Bitcoin’s energy revolution is happening now – Bitcoin Magazine
This is an opinion editorial by Kent Halliburton, President and COO of Sazmining.
Although the intention of the Bitcoin White Paper was to usher in a financial revolution by introducing the first efficient peer-to-peer electronic cash system, we are now seeing the start of Bitcoin’s second revolution: Energy.
Bitcoin miners act as energy buyers of last resort, can work from anywhere, and can switch on and off with almost infinite flexibility. As such, bitcoin mining can make viable renewable and remote energy sources that would otherwise be unprofitable. Additionally, miners can convert waste energy into digital gold, drastically reducing humanity’s emissions problem. Interestingly, these improvements in our relationship with energy are already underway, even before bitcoin has evolved into the next global reserve asset. Could it be that Satoshi Nakamoto’s untold energy revolution actually takes hold before the first revolution of a peer-to-peer cash system? While we can’t know for sure, the data suggests that may be the case.
The energy revolution is gaining steam
Although imperfect, the best metric for comparing Bitcoin’s monetary and energy revolutions is growth. Let’s look at growth rates between the total number of bitcoin holders and the total hash rate of all bitcoin miners. Hash rate, the total computational power used by miners to process bitcoin transactions and earn new bitcoin, serves as a good proxy for miners’ energy consumption. However, this still does not give us direct data on bitcoin mining’s increasingly positive effects on the energy sector. After all, if greater energy consumption by bitcoin miners simply equates to greater demand for energy, then Bitcoin will not have caused a paradigm shift in our relationship with energy at all. But, as we will see, they have the energetic advantages of bitcoin mining rose along with Bitcoin’s energy consumption.
Total number of Bitcoin users over time (source)
Total hash rate of the Bitcoin network (source)
As you can see in the first chart, the number of bitcoin users increased at a rapid rate until mid-2021, when the rate of growth slowed. The drop in adoption roughly matches bitcoin’s price drop from over $61,000 to under $32,000. While the hash rate also crashed around this time, it steadily climbed back and continues to reach new highs. Although the use of bitcoin has decreased, the network’s energy consumption and mining activity continue to grow significantly.
As mentioned earlier, bitcoin mining’s increase in energy consumption does not tell us that Nakamoto’s second revolution is underway. To argue that, we need to know how much of that energy comes from renewables, waste and stranded energy. The Bitcoin Mining Council’s Q3 2022 report explains that bitcoin mining’s sustainable electricity mix is nearly 60% in October 2022, up about 3% from a year ago. Bitcoin miners buy renewable energy as buyers of last resort; they do not use energy that would have been purchased by other consumers. Rather, they buy the energy precisely when there is little demand from others, increasing the profitability – and thus the viability – of renewable energy sources worldwide. As bitcoin mining’s renewable energy consumption increases, so does the global market for clean energy.
Future Indicators of Nakamoto’s Revolutions
In addition to measuring the number of bitcoin holders (or wallets) in existence, another metric to measure the success of Nakamoto’s monetary revolution is the number of transactions per unit of time involving bitcoin.
The Lightning Network, a Layer 2 technology designed to make bitcoin transactions cheap, fast and easy to use, is gaining prominence as bitcoin evolves from a store of value to a medium of exchange. The number of transactions performed on the Lightning Network per unit of time will be a simple indicator of bitcoin’s growth as a monetary instrument.
As more and more energy projects take advantage of bitcoin mining, Nakamoto’s energy revolution will be measured by tracking all of the following:
- Tons of carbon dioxide equivalents reduced per unit of energy consumed by bitcoin miners per unit of time.
- Power output from stranded energy sources that would be unviable in the absence of bitcoin mining.
- Power output from intermittent (and renewable) energy sources that would be unviable in the absence of bitcoin mining.
As we receive more data about both the Lightning Network and the intersection of bitcoin mining and the energy sector, we will be able to compare how much each of Nakamoto’s revolutions is evolving over time. As mentioned earlier, while there will never be a single moment where any of the revolutions will have officially occurred, we will at least be able to measure the speed where each of them moves on.
What we now know about the double revolutions
Current data indicates that the growth of bitcoin owners has slowed relative to the growth of mining. If these trends continue and if bitcoin miners’ renewable energy mix continues to be among the greenest on the planet, then Nakamoto’s second revolution may actually overtake his first. Bitcoin could gain a reputation as a significant asset in the fight against global warming, competing with its new reputation as the next global reserve asset.
Nakamoto’s accidental energy revolution will continue to gain momentum. Fortunately for humanity, it doesn’t matter which of Nakamoto’s revolutions happens the fastest. We all win with drastically improved money and energy.
This is a guest post by Kent Halliburton. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
