Recap on BTC energy consumption
We still don't know who Satoshi Nakamoto is and that's fine. The absence of a CEO can be considered an inbuilt feature of any crypto project that claims to be serious and viable.
Bitcoin is not a business and does not use any PR company to influence public opinion. This is not the case for the conglomerates which dominate the international hydrocarbon market, the chemical and mining industry, or any other powerful sector. Bitcoin is a household name around the world, and it has never spent a penny on its own promotion.
Bitcoin is also indifferent to critics and haters who want to destroy its networks.
Bitcoin is indestructible because all its distributed digital processes are based on mathematics and are decentralized all over the world. Its only hardware extension in the real world are bitcoin miners. And this is where the anti-bitcoin forces are focusing their attacks.
The best known of these repeated assaults is the consumption of energy and the danger it represents for the survival of our civilization.
Let’s face it, our capitalistic world consumes more energy than we could ever imagine, and will only increase its consumption. But in the grand scheme of things, bitcoin is far behind the most voracious sectors.
Global industries that consume the most energy
What are the key economic sectors worldwide that have the highest energy consumption? We will focus on the top 3 according to Energy End-Use: Industry, a research report published by the Indian Institute of Technology.
The chemical industry
Ammonia, chlorine and alkaline, ethylene, and other petrochemicals need large amounts of energy to be produced. The main component of fertilizers is ammonia.
According to the Energy End-Use report, the fertilizer industry accounts for about 1.2% of world energy use, and more than 90% of this energy is employed in the production of ammonia. The Bitcoin mining network, meanwhile, consumes around 100 TWh2 per year (0.06%) of the global energy consumption. To produce ammonia, ethylene must be added. This is the basic chemical that is used in the production of chemical products such as plastics. To this account must also be added bleach and paints.
The construction & metal industry
This may come as a surprise, but the cement industry is another huge consumer of energy. The direct CO2 concentration of cement production increased about 1.5% per year during 2015-202. It consumes a little bit less than 1% of global energy consumption.
Paper & pulp industry
The paper industry is another high consumer of energy, but, again, one that may not first come to mind. According to the report mentioned above, the four largest paper-producing countries (the EU, the US, China, and Japan) account for 80% of energy use and carbon CO2 emissions. It is an energy-intensive sector, which accounted for approximately 6% of global industrial energy consumption in 2017 (International Energy Agency (IEA) 2020a; International Energy Agency (IEA), 2020b).
That is to say that the paper industry consumes 100 times more energy than bitcoin.
Bitcoin and renewable energies
Once put into perspective, the attacks against bitcoin miners are more ridiculous than worrying. But like all other sectors of the world, economy bitcoin is looking for an optimization of the energy that it consumes. By its very nature the bitcoin mining industry is all about reducing the cost of the electricity it refines. The only way to stay competitive in the long-term is to minimize costs, as electricity makes up around 80% of a miner's operating spendings.
It is perhaps the only industry in the world that can reduce its consumption of fossil energy in favour of renewables in a short period of time. In truth, bitcoin miners are uniquely flexible with regards to when and where they consume energy. Their industry is global with low barriers to entry to the market. Since electricity is such an important part of the production cost, miners are highly incentivized to respond to fluctuations in the electricity price by adjusting power consumption, or by moving their operations to places where energy is less expensive or stranded and cheaper to buy. This is bitcoin’s mining strength and advantage against heavier industries that cannot migrate toward cheaper energy sources.
Bitcoin: uniquely flexible energy consumer
It is this flexibility that gives bitcoin an edge over other industries. Let's see in detail its nature and characteristics. To fully understand the uniqueness of bitcoin mining, let's see 4 of its most specific properties.
All the products on the markets are dependent on the price of energy. We can see this recently with the surge of inflation for basic food and drinks. But, as far as bitcoin is concerned, as we just said, electricity makes up around 80% of a miner's operating spendings. It's huge, that's for sure, but what seems to be a curse also has positive sides because, to avoid bankruptcy, miners must constantly find cheaper providers.
Bitcoin mining is a very specific, fine-tuned activity, whose economic structure depends on the number of machines (ASIC computers) available to miners. For example, a minor may not use 5% or 10% of his ASICs during a bear market or, more simply, when the difficulty adjustment (In short, the probability of winning bitcoins) decreases. In other words, it gives miners the possibility to quickly reduce power consumption.
The metallurgy or cement industries are unable to move their facilities and
migrate to another country. This is not the case with the bitcoin mining industry. For example, when China decided to ban it on its territory, bitcoin crashed. But in a few weeks, the hash rate was restored because, in the meantime, the miners had installed their machines in other countries. They had put their ASICs in containers and that was that, because let's not forget that the production cost of bitcoin is 80% electricity, a commodity that can be bought everywhere.
Modular & Portable
Bitcoin offers the possibility to scale a mining facility in a modular fashion. In other words, ASICs are the main row Materia for miners. They are labour dynamics and have a local site constraint. These computers are interconnected by teams of engineers in vast hangars. This process enables more precision and far less waste in terms of manpower and resources. They are easily removed, and easily transported. These characteristics translate into substantial monetary and environmental benefits.
In conclusion, the characteristics of bitcoin mining are an opportunity to streamline the problems of electricity supply and distribution experienced by grids that accept more and more renewable energies in their mix.
In the following paragraph, we will analyze the example of Texas to illustrate the preponderant place that the bitcoin mining industry takes today in strengthening electricity grids, boosting their profitability, and sometimes guaranteeing their survival.
Strengthening electricity grids with bitcoin mining
Let's first analyse the sources of energy by controllability. The economic balance of grids has until now depended on controllable energy sources, such as nuclear, hydropower, coal, and natural gas. Since the early 2000s, the production of renewable energy (Solar & wind), also called non-controllable energy, has been added to the mix.
Traditionally, grid managers play on the supply side to make the flow of electricity offered to consumers more fluid, but the biggest energy challenge today is that the supply side’s ability to manage system flexibility is declining. We are going through a unique energy transition, replacing fossil fuels with non-controllable, renewable energy.
Because of energy crises and conflicts, – the latest being the war in Ukraine –, the sector is now forced to play on the demand side. This process typically favours payments or other financial incentives to consumers for agreeing to decrease their electricity consumption when supply is low. It seems counter intuitive, but demand response exists in most developed grids worldwide.
In Texas, the grid manager is called ERCOT is at the forefront of this new trend. Bitcoin miners are now one of the most trusted factors of stability of Texas’ grid.
Several factors unique to the southern state have, for example, caused blackouts and frequent power outages. The main issue is that the Lone Star State is on a power grid that is isolated from the rest of the country, namely the western and eastern US grids. This considerably reduces the Texas grid flexibility. Importing or exporting electricity through transmission lines to provide system flexibility is, therefore, nearly impossible.
Climate change is also very severe in Texas which, since 2021, has experienced periods of extreme weather and volatile electricity demand. Another peculiarity is that the production of renewable energy is strong in Texas. The flow of non-controllable electricity is a destabilizing factor for the grid.
Demand responses policies in Texas for bitcoin miners
ERCOT set up two main categories of Demand response following how fast resources are adjusted to its electricity flow and consumption. To help stabilize the grid, ERCOT asks consumers to adjust their consumption in seconds if possible. The only industry able to precisely balance the grid’s frequency is bitcoin mining.
So far, only miners have earned the Controllable Load Resource (CLR) designation. Other ‘players’ - data centres or steel plants - also help stabilize the grid, but they are not as fast as miners. Regarding granularity, on average, the typical consumer reduces its energy consumption within 10 to 30 minutes during an electric grid emergency. Bitcoin miners do it in seconds because one of their characteristics is their uniqueness as an “interruptible load” (See Figure 1)
Fig. 1 – Demand response regarding interruptible load per sector
Towards 100% use of renewable energy
In conclusion, bitcoin miners are paradoxically a factor of stability in medium and long-term energy consumption projections. Contrary to what was believed, the development strategy of the mining industry has, as its core project, the use of 100% renewable energy. Not necessarily because the miners are environmentalists, but because they spend 80% of their resources paying their electricity bills.
It turns out that renewable energies are the cheapest, hydroelectricity being by far the most competitive.
We have also demonstrated that bitcoin mining is remarkably flexible, modular, and nomadic. Other initiatives indicate that countries without a large carbon energy production capacity can seize this opportunity and, for example, put their volcanoes (El Salvador) or geothermal sources (Iceland) at the service of the bitcoin mining industry, thus contributing to the acceleration of energy transition promised by bitcoin.