Five Factors That Make Bitcoin Miners Unique – Bitcoin Magazine
This is an opinion piece by Jaran Mellerud, an analyst at Arcane research with a focus on Bitcoin mining.
Most people dismiss bitcoin mining as simply another energy-intensive industry, but there’s a big difference: Bitcoin miners are uniquely flexible about when and where they use energy. Arcane Research’s new report titled “How Bitcoin Mining Can Transform the Energy Industry” found five factors that make bitcoin miners unique energy consumers, which I will explain here.
Bitcoin miners are price responsive energy consumers
A price-sensitive energy consumer is financially incentivized to adjust his energy consumption based on the energy price. Bitcoin miners refine energy into bitcoin and are only financially incentivized to do so if the energy input is priced lower than the bitcoin output.
The chart below shows the break-even energy price for mining bitcoin during 2021 and part of 2022. This break-even energy price is dollar-denominated revenue per MWh of energy fed into a bitcoin mining machine (Antminer S19). Suppose a bitcoin miner’s price per MWh increases above this line. In that case, the miner is financially motivated to shut down its machines, as it would earn less by using this energy for bitcoin mining than it would pay for the energy.
Source: Hashrate Index
Since energy is such an important part of the cost structure, miners are always aware of their energy prices and can calculate their break-even energy prices with confidence. During energy scarcity events, the spot energy price will rise far above the miners’ break-even energy price, encouraging miners to reduce production and allow the energy to flow to less price-sensitive energy consumers, such as households.
Bitcoin Mining is an interruptible process
Not only are bitcoin miners financially incentivized to stop consuming energy if spot energy prices rise above their break-even energy price, but they are also fully capable of doing so due to the interruptible nature of the bitcoin mining process.
A bitcoin miner can interrupt production and energy consumption at a moment’s notice without losing more money than the opportunity cost of not producing bitcoin. It can not only interrupt consumption, but also adjust it up or down in kilowatt intervals.
The interruptibility of the bitcoin mining process becomes apparent when comparing a bitcoin mining facility to a conventional data center. A conventional data center performs many complex processes and must maintain uptime because of its customers. Uptime is so critical to data centers that they are categorized from level one to four based on their uptime guarantees and power redundancies. Bitcoin miners, and some other high-performance computing processes, are the only interruptible data center processes.
Since bitcoin mining is an interruptible and price-responsive load, the process is exceptionally suitable as a demand response tool that can help strengthen electricity systems.
Bitcoin mining is location agnostic
Most energy-intensive industries produce physical products that require access to supply chains. On the other hand, Bitcoin miners produce hash that is sold over the internet. Therefore, a bitcoin mining facility can generally be built anywhere with cheap energy and internet access.
The location agnosticism of bitcoin mining makes it possible to take the energy consumer directly to the energy source. Bitcoin miners are the ultimate customers of previously stranded energy resources, which is why oil producers have begun using natural gas that they would otherwise flare to mine bitcoin.
Source: Arcane Research
The location agnosticism of bitcoin mining becomes apparent when you look at a map of Texas’ bitcoin mining operations. They are almost all located in the desert in the far west of the state, where they feed on the region’s stranded wind and sun.
Bitcoin mining can scale modularly
A bitcoin mining machine uses a certain amount of electricity and it is possible to combine different amounts of these machines for different load levels. Whether an energy asset owner wants a bitcoin mining load of 5 MW, 20 MW or 100 MW does not matter: all load sizes are possible by changing the number of machines.
Source: Arcane Research
The modularity of bitcoin mining makes it possible to design a bitcoin mining load to match the available energy production capacity. This is especially relevant when matching the bitcoin mining load with the surplus production capacity of a stranded renewable energy generator to improve the economy.
A Bitcoin mining rig can be designed to be portable
We can design a bitcoin mining load in specific ways to maximize portability. Filling specially designed shipping containers with mining machines has recently emerged as a way to optimize portability. These container solutions are designed according to the plug-and-play principle and can be quickly sent to other locations if needed.
Source: Arcane Research
The portability of bitcoin mining makes it easy to move a mining facility to soak up excess energy and quickly move the facility to another location if the energy ceases to be in excess at the first location.
Conclusion
Bitcoin mining has a combination of characteristics that make it a uniquely flexible energy consumer. This flexibility allows bitcoin miners to provide positive externalities to various energy systems globally, including strengthening vulnerable power grids, improving the economics of renewable energy, curbing natural gas flaring, and lowering heating costs by reusing waste heat.
What makes bitcoin mining such an ambitious energy tool is not only that it is a uniquely flexible energy consumer, but that the economic incentives are increasing. With similar incentives, the bitcoin mining and energy industries are destined to work together to solve some of our biggest energy problems. You can read more about this in Arcane Research’s full report.
This is a guest post by Jaran Mellerud. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc Bitcoin Magazine.
