Cryptocurrency and Energy Generation: Natural Partners or Potential Problem Spot?

Since first bursting into the public consciousness several years ago, the concept of cryptocurrency has continuously perplexed many people outside the industry, while others felt confident that they were close to understanding the technology only to have it slip through their grips. All the while, cryptocurrency opportunities were creating windfalls of economic opportunities for investors and stakeholders, regardless of how well they actually understood it! But during these early times, the hot trend of cryptocurrency seemed to some like something of a buzzword, with corporations getting into the game while journalists breathlessly detailed the teenagers who had unwittingly become Bitcoin millionaires.

Now, though, the cryptocurrency sector has a few years under its belt and proponents have moved further along the hype cycle to reach tangible and productive projects. However, those increasingly common projects have found the need to continually address a persistent issue: the massive energy demand of the cryptocurrency landscape.

The backbone of cryptocurrency, which can be read about via great explainers like this one, is using computers to constantly run while solving complex equations. This computing power and required data servers have a notable electricity footprint, highlighting how there’s no such thing as a free lunch. Because of that, stakeholders in the cryptocurrency must really evaluate the energy demand, the associated climate implications, and identify how the emerging technology and the power sector can work and plan harmoniously towards the future.

 

Energy Requirements of Cryptocurrency and the Associated Climate Impact

To start, what exactly are the energy requirements of cryptocurrency? According to Harvard Business Review, the poster child in cryptocurrency—Bitcoin—currently consumes 110 Terawatthours of energy each year, representing 0.55% of global electricity production. To put that figure in perspective, the New York Times broke it down this way:

  • Finland, a nation of 5.5 million people, uses less total energy per year than the Bitcoin market
  • Bitcoin’s total energy footprint also represents seven times Google’s global operations
  • To mine just one bitcoin requires $12,500 worth of energy

These numbers are mind-blowing, but they make sense when realizing that each bitcoin transaction has an energy footprint of over 1,800 kilowatt hours (kWh) compared with 100,000 Visa transactions that use just shy of 150 kWh in total.

Despite these massive energy generation needs, the impact isn’t quite as negative for the climate as it could be, as shown by a report that tabulated Bitcoin’s energy consumption to come 73% from carbon-neutral sources, largely via hydropower in cryptocurrency mines in Asia and Europe that are co-located with existing dams. An alternative assessment found that figure to be closer to 39% carbon neutral, showing that the anonymized nature of cryptocurrency makes direct study challenging to nail down exactly. But either way, cryptocurrency operations do seem to be largely renewable, especially when compared with more carbon-intensive economic activities that pull from the typical grid.

Whether the energy footprint of these cryptocurrency operations is 39% carbon-neutral or 73% carbon-neutral, the sector still leaves a large chunk of immense energy consumption that is not carbon neutral, which is only getting more concerning as the total market grows. For further context on the climate impact, consider the following figures:

  • The carbon footprint of a single Bitcoin is about 191 metric tons of CO2, compared with physically mining the same value in gold that only accounts for 13 metric tons of CO2.
  • In total, Bitcoin production accounts for up to 23 million metric tons of CO2 per year, which would place it between Jordan and Sri Lanka in the ranking of total national

These numbers are all increasing with each passing year, as cryptocurrency values increasing are only driving more activity. As noted by Charles Hoskinson, co-founder of Ethereum, the blockchain network for one of the most valuable cryptocurrencies on the market:

“The more successful bitcoin gets, the higher the price goes; the higher the price goes, the more competition for bitcoin; and thus the more energy is expended to mine.”

 

 

How New Energy Thinking is Helping the Crypto Pros

However, the truth is that the innovators driving cryptocurrency also tend to be forward-thinking in how they acquire their energy. The reason that these cryptocurrency operations can be creative and proactive in how they fulfill their energy needs is that they don’t have to have their power needs fulfilled directly from the grid. Following in the footsteps of the massive data centers that allow tech giants like Amazon and Google to hum, cryptocurrency operations have realized the benefits they have by not being geographically bound. Instead, these facilities are placed where the land and the energy are cheapest. This trend means rural, remote locations where land is plentiful make more sense for cryptocurrencies than urban centers or Silicon Valley. Further, when those operations are built, they then tend to be powered by contracting directly with renewable energy projects (existing or new) nearby. By contracting with renewable farms directly, these companies can get the best electricity rates, remain insulated from market price surges, minimize their carbon footprints, and even minimize the amount of energy lost from transmission (a key benefit of this type of distributed energy generation asset).

These types of cryptocurrency and renewable project partnerships have been forged repeatedly. For example, the North Dakota Public Service Commission just recently approved a direct agreement between a blockchain company and a clean power provider, while recently the president of El Salvador has looked to bring a new renewable energy generation source into the game with its local geothermal resources.

In addition to these renewable energy resources, another carbon-neutral power source has started to see pairing opportunities for cryptocurrency, and that’s nuclear power. Nuclear plants are expensive to build and come wrapped in immense amounts of red tape that increase timelines and risk, but two areas are getting attention in the nuclear sector for cryptocurrency are leveraging existing nuclear power plants and the coming technology of small modular reactors (SMRs).

SMRs are a type of mini-nuclear reactor, with that smaller size making them a dispatchable, buildable source of power that can be constructed in a factory and shipped to where it’s needed, such as a remote cryptocurrency facility’s location. This ability reduces the capital expenditures requires, minimizes red tape, and allows one large energy user to meet their own needs with clean energy rather than rely upon the grid. Utilizing SMRs for energy needs is another area where cryptocurrency is following the lead of data centers in this regard, as recently Amazon and other tech giants have contracted with SMR providers to discuss a future where this would power operations. So similarly, SMRs are going to be valuable for cryptocurrency moving forward.

Then on the theme of utilizing existing power plants, the advantages are actually just as notable for the energy sector itself as they are for the cryptocurrency players.

 

Can Crypto Actually Help the Energy Sector, Too?

For existing nuclear power plants, keeping them cost-competitive with new power generation and distributed energy generation has been challenging because the ramping up and down to match demand can be costly. While Illinois recently passed legislation to help aid these existing nuclear plants, not every state is trending that way and so offloading extra generation to cryptocurrency needs has gotten a lot of attention. For example, the mayor of Miami has been publicly recruiting cryptocurrency companies to come and take power from the region’s Turkey Point nuclear plant

Similarly, the Midwest utility Ameren recently found that mining cryptocurrency would be an effective way for it to offload excess generation when customer demand drops. Utilizing that excess power for cryptocurrency represents a much preferable solution than the status quo of ramping down production, which is inefficient and costly. With this new strategy, they can instead keep production humming and make productive use of the energy. Further, this process makes the utility money, which reduces costs to customers in the end. While this Ameren program is still in pilot, it is garnering a lot of excitement and could represent the future path many utilities will take.

In the end, the energy sector is evolving more than it ever has before. Modern technologies, smart capabilities, and more are key to the future of energy. These are the trends that Atlantic Energy is keeping at the forefront for you. Whether it be providing smart home products or identifying early-stage clean energy for your home or business, we see the trends that are coming and keep you informed and ensure you benefit from them.

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