Good day everyone,

I hope you are all well and had an excellent week, welcome to CryptoGod-1’s blog on all things crypto. In this post I will be looking at how sustainable energy has become a large part of the Bitcoin mining industry and the overall role it is playing in cryptocurrency.

Bitcoin Mining

What is Bitcoin? Digital gold. A hedge against inflation. The wave of a digital and financial revolution in tandem with Web3 technologies. Bitcoin mining is achieved to validate and process transactions as part of the Bitcoin ledger. This is done by generating a cryptographic solution that matches specific criteria, known as completing a block as part of the mining process. For reaching a correct solution a reward is distributed to the miner(s) who reached the solution first.

Bitcoin requires energy for both the mining of new coins as well as the maintenance of Bitcoin’s digital ledger, which is known as the blockchain. The rise of popularity in Bitcoin mining comes in tandem with the rising costs and usage of electricity, meaning the process has often been deemed bad for the environment. At release in 2009 the reward was 50 Bitcoin, and since then the Bitcoin blockchain has seen its reward reduced in half via the halving event. This happens every 210,000 blocks or roughly every four years. The next scheduled halving event is due to take place around April of 2024, so only a couple of months away until the reward reduces to 3.125 Bitcoin.

Additional incentives are given to miners in the form of transaction fees. These are given to miners who receive fees from any transactions contained in that block of transactions. The long-term idea of Bitcoin is for miners to receive their rewards for mining in the form of transaction fees once the entire 21 million Bitcoin have been mined. This is scheduled to take place around 2140 and these fees will ensure that miners continue to mine and maintain the network. 

There is also a difficult level associated with Bitcoin mining, and this determines the work required to generate numbers below the hash target. The hash is a 64-digit hexadecimal number that is the result of sending the information contained in a block through the SHA256 hashing algorithm and is considered the heart of Bitcoin mining. The target hash is used to determine the mining difficulty and is the number miners are trying to solve when mining. 

A hash may look something along the lines of this:

a54f83a5db7371eeefa2287a0ede750ac623e49a8ba29f248eb785fe0a678559

Changing one value in the content, such as switching a letter "t" with a letter "a" would change the hash. This is the block hash and is used in the next block's header as part of the information run through encryption. Each block makes use of the previous block's hash, which acts to chain them together and creates a blockchain. Miners need to generate a number equal to or less than the target hash number as part of the mining process, and this can be quite energy intensive because of the encryption and the difficult level.

The difficult level is known as mining difficulty and determines how difficult it is to generate a number less than the target hash. The mining difficulty changes at every 2,016 blocks, or every two weeks. The efficiency in the current cycle will determine the difficult level in the next one. The number of miners also impacts the difficulty level, with more miners means more computer power to mine the cryptocurrency. The more miners onboard the more difficult the problem they are trying to solve becomes.

Back in January 2023 the Bitcoin difficulty level was sitting at 37.9 trillion. In January 2024 it is sitting at 73.2 trillion and this number means the chance of a computer producing a hash below the target is 1 in 73.2 trillion. The higher the number the more miners on the network mining and the higher the difficulty to achieve the solution and win the reward for the block.

Sustainable Mining

With Bitcoin mining becoming a very profitable business venture it is important to understand the three main costs associated with Bitcoin mining. These are:

Electricity: The energy consumed to run mining rigs 24/7 can be intensive and create a substantial bill. Cooling needs to be taking into consideration around the mining system as the constant demand on the computing devices can produce a lot of heat. This can add additional bills of air conditioning to the bill.

Mining Rigs: In general desktop computers and gaming systems can be used for mining as part of a mining pool. These pools split the reward between themselves based on the amount of work each miner contributes. More advanced systems such as ASIC mining machines are out in-front in terms of capability, but the outlay to acquire ASIC miners to join a pool can be a big set back. The faster the machine can mine, the more it will cost upfront and with electricity consumption. .

Network Infrastructure: The network speeds do not have a direct impact on Bitcoin mining, but latency does. This is the amount of time it takes to communicate with the rest of the network. Internal connections are also required for mining farms to connect each mining rig to a main router or server to the internet. 

Once the cost of these inputs is lower than the output, ie the Bitcoin mined, then the system generates profit. The fluctuating price of Bitcoin means getting into mining can be an attractive venture but the acceptance of lower initial profits and time taken to break even can be off-putting to some. Making use of sustainable energy to mine Bitcoin can be an additional cost saver for large scale processes.

The amount of sustainable energy being used to mine Bitcoin has reached an all-time high of 54.5%  during 2023. That marked a 3.6 increase for the year-on-year mining making use of sustainable energy. This was shown by "The Bitcoin ESG Forecast" which compared Bitcoin’s sustainable energy mix to other industries using publicly available data over the past four years. This makes Bitcoin mining one of the largest consumers of sustainable energy among subsectors. Added to this is the fact the Bitcoin mining industry has made notable progress in increasing its reliance on sustainable energy sources and in doing so has surpassed other industries and their targets.

To ensure the industry is excelling when it comes to sustainable methods of electricity production for their mining, some mining companies have adopted a more environmentally conscious approach by working in tandem with small oil producers in Canada and the U.S. These oil producers ay for permits to flare natural gas and in the process they can also release methane directly into the atmosphere, which can be difficult to detect. Through the use of vented methane they are capable of generating electricity for Bitcoin mining and ensuring it is not released into the atmosphere. The Bitcoin network now mitigates 7.3% of its emissions without relying on offsets this to this method. This is also a new record high and surpasses all other industries in non-offset-based emission mitigation. Bitcoin mining is currently the highest user of sustainable energy (54.5%) across multiple subsectors, and it has achieved an increase in sustainable mining of 3.6% for the calendar year of 2023 compared with other global industries.

Advancements in off-grid renewable mining have also advanced, with Tether expanding into hydro mining in Latin America along with the discovery of more off-grid methane-mitigating mining operations. These methods have helped to increase Bitcoin's reliance on sustainable energy sources. The bans on cryptocurrency mining in China and the effective prohibition in Kazakhstan means that many miner's operations are now part of the greener grids on North America, or sustainable off-grid locations. Further evidence in the report noted how global grids are gradually becoming greener at 0.7% annually, resulting in a 29% improvement in emission intensity for on-grid Bitcoin miners compared to 2021.

Miners will need to expand their operations to stay profitable with the upcoming Bitcoin halving event. This means the price of production will increase for miners. Data from the third quarter of 2023 noted that the average cost of producing a Bitcoin sat at approximately $16,800 and $25,000. The cost of this production is set to increase to around $37,856 post-halving. These increases in costs will be associated with the reduced reward and the requirement for miners to expand their operations to remain profitable.

In late 2023, Don Wyper, COO of DigitalMint, noted that:

“In its current status, the infrastructure that supports the Bitcoin protocol cannot be sustained, but the beauty of the protocol is that the incentive structure will force miners to adopt the cheapest form of electricity, which in the near future will be renewable energy.”

The energy used in Bitcoin mining is intensive but can be very beneficial when an overloaded grid requires a sponge, such as Bitcoin mining, to use up the additional energy and ensure the grid is not overloaded. Miners can also switch off their rigs in a moments notice to ensure they are not using too much of the electrical power in an area. 

Solar and Wind energy could also have large roles to play in Bitcoin mining going forward. Solar only managed to pay off its carbon debt in the 1990's, having been invented in the 1950's. It is important to note how all climate-tech inventions have a carbon footprint at their inception. The wind and solar energy industry could benefit from the Bitcoin mining industry according to a study published at the end of 2023 by Fengqi You, a sustainability researcher at Cornell University in Ithaca, New York.

He believes that Bitcoin mining could help grow the industry and provide millions in the inception and testing phases of the renewable energy machines. 

“Crypto operations such as Bitcoin mining, which are often criticized for their high energy consumption, hold the potential to play a significant role in promoting renewable energy development and aiding climate action efforts.” 

Once the renewable energy projects are built there is usually a period of time where they generate power but are no connected to the grid. This means they don't generate any revenue, but the report notes how this energy could be used to mine Bitcoin, and thus ease the financial stress of this phase. According to the data of 58 currently planned wind and solar installations in the United States they could all turn at least a small profit from mining Bitcoin at its current value. 

Texas was shown as the state with the greatest potential for the scheme and had 32 planned renewable projects at the time of the report. They would be capable of generating about 47 million from Bitcoin mining in the pre-grid-connection phase. California, along with Colorado, Illinois, Iowa, Nevada, and Virginia have fewer planned installations but would have significant potential for Bitcoin profitability. The report noted:

“The extent of profitability and the potential climate benefits of combining Bitcoin mining with renewable energy installations were more significant than we initially anticipated.  This approach enhances the economic feasibility of renewable energy projects, thus contributing to the broader goal of reducing reliance on fossil fuels and also shifts the mining operations primarily relying on fossil-dependent grids to clean energy sources.”

Renewable projects which are considered the best for Bitcoin mining are the ones with the most stable and consistent electricity generation. Solar energy indicates a greater profit potential than wind energy projects, with the highest potential profits from two projects in Texas which would generate a maximum profit of $3.23 million. The greatest potential profits for a wind energy project, also in Texas, were $2.65 million.

The biggest fear associated with renewable energy use for mining Bitcoin is the potential for the mining difficulty to increase. This could results in the requirement of more computational power which in turn could lead to higher energy consumption. If the energy required for mining Bitcoin is more than the renewable power available, then more fossil fuels could end up being burnt. It could also create a strain on the electricity supply available for local communities meaning careful planning and regulation would be required to avoid negative impacts.

Have a great day.

Peace. CryptoGod-1.

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