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Does Bitcoin Have an Energy Problem? 12 Bitcoin Mining Mobility & Bitcoin as a Battery Another critical characteristic of Bitcoin mining is that miners only need access to electricity and the internet in order to set up a successful mining operation. Bitcoin mining is mobile. For example, a miner could mine Bitcoin in a remote area with access to relatively cheap renewable energy that cannot be transported for use elsewhere. In this instance, the miner is using a stranded energy source. This could be economically impactful to communities near these stranded energy sources as they are able to monetize their proximity to cheap energy sources. Given this, a mental model that is sometimes used among professionals in the industry is to call Bitcoin a battery. At first blush, calling Bitcoin a battery may seem misleading. Bitcoin is not physically capable of storing energy. However, miners can take unused energy and convert it into bitcoin. Bitcoin stores value. Bitcoin is acting as a value battery since it is taking trapped energy and converting it into value. Bitcoin does not make energy transferable, it makes value transferable. We can take “Bitcoin as a battery” a bit further. To set the stage, we need to acknowledge two realities. First, Bitcoin mining is a free business to enter. Any innovation in mining that might make a miner more efficient than the rest will be short-lived. Bitcoin miner profitability is subject to the whims of the difficulty adjustment and price volatility. As such, the best way to stay consistently profitable is to control what you are able to control. In this case, that is electrical and operational costs. Bitcoin mining margins are, as a result, relatively “capped.” As the price of bitcoin rises, the number of miners that want to enter the market to mine bitcoin increases. As miners enter the market, more energy is expended and the Bitcoin protocol adjusts and makes it more energy-intensive to mine bitcoin. If the price of bitcoin does not rise enough to offset, previously profitable mining operations must shut down as costs rise. As the market moves the other way, the opposite happens. Second, Bitcoin mining occurs all day. Due to technology limitations and lack of insight into energy demand, energy companies are left estimating how much they need to produce for their customers. As such, there are periods when there is more energy available than is needed and supply outstrips demand. To compensate, companies vary the price of their electricity at different periods. Since Bitcoin miners run with capped margins, Bitcoin miners are a good candidate to use otherwise wasted or low-demand off-peak energy. With these realities in mind, Bitcoin miners can act as a load-balancer by using excess electricity, that is relatively cheap, to mine bitcoin in order to purchase electricity for whatever use later whenever there is an energy supply and demand imbalance. Again, taking “Bitcoin as a battery” literally would again make Bitcoin a poor battery. Bitcoin does not store a unit of energy for use of the same unit of energy later. Rather, it is storing the value of a unit of energy for later use. In this way, we can take the likeness further and call Bitcoin a load-balancing value battery.PDF Image | Does Bitcoin Have an Energy Problem
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