How Can You Stop The Use Of Fossil Fuels In Bitcoin Mining?
A significant part of Bitcoin mining is still using fossil fuels, but the best solution to this, is not what most people would think
For about 5 years I’ve dived into the world if Bitcoin. For me it started as a fun speculative asset, then it turned into an investment for me. The more I learn about Bitcoin, the more I see the potential for a better future for all people around the world and an escape from the destructive system that we live in today.
But there seems to be a problem with Bitcoin that does not rhyme with the climate crisis we currently experience.
Bitcoin mining uses energy. It uses that energy to make Bitcoin the most secured network in the world. In order for miners to get that energy they either capture it via renewable energy (e.g. sun, wind or hydro) or they burn fossil fuels. When you burn fossil fuels, CO2 (among others) are emitted into the air. There is a scientific consensus that the fast rise of CO2 in the atmosphere due to burning fossil fuels will lead to climate change. And with horrible consequences for humans and animals on this planet.
Therefore, quickly reasoning, if we would stop or ban Bitcoin, it would be better for the environment.
Most people who don’t know Bitcoin and do care for the environment would come to this conclusion. For a long time this conclusion haunted me as well. A technology with so much social and societal benefits but destructive for the environment does not rhyme.
After a long time thinking, reading and listening I came to a different conclusion. It is not either/or, it is and/and. Bitcoin can be beneficial for societies all around the world and beneficial for the energy transition. But the burning of fossil fuels is one we must tackle.
I have written this article for everybody who is concerned with the use of fossil fuels for Bitcoin mining and my goal is to provide a solution to this problem through reasoning and reasoning only. Not through data, charts and numbers (because they will just show you want you want to see) but by offering a valid and logical explanation of how to stop fossil fuels from being used in Bitcoin mining.
The catch of this article; it’s probably not the answer that most of us are used to, so let me start with my conclusion to pave the way:
The only way to stop fossil fuel usage in Bitcoin mining is, for you and me, to invest in renewable Bitcoin mining in order to price the fossil fuel miners out of the market
For sake of clear terminology I will refer to the use of fossil fuels as the Energy Problem.
In this article I will guide you through my reasoning process and hopefully make it understandable how to solve Bitcoin’s Energy Problem. Then I will explain what you can do in order to help.
I want to purely focus on the usage of fossil fuels and leave any other judgement or ideological idea out of the question. Although I deeply believe in the social benefits of Bitcoin, for the sake of pure reasoning I will focus on the Energy Problem in this article. Let’s see what’s most probably, and thus, how we can solve the Energy Problem (even if you don’t ‘believe’ in Bitcoin).
I will also not use any data or statistics because a) they are prone to interpretation — For example, we can say that something uses x amount of energy and then say that it is a waste. But what is waste and what not is an interpretation of somebody and that will lead to an interpretation discussion and distracts pure reasoning. And b) it can distract logical reasoning — You can use data to predict the future, but I want to use logical reasoning to provide an explanation of what the actions and incentives of people are.
*That is not to say that there is anything wrong with data. But my goal is to have a discussion on the logic, not on how to interpret or ‘value’ data or if it is statistically correct.
So let me guide you through the sub-conclusions that will support the main conclusion;
If the price of Bitcoin goes to zero than the Energy Problem is solved
One of the clearest thinking that I have read on Bitcoin is in the shareholder letter from Seetee by Kjell Inge Røkke. I would advise you to read it. What stood out for me was a simple reasoning framework in order to determine whether Bitcoin mining is ‘worth’ its energy usage. My interpretation of what the shareholder letter points out is that there are three possible scenario’s for the future of Bitcoin:
- Bitcoin will in the end be worthless and go to a price of $0 (or at least somewhere near zero)
- Bitcoin is like digital gold and will equal the market cap of physical gold
- Bitcoin is something truly new where its function and true price are still to be discovered in our society
Let’s look at the first scenario in the perspective of the Energy Problem. When the price of Bitcoin goes to zero, then mining would not be profitable and mining would stop.
You can reframe this as, Bitcoin mining would not be worth it, simply because Bitcoin would then be worthless. So buying any energy to mine Bitcoin would result in a loss of money for the miners.
This has nothing to do with how you or me value it, it is how the market (as in, all people holding, buying or selling Bitcoin) values it.
If you think this scenario is most probabilistic then you don’t have to worry, the Energy Problem will be solved.
This leads to sub conclusion one:
If the price of Bitcoin goes to zero than the Energy Problem is solved and you should not have to worry
Bitcoin’s price going to zero is a probability based on complex human behavior, and that probability is extremely small
It’s not the article’s purpose to justify the price, nor to convince you of buying it. What I do want to convey is, how people value Bitcoin is something that is not directed or influenced by a single person or a group of people. The price of Bitcoin is a constant changing number based on millions of people selling, buying, holding, speculating, lending, shorting et cetera. The constant interaction of all these people determine the price of Bitcoin any second. And because it is a young technology, many people think different of it, hence its price can change drastically.
One thing that is unique in the Bitcoin protocol is the private/public key encryption for transactions. Without being technical is basically means that there is only one way to send Bitcoins to someone else is by having a the secret code. If you have the secret code, you can control the Bitcoins related to that public address. If you don’t have the secret code then there is no way to control those Bitcoins. Metaphorically it’s like you have a safe with gold inside that is protected by the magic of Gandalf and Harry Potter together and only you know the magic spell to open it.
At time of writing this has not been hacked and it will probably not be hacked in the future even with the promise of quantum computers (encryption methods improve as well and if this encryption method would be hacked we would have bigger problems to worry about).
This means absolute control by individuals over Bitcoin. It cannot be taken away from you. It cannot be stolen or enforced out of your hands. It is what we call, censorship resistant (from the latin word censere meaning to value or to judge). So no other than you can judge what to do with it.
Any owner of Bitcoin is free to choose whether to sell or not to sell. It can be made hard to trade for fiat currencies. It can be forbidden in a country and banned in another country and illegal in the other. But there is a difference in the threat and the realistic possibilities.
With many people owning Bitcoin, interesting things happen. Hardcore believers do not sell, short term traders try to time the market and act accordingly, people that do not believe in Bitcoin can short it and so on. For every buyer there is a seller and vice versa.
This is important to understand because now the price of Bitcoin cannot be controlled by someone, it is a price game based on complex human behavior.
That does not mean that the price of Bitcoin can’t fall drastically. But there is a huge difference between price volatility and the price going to zero. Prices can be influenced for sure. And if there is a lot of leverage in the market (someone borrows money to buy Bitcoin) then small price actions can lead to lot’s of people need to sell their leveraged Bitcoins, resulting in even more price drops.
But as long as a few people find Bitcoin worth something, the price of Bitcoin will not be zero. In order for Bitcoin to be worthless, all people who own Bitcoin should want to sell their Bitcoin at any price and there should be no buyers at any price level except zero. In that specific case it would mean that someone could buy all the Bitcoins from someone else for a price of zero. Theoretically that would mean that a single person can get all the Bitcoins owned by other people. In every situation where a Bitcoin owner would not sell it for free, the price of Bitcoin would not be zero anymore. The single case that everybody is willing to sell it for free would be such a rare case that the probability of this is theoretically zero.
Besides from being theoretically zero, a rational person’s perception of this probability is also zero. As Lyn Alden puts it brilliantly in the “What Bitcoin Did” podcast: Imagine if someone gave you 1000 Bitcoins, but you can only sell them after 15 years. Even if Bitcoin would fall to $1 after 15 years it would still be worth $1000. But would you choose $1000 now or rather have the 1000 Bitcoins that unlocks in 15 years. Almost all people would choose to hold 1000 Bitcoins for 15 years (which at time of writing equals ~40 million). You must have a very strong disbelief in Bitcoin to turn this ‘bet’. That is because everybody would perceive the probability of Bitcoin going to zero (or even below one) extremely low.
This leads to sub conclusion two:
Bitcoin’s price to zero is a probability based on complex human behavior, and that probability is almost zero
If there is a any probability that Bitcoin is not zero a ‘discussion’ about the Energy Problem won’t help
So what happens when the price of Bitcoin goes up. That would indicate that more people are finding Bitcoin valuable. The more people who find Bitcoin valuable, the more people will buy and hold, the higher its price. That would mean that Bitcoin mining would become even more profitable. That would probably lead to more miners mining Bitcoin. And the main argument against Bitcoin is that this would lead to boiling oceans.
There is no such thing as energy waste. The first law of thermodynamics (the law of conservation of energy) states that energy is always conserved. You cannot create energy and you cannot destroy it. Energy can only be transferred or converted to other forms of energy. Energy is always used and will always be used until a potential heat death of the universe (but that is another interesting topic).
Without going very deep into mining it is important to understand that mining is not solving a puzzle, or a problem, as that would indicate that you can be ‘smarter’ than someone. Basically is comes down to guessing a number that cryptographically connects a set of transactions merged in a ‘block’ to the previous ‘block’ (hence it’s called a blockchain). This is done to order the transactions in a chronological way. Since you have to guess so many times, we need computers, and those computers need energy. Since no one can guess ‘better’ then someone else, every good guess is a proof of work of a lot of computer power. The more proof of work, the more secure the network. And there are a lot of people who find that security very valuable.
The use of energy is scarce (at this point in time). If we would debate on how to allocate this energy it would be an endless debate. Instead we have another allocation instrument, price. If energy is, at a specific time, more scarce, then the price is higher. You can decide if the price to pay to use that energy is worth it. Whether that is boiling water, wash your clothes, drive to your office, watch Netflix on your couch, search for an answer on Google an so on and so forth. In this way every individual can choose for her or himself if it is ‘worth’ to pay the price for energy or not.
However, in quite a lot of cases, the use of energy emits CO2 in the air. As stated, too much CO2 is causing the climate to change.
Therefore, quickly reasoning, it would sound logically to have a discussion on what to use that energy on. Burning fuel just to see it burn would be a morally wrong, but providing food and medicines via a helicopter to a place hit by a hurricane would be ethically right.
However, having this discussion is very difficult. There would be endless debates on the infinite ways to spend energy. And since there are so many different perspectives, no one will ever agree on all of them.
But besides it is highly impractical, it also can’t be enforced. For example, we can agree in a specific country not to burn coal for Bitcoin mining, but if it is still legal in another country, miners would just move to that country (which is actually quite easy since you only need portable computers, electricity and internet).
So how does that relate to the Bitcoin Energy Problem? If I look on the news or on twitter I see a lot of reactions that look like this one:
“We should have a discussion about the energy usage of Bitcoin”
The problem is, there is no ‘we’.
If we talk about mining alone, ‘we’ or ‘they’ exists of many different entities, from small hobby miners, huge profesional facilities and everything in between. There is not a single entity to have a discussion with. There is also not possibility to enforce all miners to go renewable.
Thinking in terms of discussing is thinking in a centralized way. As if we could agree to to not do it and then a central authority can enforce that agreement.
Bitcoin is decentralized by its design. You can ‘discuss’ with a couple of miners so that they will stop mining, but then the ‘guessing’ difficulty will decrease, making it more profitable for the remaining miners, will attract new miners and so on. It is all the some kind of cat and mouse game.
The point I’m trying to make is that discussing won’t actually help. It sounds nice, moral and ethical but it does not solve the Energy Problem.
Let’s be smart instead of moral. Let’s be practical instead of ideological. Let’s look at the incentives and let’s see how we can use price instrument in order to solve the Energy Problem.
But let me conclude with sub conclusion three:
If the probability that Bitcoin is ‘worth it’ then complaining about it won’t actually help, but that doesn’t mean we can’t do anything
The more miners start mining Bitcoin with renewable energy, then more the profit of fossil fuel miners will be reduced
We could see Bitcoin mining as a game with several player wanting to win a prize. Not a single game, but an endless repeating game. In order to understand the theoretics of this game I would like to compare it with the game Bingo.
You probably know Bingo, but for those who don’t here’s a recap; Bingo is a game of chance. Each player has a card with numbers. The game host draws a number and calls that number out loud. If you have that number on your card you mark that number. If all your numbers are marked you shout out “Bingo!” and you win the round and get a prize.
Let’s imagine Bitcoin mining as Bingo, where the players are miners trying to get a full Bingo card (with the difference of course that in Bitcoin mining the miners do the guessing instead of the game host). You can play Bingo with 10 people, but also with thousands of people. If you play it with 10 people, the numbers that the bingo master will use is probably from 1 to 100. If you play with thousand players, the Bingo master will probably use a number between 1 to 1000, otherwise every few draws there is a very high chance that one of the thousand will have a Bingo. So with more players to keep each round interesting for about 30 minutes, more numbers are needed. So the more players, the more numbers needed to keep it interesting for around 30 minutes, the less chances for a single player to win. In other words, the difficulty goes up when more people enter the game. In Bitcoin mining this is the same, about every 10 minutes a block is mined, so the more miners, the more difficult it will be to mine a block.
Let’s imagine you are Billy. Billy loves playing Bingo and Billy loves to win prizes! Luckily for Billy there is a Bingo playing hall in his neighborhood that plays Bingo 24/7. For $1 you can buy a plastic Bingo card. After each round that card is disposed. There are 20 people playing Bingo and the prize money is $10. Once in a while Billy wins and is happy! But the Bingo master want more players and thus decides to raise prices to $1000. Soon, many new Bingo players enter that are all paying $1 for a plastic card that are then wasted after each round.
After a few days playing, Billy is starting to notice the pile of plastic garbage that is piling up. But the people don’t care, as long as they sometimes win, they keep on buying these plastic cards. Billy gets angry and starts shouting to the people buying the plastic cards, but they just shrug their shoulders and keep on playing the game. Billy starts discussing with the people and point to the plastic garbage that is becoming bigger and bigger. Some people are shocked and stop buying the cards, but the Bingo master is raising his prize fee and more and more people come in.
The Bingo continues and the buzz becomes bigger and bigger. This gives attention to the whole area and more and more people come in to play Bingo and the pile of plastic is growing and growing since the prize money is more than the costs of the cards. Billy is desperate because it seems the more he tries to stop it, the more attention the game gets and the more people want to get in.
But then Billy comes up with a plan and builds a mobile app with digital Bingo cards. You only need to pay once for the app, but once you have it you can popup a digital Bingo card for free each round. Billy sells the app to the Bingo players. Instead of trying to convince the current Bingo players to download the app, Billy goes into town and spreads the news about the app. Now even more people come in to play the Bingo game, but now a few don’t pay the $1 every time. Because more people come in, the people who are still buying the plastic cards get a bit upset because they get less prize money but still pay $1 each time for the plastic card. Billy knows that the more people use the app, the less prize money each player will get, until there is a point that the prize money does not longer pay the $1 for each round. As soon as this happens, the buyers of the plastic cards are making a loss and will eventually switch towards the app. Slowly the plastic pile stops growing. Billy is happy! The Bingo master is happy and all the players are also happy!
Now let’s take it back to mining. Just like paying for a plastic card, if you use fossil fuels to create energy for Bitcoin mining you are paying a fee for your energy. The app on the other hand, represents an initial investment in green energy equipment (.e.g solar panel or wind mill), but you then won’t have to pay energy costs for Bitcoin mining.
How would this Bingo metaphor compare to the real world? In the Netherlands the price for electricity is between $0,25 and $0,3 for kWh of Grey energy. Putting these numbers in cryptocompare.com, and assuming I have one of the best crypto miners, I have a profit between +20% and -4% at a ~45k bitcoin price, at time of writing. Each computational ‘guess’ that Bitcoin miners perform costs a tiny bit of energy. So paying for that energy is the same as paying for that $1 dollar plastic card in the Bingo metaphor.
Imagine you would have a big roof covered with solar panels. After an initial investment you can mine Bitcoins for free. In the Bingo metaphor this is like installing the app and then have your Bingo cards digital without paying for each round. As you can imagine, this means your profit goes up a lot.
But the best part is, when you mine Bitcoins with renewable energy, the total mining reward must be shared with more miners. That means that the miners who have to pay their energy bills get less revenue and thus less profit.
To illustrate this, let’s take a simple calculation. Say there are 144 fossil fueled Bitcoin miners, with each the same computational power. That means that, on average, every miner will be rewarded once a day. Say the reward is $10, but running a computer the whole day is costing you $7. That means you have 30% profit. But now a neighborhood with 144 people on solar enters the mining market. Instead of once a day now every miner just receives a reward once every two days. That means the 144 fossil fueled Bitcoin miners now operate at a loss of $3 per day. You can imagine, they will either switch to renewable or switch off their computers as fast as possible.
So this leads to sub conclusion four:
If you start mining Bitcoin with renewable energy, then the profit of fossil miners will be reduced.
Side-note: A common critique is often that fossil fuels are free or cheaply available in some countries. Therefore renewable mining would not impact miners in those countries. But let me remind you that fossil fuels are not free. The exploitation and refinement of fossil fuels is a capital intensive process. In a case that a state is subsidizing their fossil fuel usage does not mean that there is not a price being paid. In that case, the price is being paid on a national level. The same logic applies.
Putting everything together
Now let’s put it everything together.
- Sub conclusion one: If the price of Bitcoin goes to zero than the Energy Problem is solved and you should not have to worry
- Sub conclusion two: Bitcoin’s price to zero is a probability based on complex human behavior, and that probability is almost zero
- Sub conclusion three: If the probability that Bitcoin is ‘worth it’ then complaining about it won’t actually help, but that doesn’t mean we can’t do anything
- Sub conclusion four: If you start mining Bitcoin with renewable energy, then the profit of fossil miners will be reduced
So, what can you do. If you think the price of Bitcoin is going to zero. You can just relax, the problem will take care of itself. If you really think that, you don’t have to do anything. But take into account, that if you are wrong, then you also did nothing to the Energy Problem.
What to do if you think (just like me) that Bitcoin will be worth something, no matter how much? Complaining about has no effect. So that will just cost you energy without addressing the Energy Problem.
The most active and direct thing you can do is to start mining Bitcoin with renewable energy.
If you would start mining with renewable energy, then there are more miners in total. Since the reward would be the same, the revenue per miner would decrease. Therefore the miners with high energy bills (fossil fuels) would have a lower profit margin. With your profits you can invest in more renewable mining, driving the margins of fossil fuel further down and eventually they will have to turn off their computers.
Therefore:
The only way to stop fossil fuel usage in Bitcoin mining is, for you and me, to invest in renewable Bitcoin mining in order to price the fossil fuel miners out of the market
With renewable mining we also increase the demand for renewable energy and create new business cases for the acceleration of the energy transition
The first order effect of renewable energy is that it solves the Bitcoin Energy Problem. But a second order effect is that it increases demand for wind, solar and other renewables energies and thus stimulating innovation and accelerating the energy transition.
Changing people is hard, and to be honest, putting a solar panel on your roof with a ROI of a few years doesn’t really sound that interesting. Again, not to be ideologically, if we look at it realistically, changing the majority of consumers with such limited incentives will be a very slow process. But what if putting solar panels on your roof while mining some bitcoins can give you an ROI of just 2 years, or give you an extra $100 a month, or even better, stacking sats for free(sats are a tiny fraction of Bitcoin). Higher returns mean more people will change and thus the transition will accelerate.
But not only in retail it would accelerate, what about the imbalance of the demand and supply in the wind or solar farms. If at day the sun shines but in the evening the city lights up the lights then supply and demand do not match. Or when the wind blows at night when nothing is happening. A lot of times solar or wind farms stay idle because there is no demand. Of course we use batteries and there are technologies that fix these imbalances, but imagine how much more ROI we could make if Bitcoin would be mined at night. If the ROI of a wind or solar farm would be increased then the demand for such farms would increase as well, again leading to an acceleration of the energy transition. We could see Bitcoin mining as an extra business case that can increase the profits of wind farms, solar farms and other renewable energies.
The argument of “we should use renewable energy for things we really need instead of ‘wasting’ it on Bitcoin” completely misses the point of what renewable energy is. The sun is emitting so much energy that it is almost infinite. Sun energy is abundant, we just don’t capture enough of it yet. Instead of focussing on how to divide the little amount of solar that we capture today we should focus on how to capture more, way more. Bitcoin mining can incentivize the acceleration of this to happen.
It makes it economically interesting to accelerate the energy transition.
Here are a few things you can do right now
In closing this article I want to provide a couple of actions that you can do right now.
- The Easiest way to impact is to buy equity in publicly traded bitcoin sustainable mining firms. Below I have put a couple of interesting companies where you can buy shares of. Do your own research because every day new firms enter this market. Below just a few front running examples but there are many more.
Argo Blockchain:
Argo is bringing clean power & efficiency to Bitcoin mining. It is is a publicly-traded technology company focused on large-scale mining.
HIVE Blockchain Technologies :
With a committed ESG strategy, HIVE uses 100% green energy to mine Bitcoin. HIVE Blockchain Technologies is the first publicly traded crypto miner, listing on the Toronto Venture Exchange.
Bitfarms:
Powered by clean and competitively priced hydroelectricity, Bitfarms operates five facilities in Québec, Canada. Bitfarms provides computing power to cryptocurrency networks such as Bitcoin, earning fees from each network for securing and processing transactions.
Compass Mining:
Instead of buying shares, compass mining lets you buy a miner that will be hosted in one of their mining facilities. There are plenty of 100% renewable facilities you can book! - You can is mine Bitcoin yourself if you have access to renewable energy (e.g. a solar panel on your roof). This is probably not the easiest way, but in case you have access to renewable energy and you don’t use all that energy, try setting up a simple mining rig and earn something extra. You can do this alone but also with a few friends to make it more significant.
- Do research and try to really understand Bitcoin! There are plenty of resources. Check out this video on Green Bitcoin Mining. The What Bitcoin Did podcast is one of my favorites! And Michael Saylor’s hope.com are provide many resources to start with.
- Spread this message! Spreading this message will hopefully stop the endless debate about Bitcoin mining and poke everyone to take action!
And at last, a personal note
Since 2017 I am studying Bitcoin, its principles, philosophies and beyond. Because I was early into buying Bitcoin I saw my wealth increased over the last couple of years. Hopping on the Bitcoin hype, many alternative coins were ‘created’, marketed and sold. Because this is something new things got crazy. Youngsters getting rich in days, people losing all their money because they took too much risk and endless frauds took place. After the high of 2017 things cooled down, but since Bitcoin is going to new highs its again in the spotlights, making a few people wealthy.
I know many people who don’t own Bitcoin, they talked about it but never bought. Now they think they lost the opportunity and start to hate it.
I get it. It feels like someone next to you wins the lottery while you have your hands empty. It feels unfair, and that while Bitcoin is also needs a lot of energy. So all that CO2 that is emitted, just for a few friends of you that get rich quickly doesn’t sound like a fair world. That is the hatred a lot of people have for Bitcoin.
But please, please, step over this. This is trying to justify a lost opportunity by judging other people as immoral.
Look at the world where we live in. If we don’t act there will be a climate crisis, but yet what we do is to blame other people for it. The whole climate debate is turning into an oppressing and divisive fight of people blaming other people. There is just too much hubris and arrogance in the climate debate with people dictating other people what they should do or not.
I believe in a free and abundant world, and the abundance is out there. Bitcoin offers a way out. Bitcoin is not about wealth, it is about a different system, a different way to collaborate and above all, a different way how to perceive the world.
I hope that with this article I have convinced you that you can make a difference if you start renewable Bitcoin mining, or invest in it. But secondly I hope that I slightly changed your mind, offered a new perspective and a new hope. And if I did, I welcome you on behalf of the entire Bitcoin community in a new, prosperous and abundant future.
