How Bitcoin could drive the clean energy revolution.
The system’s economic incentives favor clean, renewable, energy.
Bitcoin’s recent incredible price increases have come along with equally sensational headlines about its energy usage. There are plenty of reasonable voices out there; I particularly recommend Ars Technica and TechDirt, and also this researcher who suggests that (at least by last spring) miners used less than annual Christmas tree light consumption. However, there are also people suggesting that bitcoin mining will boil the oceans. We are going to release a more comprehensive, just-the-facts backgrounder on Bitcoin’s energy use soon, but today I wanted to briefly present an alternative to the boil the oceans thesis: If Bitcoin mining did become the dominant driver of energy consumption, then that could be a good thing for the environment! Just as the consumer electronics revolution drove the massive computing efficiencies known as Moore's law; the Bitcoin revolution could drive a similar explosion of innovation in clean efficient energy.
It’s common knowledge that heavy industry drives electricity efficiency. Why? Because heavy industry can generally be based anywhere, and electrical costs tend to be a large percentage of their total costs. Electricity is 40-45% of costs to chemicals manufacturing (like chlorine production) and a whopping 30-50% of costs to steel and aluminum smelting. That means that heavy industry will base itself where costs are lower, and that will tend to be wherever electricity is affordable because its production is more efficient. Demand drives supply and thus rewards those who develop cheaper modes of electricity generation. Lately that has roundly been a green affair. The cheapest electricity on the planet is now wind and solar energy. Geothermal and hydroelectric are also top contenders and don’t have to deal with storage issues.
However, electricity costs may not always be top of mind for your typical heavy industry proprietor. They may put up with expensive, dirty energy if other costs drive their decision-making. Industries also like to be where their customers are, where it is cheap to ship material inputs like scrap metal, and where governments grant them subsidies in order to encourage industrial growth.
But electricity costs matter even more to a Bitcoin miner than typical heavy industry. Electricity costs can be 30-70% of their total costs of operation. Also, Bitcoin miners don’t need to worry about the geography of their customers or materials shipping routes. Bitcoins are digital, they have only two inputs (electricity and hardware) and network latency is trivial as compared with a truck full of steel. This particular miner moved an entire GPU farm across the U.S. because of cheap hydroelectric power in the Pacific Northwest and, in his words, “it’s worth it!” That’s also why we see miners in Iceland. Aside from beautiful vistas you can find abundant geothermal and hydraulic power in the land of volcanoes and waterfalls.
If Bitcoin mining really does begin to consume vast quantities of the global electricity supply it will, it follows, spur massive growth in efficient electricity production—i.e. in the green energy revolution. Moore’s Law was partially a story about incredible advances in materials science, but it was also a story about incredible demand for computing that drove those advances and made semiconductor research and development profitable. If you want to see a Moore’s-Law-like revolution in energy, then you should be rooting for, and not against, Bitcoin. The fact is that the Bitcoin protocol, right now, is providing a $200,000 bounty every 10 minutes (the bitcoin mining reward) to the person who can find the cheapest energy on the planet. Got cheap green power? Bitcoin could make building more of it well worth your time.