first point is rather subjective and can be rejected rather quickly on those grounds. Those who say bitcoin is wasting energy are simply making a value judgment on bitcoin itself. They do not see the value of bitcoin, so they think any use of energy to power the network is inherently wasteful. It would be no different from someone who does not celebrate Christmas complaining about the energy that is used to power Christmas lights during the holiday season.

In reality, the market is likely the best measure as to whether bitcoin is a waste of energy or not. It’s clear that many people around the world value what the bitcoin asset and network provide in terms of its use as a global, apolitical financial system, and the amount of energy that is used in the mining process is a direct reflection of that valuation. In other words, the people who say bitcoin mining is wasteful are empirically wrong.

It should also be noted that many estimates regarding the amount of energy the bitcoin network will use in the future have been wrong and based on false assumptions. For example, various studies regarding the energy use involved in a single bitcoin transaction are oftentimes ignorant of Bitcoin Layer 2 networks such as Lightning Network and Lorenzo Appchain. As bitcoin continues to grow over time, it is likely that a single transaction on the base bitcoin blockchain will represent thousands of bitcoin transfers on these secondary protocol layers.

One of the most notable examples of the hysteria that has been built around bitcoin’s energy use was a 2017 Newsweek article titled, “Bitcoin Mining on Track to Consume All of the World’s Energy by 2020.”

It should also be noted that a large percentage of current global energy production is wasted, which is an area where bitcoin mining’s flexibility in terms of instantly turning the hardware devices on or off to help balance electrical grids can be extremely helpful. In fact, according to Core Scientific founder Darin Feinstein, the amount of energy that is wasted globally on a yearly basis could power 200 bitcoin networks, as of 2022.

Myth #2: Bitcoin Mining Is Bad For The Environment

The response to the second criticism of bitcoin mining being bad for the environment is similar to the response to the first criticism. In both cases, bitcoin is being subjectively put into a separate category as compared to all other uses of electricity.

Bitcoin mining devices are simply plugged into the local electrical grid in a manner no different than a Tesla vehicle. The type of energy used to power the bitcoin’s network hashrate simply depends on the types of energy that are available in various locations around the world. Riot Platforms infamously countered the environmental concerns around bitcoin mining by pointing out that bitcoin mining devices themselves do not emit any carbon in a parody of the claims being made against the industry in an article by The New York Times. While the video was meant to be comical, the point that was being made is that the emissions come from the energy generation sources themselves and not from the bitcoin miners.

Those who are concerned about a potential negative impact of bitcoin mining on the environment should aim their frustration at the energy providers themselves rather than the bitcoin miners who are simply following the local laws and regulations to operate their businesses. Bitcoin miners will use whatever is the cheapest form of energy generation in the world. And in many cases, that form of energy does indeed come in a renewable form. They have nothing against clean, sustainable forms of energy, and they would definitely use those forms of energy to power their businesses if the financial incentives lead them in that direction.

On top of all that, it’s also important to note that nearly 60% of bitcoin’s network hashrate does come from clean energy sources, according to August 2023 data from the Bitcoin Mining Council. This is much higher than the ratio of renewables found in global energy production, which is estimated at one-seventh by Our World in Data.

From this perspective, it would appear that environmentalists would be better off directing their anger towards other industries if they’re going to be subjective about energy being used for specific purposes. In fact, bitcoin mining has the side effect of improving the economics of various sustainable energy sources, which will get to later in this article. With this in mind, it’s also worth pointing out that one of the more notable campaigns for complaining about bitcoin’s supposed negative effect on climate change, which is the “Change the Code, Not the Climate” campaign from Greenpeace USA, is funded by the co-founder of a more centralized bitcoin competitor known as xrp, invented and produced by Ripple, which is a company we’ll cover in the next section.

Myth #3: Bitcoin Doesn’t Need Proof Of Work

Finally, the criticism that alternatives to bitcoin, such as Ethereum or Venmo, prove that bitcoin mining is indeed a wasteful process misses the entire value proposition of bitcoin as a cryptocurrency.

While it’s true that Ethereum and other cryptocurrency networks’ use of PoS dramatically lowers the amount of energy that is used in their respective consensus mechanisms, PoS is generally seen as less secure and more centralized than PoW by many bitcoin experts. For example, bitcoin’s use of PoW enables the transactions on the network to be processed by an ever-changing, dynamic group of miners rather than a mostly static, increasingly enshrined group of stakeholders. This is due to the fact that a staker must sell some of their stake in order for their role in network consensus to decline, while in bitcoin existing miners can be simply outcompeted by new entrants.

As covered previously, the point of bitcoin is to have a sufficiently decentralized form of digital cash that cannot be controlled by some entity or group of entities that effectively become a new trusted third party in the network. In addition to the concerns around centralization and security related to PoS, bitcoin is also extremely difficult to change, especially when it comes to something as ingrained in the system as the PoW mining process (as illustrated by the bitcoin blocksize war).

Simply put, a proposal to change bitcoin from PoW to PoS would be a nonstarter. Indeed, Greenpeace’s Ripple-co-founder-funded campaign to make this exact change has basically gone nowhere. Notably, Ripple was previously also sued by the U.S. Securities and Exchange Commission for unregistered securities offerings as part of its more easily attacked bitcoin competitor. It’s also worth noting that PoS can be used as consensus mechanisms for Bitcoin Layer 2 networks, such as Lorenzo Appchain, without any necessary protocol changes at the Bitcoin Layer 1 level. This allows more experimentation to take place on bitcoin without affecting the base layer.

In terms of comparisons of bitcoin to financial technology apps such as Venmo and Cash App, which have been made by the likes of Nobel Laureate and New York Times columnist Paul Krugman, there is a complete misunderstanding of bitcoin’s underlying value proposition. Bitcoin is a permissionless and censorship-resistant digital cash system with its own monetary asset that works globally. On the other hand, apps like Venmo are completely surveilled, are only compatible with U.S. dollars, can restrict access to specific users, can censor transactions, and only work in the U.S. The two systems are simply not comparable.

How Bitcoin Is An Essential Component Of The Global Energy Equation

The main variable of the global energy equation altered by the emergence of bitcoin mining is the ability to instantly convert any form of energy into digital money, namely bitcoin. Bitcoin mining is effectively a buyer of last resort when it comes to energy, which means less energy is wasted.

Various forms of energy can come with a large amount of waste due to the fact that energy demands can vary. The simplest example here is that energy demands tend to collapse at night when most people are sleeping. Much of the energy generated during this time is effectively wasted if it cannot be stored properly, which tends to be the case. By having a new source of demand for energy around the clock and all days of the week, energy providers can increase their revenue and remove a large amount of waste from their business.

For example, extra natural gas extracted from oil is usually burned through a process known as flaring due to a lack of nearby infrastructure to provide demand and make it economical to capture and sell. By using a mobile generator, oil production sites can use this excess energy for bitcoin mining and reduce the need to flare gas. Not only does this improve the oil producer’s bottom line, but it also leads to less carbon emissions due to the reduction of flaring. Other examples of wasted energy can be found in solar and wind, as these forms of renewable energy tend to have spikes in supply based on local weather conditions that surpass demand.

Due to the improved financial reality that bitcoin mining can provide to energy producers, the process of mining bitcoin has moved closer and closer to direct sources of energy over time. This gradual move from hobbyists plugging mining equipment into their home electricity connection to energy producers relying on bitcoin mining to improve their bottom lines makes sense when you consider that electricity is the key expense involved in the bitcoin mining process.

In addition to improving the financial situation for energy producers by providing a constant source of demand, bitcoin mining can also be used as a stabilizing force for energy grids. This is because a bitcoin mining operation can be turned on or off in an instant with the flip of a switch without causing further damage to the underlying business. For example, having an Amazon warehouse instantly drop its consumption of energy from the grid would lead to a number of additional issues for that business such as packages not getting delivered. With a bitcoin mining operation, the business equation is simply energy goes in and bitcoin comes out. There aren’t other aspects of the business that are negatively affected by a power outage.

This is an incredibly rare attribute when it comes to major consumers of electricity, and it makes bitcoin mining the perfect ingredient in demand response protocols where miners can get paid to turn off their hardware devices in times when demand for electricity spikes. Conversely, bitcoin miners are also able to turn on additional mining capacity in times of low demand.

The goal here is to keep the amount of demand for electricity matched up with the available supply, which helps prevent waste, malfunctions related to frequency or voltage instability, and rolling blackouts. The efficiency gains that come with a more stable energy grid that can be enabled by bitcoin mining have been compared to the ways in which cars use gas more efficiently when traveling at a constant speed on a highway as opposed to the stop-and-go traffic of city streets. Additionally, a stable grid also leads to stable and more predictable energy prices. This is especially useful in remote areas with microgrids or underdeveloped electrical infrastructure.

When Bitcoin Mining Goes Wrong

Of course, there have been a number of instances where bitcoin mining has turned out to be more of a stress on existing grids rather than a stabilizing effect. However, these cases tend to involve miners moving into a particular area and using as much cheap energy as possible rather than being integrated as part of a stabilizing tool for the grid itself.

For example, bitcoin miners that flocked to Kazakhstan in search of low electricity costs ended up turning the country’s power surplus into a deficit through overuse. According to MIT Technology Review, this overloading of Kazakhstan’s electricity grid partially came as a result of tax breaks, crony politics, and a relaxed governance structure. By the end of 2021, bitcoin miners were using 7% of Kazakhstan’s energy supply. As a result, power shortages and blackouts became commonplace. Eventually, public protests led to the government cutting bitcoin miners off of the electrical grid.

This situation in Kazakhstan illustrates how bitcoin mining is simply a tool that is also open to misuse. For this new tool for the energy industry to be beneficial to society as a whole, it needs to be implemented in the correct manner. Governments and energy producers can use bitcoin mining to improve the energy grid and the viability of various power generation schemes; however, lawmakers and regulators also need to be on the lookout for bitcoin miners who just want to use preexisting incentive structures to exploit local energy grids.

A Boon For Sustainable Energy Sources

As covered previously, bitcoin mining has been heavily and wrongly attacked for the amount of carbon emissions that happen as a result of the energy used in the mining process. And in reality, bitcoin mining can actually improve the economics of various forms of renewable energy.

For example, bitcoin mining can be helpful in not wasting as much unused energy when it comes to wind and solar energy plants. These forms of energy tend to generate excess power at specific parts of the day, which is then curtailed and basically thrown away.

While the wind is still blowing at night and generating power, this is also when most people are sleeping and not using as much energy. Additionally, solar power generation tends to peak at the middle of the day, which leads to excess power generation during that time. However, when bitcoin mining is added to the equation, the revenue generated by these renewable energy sources can be massively increased thanks to the constant demand for electricity that is involved in the mining process.

This steady and predictable demand for electricity from the bitcoin mining process can go as far as incentivizing the creation of new power plants based on renewable energy or revitalizing failing renewable energy plants. And as covered previously, the stabilization bitcoin mining can provide to the grid more generally can also be particularly beneficial in systems that incorporate wind and solar, which are notably more volatile in terms of energy production levels. Grids based on renewable energy sources oftentimes have to revert to balancing themselves through purchases of additional, dirty energy from other grids; however, a stabilization solution involving bitcoin mining removes this need to depend on less desirable sources of energy in certain situations.

While it’s true that bitcoin mining effectively improves the profitability of any source of energy, this impact is felt most heavily in renewable forms of energy due to the more volatile energy supply shocks that tend to be found with those sources. In this way, bitcoin mining can act as an accelerant for those who would like to see the world move to an economy that is more dependent on renewable energy sources.

This was also the finding of a report (PDF) released by the Bitcoin Clean Energy Initiative (BCEI) back in 2021. According to the report, “Bitcoin mining presents an opportunity to accelerate the global energy transition to renewables by serving as a complementary technology for clean energy production and storage.”

The BCEI was originally founded by Block, which was known as Square at the time and now works on a number of different bitcoin-focused initiatives, in addition to its more well-known products like Square and Cash App.

The purest form of bitcoin mining’s ability to accelerate the development of renewable energy sources comes from the fact that bitcoin miners can be placed at renewable energy plants before a grid has even been developed. This helps calm the fears of investors who are needed for the plant to be built in the first place. Even in a scenario where the plant remains isolated and more development does not take place around it, these investors can ensure they’ll have at least one major source of revenue in the form of bitcoin mining.

At the end of the day, bitcoin miners are effectively incentivized to seek out areas where there is too much energy as compared to local demand and improve the economics of those energy sources.

Bitcoin’s Role In Energy Underscores Its Geopolitical Importance

Bitcoin mining also changes the global energy market from a geopolitical perspective. An energy market where excess production can be converted into bitcoin is very different from one where that energy can only be monetized by selling it to the highest bidder that is deemed acceptable by the global community of nations. For example, a country that has been sanctioned by the United States and its allies may find it more difficult to find a buyer for their excess energy. However, they are now able to monetize this energy in a permissionless, unregulated manner through bitcoin mining.

The bitcoin asset itself is notable for its ability to offer an alternative to the current global financial system, which is largely dominated by the U.S. And by mining bitcoin, these nation states are able to establish a decentralized computer network as a key trade partner that exists outside of the current geopolitical power structure.

Notably, Russia passed a law to legalize bitcoin mining at a time when it is also facing economic sanctions from the U.S. and others as a response to the invasion of Ukraine. Iran has also joined the fun, and this trend of energy-rich geopolitical opponents of the U.S. getting into bitcoin mining should not be viewed as a coincidence. That said, the U.S. itself is also becoming a global hub of this activity.

Bitcoin mining could alter the global power structure in a way that benefits energy-rich countries, as they stand to benefit the most from the emergence of the bitcoin mining industry. This also gives these countries an incentive to be supportive of bitcoin more generally, as more activity on the bitcoin network means more revenue for bitcoin miners. Of course, every country should be aware of this alteration to the economics of energy production, as any energy producer stands to see increased revenue.

Projects That Illustrate Bitcoin’s Global Energy Impact

Now that the basic premise behind bitcoin mining’s impact on the global energy market has been explained, let’s take a look at some of the more prominent projects around the world that illustrate the general thesis that has been outlined so far.

Balancing Texas’s Electrical Grid

One of the most notable illustrations of bitcoin mining’s ability to stabilize an energy grid can be found in Texas. The Texas power grid, managed by the Electric Reliability Council of Texas (ERCOT), has previously faced challenges with fluctuating energy prices and occasional service disruptions. After multiple snowstorms in late 2021, the power grid came just minutes from a complete failure. Amid these issues, the growing bitcoin mining industry in the state saw an opportunity to help stabilize the grid, an idea that U.S. Senator Ted Cruz found to be compelling. The general idea is based around how bitcoin miners can quickly adjust their energy usage.

This flexibility is crucial in a grid like ERCOT’s, which requires a delicate balance between energy supply and demand. By absorbing surplus energy that would otherwise be wasted, particularly from renewable sources like wind and solar, bitcoin miners help maintain this balance. This balance ensures that the entire grid remains stable and avoids disastrous scenarios where power plants go dark and blackouts occur. The setup in Texas is particularly advantageous for the bitcoin mining industry, as the miners are paid to power down their operations when other entities connected to the grid need access to power.

While critics of ERCOT’s bitcoin mining plan to stabilize the grid say that this simply increases the demand for power across the grid in aggregate at a time when the system is already under stress, the reality is the implementation of bitcoin mining across the grid leads to the generation of more power generally, meaning there is excess power that can be accessed in rare instances where the demand for power spikes. ERCOT’s plan already proved useful during a heatwave in 2022 when bitcoin miners shut down their hardware as demand spiked.

Bitcoin Mining Brings Historic Hydroelectric Plant Back To Life

An historic hydroelectric plant in Mechanicville, New York, nearly faced demolition some years ago, but now it has instead been nominated for national engineering landmark status. The plant, owned by Albany Engineering Corp., is believed to be the oldest renewable energy facility in continuous operation globally, despite brief interruptions. Originally built in 1897, the plant was abandoned by National Grid, leading Albany Engineering Corp. to invest years into restoring it to full capacity. However, running the plant using its original 1800s machinery offers little profit, prompting the company to supplement its revenue by mining bitcoin.

Mining bitcoin has proven more lucrative for Albany Engineering Corp., generating three times the income compared to selling electricity to National Grid, according to Times Union. CEO Jim Besha Sr. has noted that while they are experimenting with bitcoin mining using renewable energy, he remains cautious about bitcoin as a long-term investment, converting their earnings into cash rather than holding onto the cryptocurrency. The plant’s nomination for landmark status could help preserve its legacy, adding to the protections already provided by its listing on the National Register of Historic Places.

Balancing The Grid And Growing Food With Bitcoin Mining In Iceland

While Iceland’s abundant green energy has made it a prime location for bitcoin mining, the country also faces significant challenges in food sustainability, relying heavily on imports for essential food items like grains and vegetables.

Despite its reputation for renewable energy, Iceland’s reliance on food imports reveals a gap in self-sufficiency, with imports of tropical fruits alone totaling over $9 million. However, innovative approaches involving bitcoin mining like those previously seen in the Netherlands and Prague offer potential solutions. By repurposing excess heat from bitcoin mining operations to power greenhouses, these models show how mining can support local agriculture and reduce the need for imports, according to Forbes.

Iceland stands at the crossroads of opportunity, where it can leverage its green energy not only for economic gains through bitcoin mining but also to enhance its food sustainability. With the right strategies, Iceland could lead by example, demonstrating that technological innovation and sustainable agriculture can coexist.

This project shows that, in addition to increasing revenue for generators of renewable energy, bitcoin mining also has the potential to lower costs for business operations that require heat generation.

El Salvador’s Volcano Energy

Since 2021, El Salvador has harnessed the power of its Tecapa volcano to mine nearly 474 bitcoin, adding approximately $29 million to the government’s bitcoin portfolio, according to Reuters. This innovative approach, fueled by geothermal energy, reflects President Nayib Bukele’s commitment to integrating cryptocurrency into the country’s economy in an effort to lower their reliance on the U.S. dollar and the associated global financial system.

The state-owned geothermal power plant generates 102 megawatts of electricity, with 1.5 megawatts dedicated to running 300 processors for bitcoin mining. While cryptocurrency mining has faced global criticism for its high energy consumption and environmental impact, El Salvador’s use of green energy presents a sustainable alternative. Since becoming the first nation to adopt bitcoin as legal tender in 2021, alongside the U.S. dollar, El Salvador continues to leverage its renewable resources to support its ambitious cryptocurrency goals, despite facing criticism from international bodies like the International Monetary Fund.

Gridless Energizes Rural Africa

In Africa, Gridless has found a way to use bitcoin mining to combat the problem of a lack of electricity in rural parts of the continent. A large portion of the estimated 770 million people without access to electricity in the world live in Africa, which is why Gridless has focused its operations there.

The primary challenges in rural Africa include insufficient infrastructure and limited disposable income, which forces many to prioritize more essential needs over electricity. Traditional microgrids have been deployed in these regions for years, but they often struggle with financial sustainability and inefficiencies. Gridless seeks to address these issues by integrating bitcoin mining with microgrid technology. By partnering with energy producers, Gridless ensures that excess electricity, which would otherwise go to waste, is used for bitcoin mining, thus making microgrids more viable and extending power to remote areas.

There are many more examples of the impact bitcoin mining has already had on energy producers and electricity consumers around the world, but these four projects give some added insight into how this industry is already having a global impact.

While bitcoin’s use of energy has mostly been ridiculed in the media as wasteful and bad for the environment, it’s clear that the reality of the situation is much more complex. Bitcoin mining is becoming an integral part of global energy infrastructure, as this new source of demand alters the existing energy economics. These changing economics will continue to evolve and have second-order effects on other areas such as climate change and geopolitics. The specific way in which the world’s energy use will change based on bitcoin mining is not yet 100% clear; however, what is clear is that it is something that all energy producers, whether in the form of private companies or nation states, must understand to get the most out of their energy production.

Bitcoin’s Energy Future

Bitcoin’s integration into the global energy landscape is transforming how we think about power consumption and energy markets. As a buyer of last resort, bitcoin mining is reducing energy waste, stabilizing grids, and even revitalizing renewable energy sources. This unique demand for electricity is pushing energy producers to innovate and create more efficient systems, offering both economic and environmental benefits.

Looking ahead, the interplay between bitcoin mining and global energy production is poised to grow stronger. Whether it’s helping emerging nations monetize excess energy or incentivizing the growth of clean energy infrastructure, bitcoin is playing an essential role in shaping the future of global energy. Energy producers, policymakers, and environmental advocates must consider these dynamics as they plan for a more sustainable and decentralized energy future.

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