Bitcoin as a pillar of energy supply

If you follow common press reports, the cryptocurrency Bitcoin is almost always about two topics: either it is striking price fluctuations or it is the high energy consumption. This guest post is about an energy supply option that practically turns the common criticism on its head.

It’s statements like this one that get stuck in the public mind: “One Bitcoin transfer costs as much energy as a household of four uses in 6 months.” This statement is as pointless as saying “my car consumes 6 liters per 100 km because I use the turn signal every now and then”, because it declares the secondary function to be the main function, which in the case of the Bitcoin network is precisely the security aspect.

Energy demand

As is well known, the extreme IT security of the Bitcoin network can only be guaranteed by the corresponding energy expenditure. This level of security would also be desirable for our infrastructure (energy supply, internet, government apparatus). According to a study by Munich Re, the costs of cybercrime now exceed the damage caused by all natural disasters.

The energy requirements of the Bitcoin network are essentially generated by the mining operations (data centres) distributed around the world. These halls are equipped with special computers, so-called mining rigs, which in turn are equipped with special ASICs (application-specific ICs). Such computers can perform only one very specific computing operation at an unimaginable speed: Determine the so-called hash value of a new data block (which contains about 2,000 transfers) for the blockchain database. This process can in principle be watched live, see Figure 1.

Bitcoin as a pillar of energy supplyBitcoin as a pillar of energy supplyFigure 1 https://mempool.space/de/

The process is called PoW (proof of work). It was developed by Dr. Adam Back in 1997 and consumes about 90 TWh of energy per year.

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Change of scene

Despite the development of renewable energy sources (solar and wind) and research work such as nuclear fusion technology, it is foreseeable that the world’s rapidly increasing electricity demand can only be met in a CO₂-neutral way in the medium term by relying massively on nuclear energy. At the same time, there are innovative concepts that are intended to be decentralized and environmentally compatible. A possible keyword for this: Running wave reactor. One disadvantage of renewable energies is their “unreliability”, caused by lulls and fluctuating sunlight yield. These possible gaps in supply must be compensated for in other ways. Unfortunately, there is still no patent solution to be able to store large amounts of electrical energy. One example of this: EWE has presented a German-Japanese research project in the small northern German town of Varel. It involves a large-scale hybrid storage system that can deliver more than 11.5 MW of power on demand. It cannte could supply all of Varel’s households with electricity for about five hours.

All such research efforts are to be welcomed and important, but it doesn’t look like a groundbreaking breakthrough at first. And this is where an alternative idea comes into play: energy reserves that can be called up quickly are indispensable for our grid stability – especially in times when renewable energy sources are difficult to calculate. The number of times that Germany has already avoided blackout scenarios is not directly communicated to the citizens, but it cannot be completely concealed either. Niklas Záboji writes:

From 7:49 p.m., the grid operators therefore pulled out more stops and took four industrial plants off the grid with the immediately disconnectable loads (SOL), including Trimet’s aluminium smelter in Essen. Eleven minutes later, the disconnection of large consumers continued across the country. Now, several of the quick disconnect loads (SNL) were also disconnected from the power supply at the behest of the grid operators in order to bring generation and demand into balance. In their case, there is a lead time of a few minutes, while the SOLs come off the grid within 250 ms. The drops lasted until 9pm.

Niklas Záboji, F.A.Z., 16.08.2021

Energy reserves are needed to mitigate the problem described.

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Surplus electricity for mining rigs

And these could be provided by the above-mentioned innovative nuclear power plants. But every technician knows the next question: Where to put the energy when it is not needed in the public grid? Such power plants need a constant load, otherwise it is not possible. And before you feed superfluous energy into a lithium-ion plant, which otherwise only costs money and generates nothing and also only has a limited capacity, the power plant can better feed a neighbouring mining plant, even in the longer term. Mining plants around the world operate highly economically, i.e. they make a profit by mining Bitcoins. So the power plant can always deliver its energy at a profit, even without needing the “public grid”. And it could be optimized even further: The mining rigs convert 100 percent of the energy into heat. This could be utilized through heat exchangers and used for district heating, for example. Concepts of this kind are already being pursued overseas, but in Germany ideological barriers are once again standing in the way. This problem decouples us from the world market.

The biggest advantage of this system would be the following: If the public grid suddenly needs a lot more energy from the power plant, the mining rigs can be shut down in stages in a matter of seconds (presumably SOL), without any disadvantages for anyone and without anyone even noticing – and no information is lost. Our power grids could be run in an optimally stable manner, renewable energy notwithstanding. Bitcoin mining would serve as a tool to stabilize the grids without incurring any costs. Voters and politicians just need to understand these connections.een and implement, but time is running out. So far, such alternatives to the “lithium-ion mega-storage facility” have not existed at all, so we are finding it difficult to adopt the new orientation and mindset, but it is still worth considering. Demonizing bitcoin technology could prove to be a big mistake in thinking.

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Some CO₂ information should not be missing at this point either, in order to compare the orders of magnitude. For example, back in 2020, a study by Cambridge University found that 39 percent renewable energy was already being used for BTC mining. Germany itself does not achieve a higher share in the use of renewable energies. The balance is likely to improve even more soon, as mining has hardly been allowed in China since 2021, where fossil fuels were predominantly used. As of today, Bitcoin is only responsible for around 0.05 percent of global CO₂ emissions, while the fashion industry is responsible for 5 percent. And this raises the question of what is more important: the latest collection or the world’s first fair value system?

The following figures show in millions of tons the annual CO₂ emissions of different sectors.

  • Bitcoin: 44.1
  • Gold mining: 144
  • Finance and insurance industry: 1,368
  • Armaments industry: 2,500