Changing the Bitcoin energy narrative

Common misconceptions

The prevailing narrative surrounding Bitcoin mining is that it is damaging to the environment due to its high levels of energy consumption. Mainstream media often subjects the mining process to great scrutiny, comparing the power usage of bitcoin to that of entire nation states. Here are some examples of articles that intentionally depict BTC as an enemy to the global green movement:

While validating transactions onto the blockchain is energy-intensive, these articles falsely assume that the use of energy is inherently bad, regardless of where it comes from. There are a few seemingly obvious points that are continuously neglected by traditional media:

  • Not all energy usage is equally bad for the environment. Each power source has distinct waste products that heavily dictate its overall sustainability. (E.g. Renewable sources are less damaging than fossil fuels.)

  • Making bitcoin using energy that was otherwise going to waste is not bad for the environment and should be actively encouraged.

  • In open markets, a competitive edge is given not to the person using the most energy, but the person using energy most efficiently.

When taking this more nuanced approach to energy usage the entire perception around bitcoin mining changes. Although sustainable mining practices are in their infancy, the future of the network looks incredibly bright. Hopefully this blog will persuade you that Bitcoin is saving power rather than wasting it, and how the use of bitcoin mining will reform infrastructure in the developing world.

Rewriting the Incentives: Collecting wasted energy in Africa

Access to energy is one of the most important drivers of economic growth. Whether it is boosting productivity, mobilizing the workforce, or gaining access to healthcare and education, people need some form of power to help move society forwards. When considering that 600 million people in Africa today still do not have electricity in their homes, it is easy to see why their economies fail to compete with the rest of the world.

The lack of energy infrastructure across many parts of Africa largely comes down to there being no economic incentive to build there. Although there is an abundance of potential power sources, most regions are either too poor or remote to warrant being connected to established grids. With large amounts of energy going to waste, potential investors are put off from investing in infrastructure, as they would struggle to gather enough demand for their product. At night for example, very few people are purchasing any power, meaning all the energy produced is not put to any use.

Bitcoin mining provides a solution to this problem by aligning the incentives of the self interested and the altruistic. As the bitcoin network’s demand for energy is perfectly elastic, the miners happily purchase all the power that was not previously being used. Any first year economics student will tell you increased demand will usually result in an increase to the price level, which would be detrimental to local buyers. However, the beauty of this example, is that as the bitcoin network only buys energy that was otherwise being curtailed (wasted), there is no increase in the price of energy going towards normal households. In fact, the opposite is true, as the influx of private suppliers trying to maximise their own profit leads to price competition, culminating in lower energy prices for the local communities.

It seems fascicle that despite having a fraction of the purchasing power of Western countries, many people in Africa have to pay a similar price to get electricity in their homes. By removing the barriers that occur due to the large fluctuations in demand, the bitcoin network is able to bring prices down in the energy market. As access to energy is so crucial in raising living standards, bitcoin could be a crucial catalyst for alleviating poverty across Africa.

Positive externalities of Bitcoin Mining

The damage an activity does to the environment is related to the type and quantity of waste energy it releases. Generally, products that release carbon dioxide and methane are the biggest contributors to climate change, usually a result of the excessive burning of coil, oil or natural gas. This is fortunate for bitcoin mines, which do not give off greenhouse gases, but rather emit large quantities of heat energy. Innovative workers have already devised methods of putting this heat energy to good use, benefitting from the positive externalities produced by the bitcoin mine.

Standing next to a bitcoin mine is often compared to standing next to an industrial furnace. This heat can be harnessed and used in the production process of a variety of different products. An industrial heater costs upwards of 200,000 USD and has similar heat emissions to an ASICS bitcoin miner. By using a miner instead of an expensive heater, they can achieve the same productivity while simultaneously earning the most responsible currency on Earth.

It is rare that the incentives of such a wide variety of actors align in this way, with almost everyone involved in the development of bitcoin mining benefitting in some manner:

  • The energy producers benefit as the demand for their product has increased and setting up infrastructure in Africa is finally profitable.

  • The bitcoin miners benefit as they can turn wasted energy into hard money at cheaper price than if they went through competitive energy markets.

  • The local workforce benefit because there is more work in the area, some of which will be paid in bitcoin and will protect them from currency debasement.

  • The local entrepreneurs are happy as they are able to harness the heat given off by the bitcoin mine and use it to cut the costs of their production process.

  • The local residents are happy as there is now a competitive energy market, with different suppliers competing to give them cheaper energy prices.

  • All this with no extra damage to the environment.

Real World Use Cases: Africa

Enough of the theory, lets take a look at these concepts in practice. Although these ideas are relatively new, here are some examples of how some African countries are already using bitcoin mining to bootstrap energy and become a higher level of civilization:

Malawi

In a country where only 11% of people have electricity in their homes, the energy infrastructure in Malawi is in dire need of development. Fortunately, the Bondo villages in the East of the country have began a rapid transformation by beginning to mine bitcoin. After being gifted three turbines in a micro-hydro scheme, the villages were able to utilize the countries vast rainfall to provide significant hash power. In only a short time, the local community is already reaping the benefits of these changes. For the first time, children can study after dark, food can be stored in the fridge, cooking can be done in bulk, and production is not hindered by constant blackouts.

While the mini-grid established in the Bondo region is relatively small, with only 1800 houses attached to the micro-hydro scheme, it represents the start of a much bigger movement in Malawi. Gridless, a company heavily backed by Jack Dorsey, predicts in 30 years nearly 100% of the country’s population will have access to energy due to the bitcoin network.

Congo

Virunga is home to one of Africa’s oldest national parks, hosting over half of the continents terrestrial species. It is also the first park in the world to own a bitcoin mine. Not only is all the energy entirely net 0, coming from 3 hydroelectric power plants, but the locals are making good use of the bitcoin mines externalities. All excess heat energy is being used to process cocoa beans, while the BTC mined goes towards salaries and infrastructure. The factory prioritises local hirings, with first job offers given to the widows of rangers that have been killed while protecting the park.

Kenya

While Malawi’s bitcoin revolution was aided by social enterprise, the development in Kenya has been as a result of pure venture capitalism. With an abundance geothermal and hydro energy in rural areas, the mining network has not wasted time investing in these regions. Similarly to the Congo, the workers are putting the heat energy that comes off of the ASICS machines to good use. As Kenya is a major exporter of flowers, the heat waste is being used to warm up greenhouses to help plants grow. In other cases, mines have been used to dry pineapples and run tea plantations, helping make produce that can then be sold at the market.

Although the negative public perception surrounding bitcoin mining has undoubtedly slowed these projects, the success of these examples (along with many others) is hard to ignore. Once other regions in Africa can observe the sustained growth that bootstrapping energy to the BTC miners can bring, it will not be long before a continent wide reform is underway.

Looking Beyond Africa: Bitcoin mining globally

Whilst Africa is the continent most in need of reform, the benefits from utilizing excess energy are universal. No country is the world is immune from wasting energy, with even the most engineering states unable to capture all their power using national grids. Some have even sunk huge public expenditure into reducing waste, with the UK spending £500,000,000 on energy curtailment in 2021, and still wasting enough power to heat 600,000 homes annually.

Turning wasted energy into money is a clear solution to the widespread curtailment problem. Without boring you with too many examples, here are a few sustainable mining practices happening elsewhere in the world:

Ireland

A long standing problem in Ireland is the amount of methane given out by their agricultural sector, accounting for 35% of the countries greenhouse gas emissions. In response to this, the government have set strict regulation to curb the amount of methane being released by their livestock. Initially, these new rules looked as though they could seriously hinder the farming industry. Fortunately, some farms have started conducting anaerobic digestion to combat the issue, capturing the methane gas and using it to mine bitcoin. Turning cow dung into digital gold is the innovative solution to meeting the strict emission targets laid out by the government.

New York

A Brooklyn bathhouse has begun using a bitcoin mine to heat its indoor swimming pools and sauna. In another example of the heat waste being put to good use, the owners have replaced all their furnaces with ASICS machines. Despite their energy bill not being any higher than it was previously, the business now has far more assets on their balance sheet, showing no intention to sell the bitcoin they acquire through this process.

Norway

Norwegian company Kryptovault has been using bitcoin mining to help heat logs and dry seaweed for local businesses. A country with an abundance of stranded energy, Norway contributes to almost 1% of the global hash power, 100% of which is from renewable sources. Having higher production than consumption, but also very limited access to transfer energy to other regions, the Scandinavian country is an ideal place to convert waste power into money.

Good or Bad Energy: Who Owns the Future of Bitcoin Mining?

In the same manner I criticised the media articles for only showing one side of the story, it would be naïve to contend that all bitcoin mining is environmentally friendly. Although sustainable mining practices are growing at an encouraging rate, with 54% of the industry now powered by renewable sources (as of Jan 2024), there is still a concerning amount of fossil fuels being used in the industry. For bitcoin advocates, it poses a difficult question of how to ensure the future of the network stays green. Fortunately, without any need for government regulation or interference, the use of renewable energy should dominate the market in years to come.

As the mining network is incredibly competitive, with agents from all over the world competing to produce the most hash power, the emphasis is on the miners to utilise the cheapest energy possible. The more competitive the industry gets, the closer the energy demands to win a reward block gets to the price of the block, meaning those not using the most efficient energy will be forced out of the market. The use of renewable energy is far cheaper than using damaging fossil fuels, as the power that was otherwise going to waste has very little demand, and is thus far cheaper than any alternative. If government regulation and barriers to entry do not impede with free market forces, then simply supply and demand economics help green energy dominate in the future. Not only will the bitcoin network help people get access to energy they desperately need, but it will do so with minimal damage to the environment.