Bitcoin’s Energy Revolution Could Arrive Sooner Than We Expect

Kent Halliburton, President and COO of Sazmining, has written an opinion piece.

Though the Bitcoin white paper intended to usher in a financial revolution by introducing the first effective peer-to-peer electronic cash system, we are now witnessing the start of Bitcoin’s second revolution: energy.

Bitcoin miners act as last-resort energy buyers, can work from anywhere, and can turn on and off with nearly infinite flexibility. As a result, bitcoin mining can make renewable and remote energy sources that would otherwise be unprofitable viable. Furthermore, miners can convert waste energy into digital gold, significantly reducing humanity’s emissions problem. Surprisingly, these improvements to our relationship with energy are already in the works, even before bitcoin becomes the next global reserve asset. Could Satoshi Nakamoto’s unspoken energy revolution take hold before the first revolution of a peer-to-peer cash system? Although we cannot be certain, the data suggests that this may be the case.

Growth, while imperfect, is the best metric for comparing Bitcoin’s monetary and energy revolutions. Consider the growth rates of the total number of bitcoin holders and the total hash rate of all bitcoin miners. The hash rate, which is the total computational power used by miners to process bitcoin transactions and earn new bitcoin, is an excellent proxy for miners’ energy consumption. This, however, does not provide us with direct data on bitcoin mining’s increasingly positive effects on the energy sector. After all, if increased energy consumption by bitcoin miners simply corresponds to increased energy demand, Bitcoin will not have resulted in any paradigm shift in our relationship with energy. However, as we will see, the energy benefits of bitcoin mining have increased in tandem with Bitcoin’s energy consumption.

As shown in the first chart, the number of bitcoin users increased rapidly until mid-2021, when it began to slow. The decline in adoption roughly corresponds to the drop in bitcoin’s price from over $61,000 to under $32,000. While the hash rate also dropped around this time, it steadily recovered and continues to rise. Despite the fact that bitcoin adoption has slowed, the network’s energy consumption and mining activity has increased significantly.

As previously stated, the increased energy consumption of bitcoin mining does not indicate that Nakamoto’s second revolution is underway. To make that case, we need to know how much of that energy is renewable, waste, or stranded. According to the Bitcoin Mining Council’s Q3 2022 report, the sustainable electricity mix in bitcoin mining is nearly 60% as of October 2022, up about 3% from a year ago. Bitcoin miners buy renewable energy as a last resort; they do not consume energy that would have been purchased by other consumers. Rather, they buy energy when there is little demand from others, increasing the profitability — and thus the viability — of renewable energy sources worldwide. As the demand for renewable energy in bitcoin mining grows, so does the global market for clean energy.

Aside from the number of bitcoin holders (or wallets) in existence, another metric used to assess the success of Nakamoto’s monetary revolution is the number of bitcoin transactions per unit of time.

As bitcoin evolves from a store of value to a medium of exchange, the Lightning Network, a Layer 2 technology designed to make bitcoin transactions cheap, quick, and user-friendly, is gaining traction. The number of Lightning Network transactions executed per unit of time will be a direct indicator of bitcoin’s growth as a monetary instrument.

As more energy projects use bitcoin mining, Nakamoto’s energy revolution will be measured by keeping track of the following:

1. Tonnes of carbon dioxide equivalent reduced per unit of energy consumed by bitcoin miners per unit of time.
2. Wattage output by stranded energy sources that would have been unviable in the absence of bitcoin mining.
3. Wattage output by intermittent (and renewable) energy sources that would have been unviable in the absence of bitcoin mining.

As more information about the Lightning Network and the intersection of bitcoin mining and the energy sector becomes available, we will be able to compare how far each of Nakamoto’s revolutions has progressed over time. As previously stated, although there will never be a single moment when either revolution will have officially occurred, we will be able to measure the rate at which each is progressing.

According to current data, the growth of bitcoin owners has slowed in comparison to the growth of mining. If these trends continue, and bitcoin miners’ renewable energy mix remains among the greenest on the planet, Nakamoto’s second revolution may indeed eclipse his first. Bitcoin has the potential to become a significant asset in the fight against global warming, rivaling its emerging status as the next global reserve asset.

The force of Nakamoto’s unintended energy revolution will continue to grow. Fortunately for humanity, it makes no difference which of Nakamoto’s revolutions occurs first. We all benefit from significantly increased money and energy.