Bitcoin is either the big polluter of the digital age or a lucrative tailwind that renewable energies need.
Two stark and contradicting points of view.
After all, as Elon Musk famously tweeted back in May when he explained his reasons for Tesla’s suspension of Bitcoin vehicle purchases, “We are concerned about the rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which are the worst Emissions everyone has fuel … we also look at other cryptocurrencies that use less than 1 percent of Bitcoin’s energy / transaction. “
Separately, Twitter’s Jack Dorsey said he was investing in a bitcoin mine powered by solar energy.
Stephen Pair, CEO of BitPay, told Karen Webster that Bitcoin-related activities will drive renewable energies simply because they require energy to process – and the economy demands cheaper production, which of course leads to cost-efficient power sources. In other words, it’s a virtuous cycle where the introduction of bitcoin increases the adoption of renewable energy, and the introduction of renewable energy paves the way for wider adoption of cryptos.
The precedent is there. As CoinShares estimates in its report, The Bitcoin Mining Network: Trends, Average Creation Costs, Electricity Consumption & Sources, approximately 73 percent of Bitcoin miners use some form of renewable energy to power the hardware and software that ultimately Generate Bitcoin.
On the other hand, there is a crackdown on mining, depending on where you look.
China, of course, represents ground zero for the production of Bitcoin, where data suggests that the country is responsible for the production of more than half of the marquee crypto.
As Pair said, the big energy debate isn’t necessarily made up as a way to criticize or attack Bitcoin. But about the actual economics of production, he added, “there is a lot of misunderstanding”.
And in its sharpest form, the real energy compromise can be seen this way: Yes, energy is used in the manufacture of cryptocurrencies. But Bitcoin, he said, works as a store of value. And a store of value shifts consumption from today to the future – and thus compensates for the energy consumption that is used in production today.
“My personal thesis is that anything that serves as a useful store of value must be a net energy conservation factor,” explained Pair. “If it didn’t, it wouldn’t hold its value because the system constantly needs people to sell it to finance its energy consumption.”
He went a little deeper into the different angles of the debate, the tricky sparring of Bitcoin opponents and proponents over clean vs. dirty sources and the environmental impact, and said that crypto production is a highly competitive industry.
PYMNTS ‘own research confirms consumers’ desire to use crypto in everyday purchases, which spurs creators and miners to keep operations going to meet expected demand … and to keep operations going, they will look for cheaper means of production.
Keep an eye on margins
The competition “forces miners to find the cheapest sources of electricity” to keep production going and increase margins, Pair said.
This pressure is increasingly leading miners to renewable energies. With renewable sources like water and wind, there is usually excess energy that wind farms and windmill operators can sell to miners for income. Wherever excess energy is wasted, miners can find the cheapest energy.
“Bitcoin mining is playing an increasingly important role in renewable energies – because mining changes the profitability of renewable energies,” he said, thereby promoting the use and production of renewable energies. Miners gravitate towards solar energy, he said, and the money they spend on that energy eventually spurs innovation in the form of better and cheaper solar panels.
Where the miners go
With a nod to where mining will go, now that such a large portion of production is banned in China, according to Pair, mining will migrate abroad, perhaps into people’s homes.
“The mining equipment is worth a lot of money and I’m sure it will be sold and used elsewhere in the world and brought back online,” he noted. The pace of Bitcoin production may slow down, but since the output is finite, since it is embedded in the source code, the system will always adapt.
“You still get a block every 10 minutes and it puts the same amount of bitcoin on the market as before,” he said.
Mining fulfills an important function, namely securing this blockchain production system. At the moment there is a small subsidy that is paid to miners, but it decreases over time. Ultimately, the miners receive money tied to transaction fees that users pay when Bitcoin changes hands. Market forces will decide how much energy is ultimately needed and how secure this blockchain really needs to be, predicted Pair.
The decentralized nature of bitcoin production also benefits from the decentralized nature of energy production itself, he said. A proof-of-work blockchain like Bitcoin, he said, is “ultimately a very secure blockchain,” because pretty much anyone can get solar panels, install them, and run a Bitcoin miner – anywhere in the world. (The proof of work helps validate bitcoin production and prevents multiple chains from being created that can contain different information.)
There are other ways the crypto ecosystem can further shift the acceptance of renewable energy sources. According to Pair, governments can levy taxes on non-renewable forms of energy and environmentally damaging forms of energy, making them too expensive to use in Bitcoin and crypto production.
“This will shift not just bitcoin mining, but all electricity usage to these more renewable forms,” he said.
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About the course: The AI In Focus: The Bank Technology Roadmap is a research- and interview-based report that examines how banks are using artificial intelligence and other advanced computer systems to improve credit risk management and other aspects of their business. The playbook is based on a survey of 100 bank managers and is part of a larger series evaluating the potential of AI in finance, healthcare and other sectors.