The rate of emission of bitcoins (called “bitcoin mining”) has an inflexibility algorithmic limitation starting from zero (really 50) and increasing rapidly but the increasing rate slow down constantly: after the issue of 10.5 million bitcoins, its emission rate will decrease by half, after 15,750,000 bitcoins, the emission rate will halve and so on, reaching a limited capped value of the total bitcoin amount of 21 million. For this reasons bitcoin mining does not follow a logistic distribution, like the statistical Hubbert’s peak distribution functions, but follows a logarithmic growth. Nowadays there are about slight over 18.5 million bitcoins mined.
The environmental sustainability of bitcoins is a controversial question as the system has been built in a way almost like the mining of a natural resource: costs and efforts rise as the system reaches the ultimate resource limit. In other words, just as the mining of copper or gold or crude oil becomes more and more expensive and time consuming as we approach the finite quantitative limit, so also the “mining” of new bitcoin requires more and more hardware resources necessary to “mine” each bitcoin when approaching the capped limit of the bitcoin system.
Cost of Green Energy
The Levelized Cost of Energy(LCOE) is the total lifetime cost of building and operating a power plant divided by the total amount of energy it produces. For solar and wind LCOE has fallen 90% and 71% respectively, over the last decade. The unsubsidized costs of solar and wind energy are now 3-4 cents / kWh and 2-5 cents / kWh, respectively. Certain individual projects have had even lower costs. For context, the average LCOE for fossil fuels such as coal or natural gas is ~5-7 cents / kWh. This means that solar and wind are already at a lower price point than coal and natural gas. Solar and wind energy also just reached cost parity with both geothermal and hydroelectric, which at around 3-5 cents / kWh are inexpensive, but geographically limited.
There will always be inexpensive individual sites for different power sources like hydro or geothermal, but on the whole, solar and wind are now the lowest cost and most scalable. What’s more, we believe they will only continue to get more affordable over time. I believe this is especially true for solar, a semiconductor technology, which has consistently declined in price by 20-40% per doubling of cumulative capacity deployed.
Temporal Supply, Demand Mismatch & Grid Congestion
Solar and wind energy, however, both suffer from one major deficiency versus more expensive baseload power like natural gas or nuclear: intermittency. In the energy industry, this results in what is known as the “duck curve.”
In essence, the sun shines during the day, but not at night. Wind is more unpredictable, but tends to blow more heavily at night. Energy supply, therefore, is either abundant or nonexistent. Demand, however, peaks around the late afternoon or early evening when people arrive home and turn on appliances, at which time neither solar nor wind are abundantly available. The end result is significantly more power than society typically needs for a few hours per day and not nearly enough when demand spikes. This same challenge also plays out seasonally as the sun shines more during the summer and the wind blows more during the winter. These deficiencies are further exacerbated by grid congestion, which is similar to highway traffic and frequently occurs because solar and wind projects are often built in rural areas with lots of sunlight and wind but little nearby load (i.e. end power users) and transmission capacity.These are solar and wind projects which have developers and financing readily available, but which grids physically cannot accommodate.
Increased transmission capacity and energy storage will be critical to solving these problems, especially as Lithium Ion batteries continue to fall down their cost curve. For the moment, though, utility-scale batteries are still too expensive to deploy universally. After they’ve fallen another 80% in cost, they will still face physical limitations around their useful lifespan and for how long they can store energy without dissipation. They will, however, be the most critical technology in storing inexpensive mid-day solar power for evening peak demand.
Bitcoin Miners to Rescue
Bitcoin miners, on the other hand, are an ideal complementary technology for renewables and storage. Combining generation with both storage, miners presents a better overall value proposition than building generation and storage alone. As mentioned above, there will always be physical limitations to how much energy can be cost effectively stored without dissipation. However, the daily intermittency challenge can be met almost entirely with just a few hours of storage capacity.
By combining miners with renewables + storage projects, I believe it could:
- Improve the returns for project investors and developers, moving more solar and wind projects into profitable territory.
- Allow for the construction of solar and wind projects even before lengthy grid interconnection studies are completed (as bitcoin miners can offtake the energy until selling to the grid becomes possible).
- Provide the grid with readily available “excess” energy for increasingly common black swan events like excessively hot or cold days when demand spikes
Note that this “excess” energy will also be quite useful as society’s electricity demands increase with the proliferation of electric vehicles and the electrification of all devices. In a sense, the unlimited appetite of miners allows them to eat whatever remains of the “duck’s belly.” Given these benefits, i believe it makes logical sense for utility-scale storage developers to augment their current battery offerings with bitcoin miners.
Long Term Implications
I believe there are two large implications if bitcoin mining becomes normalized as an energy buyer of last resort. First, the amount of solar and wind energy on the grid could increase dramatically. There’s currently >200 GW of delayed solar and wind capacity in the interconnection queues of just three U.S. electricity markets. For context, that’s approximately double the amount of solar and wind capacity currently installed there.
As society starts deploying more solar and wind, we believe it should bring their LCOE even further down their cost curves, making the next batch of solar and wind even more affordable. If the LCOE falls, it could potentially unlock profitable new use cases for that electricity like desalinating water, removing CO2 from the atmosphere, or producing green hydrogen. Some experts in the field expect that the marginal cost of producing new electricity will actually approach zero.
The second major potential impact could be a sizable transformation and greening of the bitcoin mining industry. It’s estimated that there’s only 10-20 GW of mining capacity worldwide today. Deploying miners at even 20% capacity with the above mentioned 200GW of delayed solar and wind projects on U.S. grids alone could result in 40 GW of new mining capacity, effectively dwarfing the entirety of the existing global market. Note that while many of these projects would likely be built “behind the meter” to utilize otherwise curtailed solar and wind power whenever possible, they would likely still mine with grid electricity during other periods when profitable to do so, so it wouldn’t be entirely green from day one. But if solar and wind become even less expensive and constitute an increasingly large portion of baseload power, the ultimate trend would continue moving quickly toward renewable dominated hashrate. We believe deploying such a large amount of new, geographically diverse hashrate would also have the second order consequence of strengthening the security of the Bitcoin network, potentially further entrenching bitcoin as a sound currency for all.
Great insights…!