i probably don't need to tell anyone in my audience what bitcoin is or explain much
about blockchain technology. i recently posted an investing survey and more of my audience than
i expected are cryptocurrency investors. not surprising perhaps as bitcoin is rallied from
around seven thousand dollars last year to around fifty thousand dollars today a seven fold increase
in one year a move like that does tend to draw some attention even if you have no interest in
bitcoin you may have heard that bitcoin mining is energy intensive and therefore not good for the
environment you might even have heard that bitcoin mining currently uses more energy than the entire
nation of sweden at a time when we're told that we desperately need to cut back carbon emissions
many are asking if it makes sense to devote a sweden's worth of energy
to a new form of currency i should be clear though that not everyone agrees that bitcoin mining and
blockchain technology are bad for the environment some of the people reaching for a new green future
including elon musk kathy wood and jack dorsey are also cryptocurrency enthusiasts and this has
confused some of their environmentalist followers a month ago when elon musk tweeted that you can
now buy tesla's using bitcoin people replied to his tweet with why not cut out the middleman
and install a petrol engine in the thing well a few days ago the people at square jack dorsey's
fintech company and arc invest kathy woods techfin company released a paper entitled bitcoin is key
to an abundant clean energy future attempting to make the green case for cryptocurrencies i'll put
a link to their paper in the description so that you can read the whole thing along with the paper
archinvest published their open source model or excel spreadsheet showing how their green case for
crypto works the paper has two clearly defined sections with the two separate firms square
and arc invests branding attached to each section it's pretty clear when you read it that not only
was it written by two different groups but that the two different groups didn't necessarily
read each other's sections given the extent to which the two sections conflict with each other
as a bit of a spoiler the arc open source model or spreadsheet is almost as good as the one that
they published a month ago explaining their three thousand dollar tesla stock price target which
was a great model other than that they got the fully diluted shares outstanding number wrong by
around 125 million shares which at their price estimate is only around 228 billion dollars which
i get the impression they feel is just a rounding error that model also included that tesla would
become the most profitable insurance company in the world in four years time despite not being in
the insurance business today or setting aside the capital required to enter the insurance business
but we shouldn't fuss over details so what is kathy and jack's green argument for bitcoin mining
and should they actually get carbon credits for their green investments
well they argue in the paper that bitcoin miners are a unique energy buyer that can
choose to draw from the grid in a highly flexible manner the crypto miners are location agnostic
and require only an internet connection they go on to describe how solar wind and other
green energy production can be intermittent meaning that the energy they supply is oft
not aligned to grid demand they argue that bitcoin mining combined with solar and wind production
and battery storage could be configured into a business model to deal with this inconsistent
energy production they project significant further declines in solar and wind prices based on prior
20 to 40 percent cost declines for every doubling in capacity and they projected lithium-ion battery
costs which have already fallen quite a lot will fall an additional 80 in the next few years
i'm not sure that these are reasonable assumptions but equally it's not my area of expertise
the authors at this point quickly flip bitcoin miners from being flexible and mobile users of
power to setting them up in the solar and wind power generation businesses the miners no longer
move quickly to where power is cheap they now build massive green power stations their argument
is that bitcoin mining could eventually transition to being completely run on renewable energy
in the near future while simultaneously producing the entire energy grids electricity needs through
wind and solar power production and at this point things become more confusing the paper is packed
with assumptions and projections that don't really reflect the way things work at all today
they initially pitch combining green energy generation with battery storage and bitcoin
mining rigs such that more green energy will be generated some of which will be stored in
batteries to better match supply with demand the rest will go to the grid and that only
excess power will be used to mine doggy coins don't correct me on my pronunciation the mind
doggy coins will improve the investment returns for green energy project investors it's then
explained that the new solar power stations might be used mostly to mine cryptocurrencies
but if the price of power surges like it did in texas a few months ago they can sell power back
to the grid when it's more profitable to sell electricity than to use it for crypto mining so
we've left from them using the excess for crypto mining to only selling the excess to the grid
when the greater can pay more than producers could earn through their mining activities
like i said though i'm not sure that the two teams of writers read each other's work which
might explain some of this arc invest argues that renewables can right now only satisfy 40 of grid
requirements but with crypto miners running all of the grids power production they could provide
99 of today's total power needs while mining very flexibly and only in off-peak times the
excel model upon examination shows crypto miners becoming absolutely massive energy producers
miners which the authors refer to at one point as having an unlimited appetite for energy can supply
just under today's energy needs by generating nearly six times the grid's full demand level
of power they showed that a system like this can meet 90 percent grid demand with only one third of
the capex being spent on crypto mining so based on capex you're mostly in the power generation
business but in order to generate enough power to supply the grid you have to generate six
times the energy that's being generated today with five sixths of that being used on mining
based on use of power you're mostly in the crypto mining business if it is profitable to produce six
times the population's current power needs and to use five six of that or 83 percent of the power
to mine bitcoins why stop at that you have to wonder how much of the planet does arc invest
propose to cover with solar cells there's a built-in assumption that these greener forms
of energy have zero impact on the environment that you could produce six times as much power as we're
using today using green technology and that there would somehow be less environmental impact than
producing one-sixth the power under the current approach while these methods of generation might
be more environmentally friendly than the traditional approaches they're not that much
more environmentally friendly the model seems to advocate a dystopian future where more and
more green infrastructure is put in place with the majority of the power generated being used
just for crypto mining until we reach a crescendo where if you crawl out from underneath the solar
panel you risk being hit by the blade of a wind turbine this is their green cave as we dig deeper
into the model i'm confused by the author's assumptions around the profitability of the
two businesses being run under this one umbrella if crypto mining is such a profit center you have
to wonder why the miners would supply any of the electricity generated to the grid the public would
have to rely on the miners altruism to slow down mining when the public needs power only resuming
when the sun is shining and people aren't yet running their dishwashers or charging their teslas
kathy wood and square's paper argues for huge increases in crypto mining they envision energy
companies who deploy software that decides in real time the best use for each newly created electron
whether to use it store it or mine it they explain that new chip foundries will be needed to meet
the surge in demand for mining hardware huge amounts of lithium extraction would be needed
which requires half a million gallons of water per metric ton of lithium extracted
to build batteries huge numbers of solar cells and wind farms would cover the planet and rivers
would need to be damped to generate hydroelectric power after reading the paper more than once and
looking at the model it's not really clear to me how the environment would benefit from all of
this production i'd love to hear your thoughts on how this might work in the comments section
as i imagine that many of you do know a lot more about crypto mining and green energy than i do
i guess the core idea that they have is that money made from crypto mining will make more green
energy projects viable speeding up the transition to a greener power grid but of course the problem
is that so much of this energy will then be used for mining crypto with only the leftovers being
available for charging teslas there's a wonderful circularity in their forecast for an abundant
clean energy future well you might ask if that's what the future is going to look like
what does crypto mining look like today well as mentioned earlier bitcoin mining operations
worldwide are reported to consume energy at around the annual domestic electricity consumption level
of the entire nation of sweden a single bitcoin transaction uses the same amount of power
that the average american household consumes in a month which is around a million times more energy
than a single visa transaction consumes kathy and jack are correct though in their description
of crypto miners of being quite flexible and that they are an energy buyer of last resort
bitcoin mining operations do tend to search for the cheapest electricity that they can find
and for this reason around 70 of the bitcoin mining happening today takes place in china
where electrical power is cheapest russia is also a major bitcoin mining center as is iran
where electricity is subsidized by the government are these countries at the cutting edge of green
power generation not exactly around 80 percent of china's electricity comes from coal burning
power plants as you can imagine the power grids in russia and iran are not a whole lot greener
despite iran's notable efforts to begin nuclear power generation
some mining operations have as mentioned in the paper moved to mining behind the meter which means
generating their own power rather than plugging into the grid and paying retail power prices
green ridge holdings is a good example a bitcoin mining company in upstate new york who bought up
an old power plant they plan to double the output of the station this year and double
it again next year drawing anger from locals and environmental protesters andrew yang the former
presidential candidate now running for mayor of new york said that he plans to turn the city into
a cryptocurrency mining hub on the other hand my favorite candidate for the mayor of london
count binface has said nothing on this topic his much more sensible political platform is largely
based on moving the location of the hand dryer in the men's room at his favorite pub in uxbridge to
a more sensible location and additionally he's campaigning that no shop in london should be
allowed to sell a croissant for more than one pound vote bin face see you later bye