Bitcoin Mining is good for the energy grid and good for the environment
Join the most important conversation in crypto and web3! Secure your place today
This week, the US Senate Committee on Environment and Public Works (EPW) will hold a hearing on digital assets and the environment. This hearing will focus almost exclusively on the energy use of Bitcoin’s proof-of-work mining process.
At its simplest, Bitcoin data centers (also known as miners) use computers to secure the Bitcoin network and process transactions. For this work, they are rewarded in bitcoin (BTC). Critics have highlighted the large amount of energy used by bitcoin miners and argued that governments should either crack down on bitcoin mining or force miners to switch away from the proof-of-work protocol and operate in a less energy-intensive manner.
Dennis Porter is the CEO of the Satoshi Action Fund.
This criticism lacks important context, such as that more energy is lost in the transmission and distribution of electricity than the entire Bitcoin network uses annually. Allowing governments to crack down on Bitcoin’s energy use or attempt to change how transactions are processed will not only undermine the Bitcoin network, but also hinder energy innovation, positive environmental outcomes, and economic opportunity in America.
Bitcoin can drive renewable energy innovation
Bitcoin has the potential to expand renewable energy production. Renewable energy is currently struggling with the reliability, cost and use of electricity throughout the US grid. Bitcoin mining provides a solution to each of these problems.
Solar and wind energy are intermittent because they only produce energy when the sun is shining and the wind is blowing. Much of this energy is generated when demand is low, and if this energy is not stored in batteries, it is simply wasted or “constrained”. Currently, the state of California is on track to reduce 5 million megawatt hours by 2030. This is more energy than the bottom 36 nations use combined. Bitcoin miners stand ready to buy excess energy from wind and solar farms, improving revenues for renewable generation and preventing taxpayers from subsidizing the production of energy. A win-win.
Miners can also smooth out the periodic generation of renewable energy by participating in grid balancing services. Miners will not only consume surplus production from wind and solar power, but also reduce energy consumption to near zero when taxpayers and other key sectors, such as hospitals and businesses, need power. Miners regularly reduce consumption in states that allow this type of grid participation, ensuring that grid operators have the ability to keep the lights on and power prices low.
Miners aren’t just good for renewable energy. They can also make use of stranded methane, a potent greenhouse gas, which is often uneconomical to bring to market. Methane is often vented or flared from landfills, abandoned wells and oil and gas operations.
Because bitcoin miners can operate anywhere, they can turn stranded methane gas into electricity and use it to mine bitcoin, generating both an economic and environmental benefit. Former Greenpeace activist and researcher Daniel Batten has stated that it would take “around 50 medium-sized landfills in the United States completely burning their methane … to make the entire Bitcoin network carbon-negative” – a feat almost impossible for anyone else industry to achieve unless they do so through the purchase of carbon credits.
These use cases highlight just a few ways that bitcoin mining can reduce overall emissions while encouraging the development of America’s energy resources. Bitcoin mining should be seen as an effective tool for a lower emissions future, not a contributing problem.
The perils of proof-of-stake
Despite these advantages, many in the Bitcoin industry have been pushing for another way of creating new blocks of transactions, specifically a mechanism known as proof-of-stake. Rather than using specialized computers, proof-of-stake relies on users locking up their cryptocurrency for a period of time in a process known as “staking.” This allows users to generate a passive income while helping to process transactions and secure the network. Although this process uses less energy, it comes with other complications.
Securities and Exchange Commission (SEC) Chairman Gary Gensler recently sat down for an interview in which he argued that every cryptocurrency, except bitcoin, was a security and therefore under the SEC’s jurisdiction. The interview came just days after the SEC filed an enforcement action against cryptocurrency exchange Kraken for allowing its US customers to use their Ethereum tokens – ether (ETH) – to participate in “staking” to validate the Ethereum network. This enforcement action included a hefty fine and a cease and desist order.
On top of these actions, Gensler has separately commented that any cryptocurrency that uses proof-of-stake could be a security and therefore fall under the SEC’s regulatory jurisdiction. By maintaining their current proof-of-work structure, those in the Bitcoin space can avoid such complications.
The Bitcoin community should continue on its current path and look to bolster renewable energy, reduce methane emissions, and use stranded energy to improve both the grid and US power generation. EPW’s core mission is to balance basic American needs such as energy reliability along with environmental stewardship. Bitcoin can help America achieve this.
With this in mind, we should embrace bitcoin mining and promote its growth across the nation to ensure that the United States leads the world in the next wave of energy and environmental innovation.
