No Blackouts With Bitcoin Miners!

The blackout in Spain is an opportunity to remind that the Bitcoin industry could certainly have helped prevent the disaster.

Bitcoin, how many GW?

As a sign, the University of Cambridge has just published a report in which it describes the Bitcoin industry as an “key contributor to network resilience” by offering network managers a “demand-based strategy”.

The results are based on a survey of 49 bitcoin miners representing 48% of the total computing power (hashrate). It should be noted that North American miners represent 80% of the sample, twice their actual global share.

Verdict: the annual global electricity consumption of the Bitcoin network is around 140 TWh and generates 40 MtCO2e of greenhouse gas emissions. This corresponds to an electrical power of 7.3 GW, comparable to that of the Czech Republic.

But surprise, it turns out that sustainable energy sources are actually the majority (52.4%). Hydroelectric power comes first (23.4%), followed by wind (15.4%), nuclear (9.8%), and solar energy (3.2%). Fossil fuels are mainly natural gas (38%) and coal (9%).

All in all, the Bitcoin industry consumes 0.54% of the world’s electricity production. Another useful piece of information: miners report paying an average of 0.045 $ per kWh. This bargain price suggests that it is mostly electricity that would otherwise be wasted, i.e., produced by renewables.

Those are the raw numbers. As highlighted in the introduction, the report also highlights the advantage the bitcoin industry represents for balancing electrical grids. The Spanish government would do well to read it…

Indeed, bitcoin miners offer more resilience against sudden outages because they can disconnect from the network instantly.

A luxury fuse

Balancing the electrical grid via demand is becoming increasingly essential to accommodate the growth of intermittent energies at lower cost and the headache they represent for network managers.

Historically, the grid frequency was maintained at 50 Hz by increasing or reducing the output of “peaking” power plants. These power plants are designed to start and stop quickly during demand spikes or unexpected outages. These typically include dams and gas plants.

However, in Spain, gas represented only 3% of electricity production at the time of the blackout. It was 73% for wind and solar energy, which have priority. Unfortunately, it seems that the priority given to renewables is largely responsible for the blackout:

And this is where bitcoin miners come into play as a demand-side adjustment variable. They offer load shedding solutions to network operators to balance demand and electricity production in real-time. No other industry can react as quickly.

The report also highlights that 57% of miners shut down on demand in 2023, returning a total of 888 GWh to the grid. This electrical symbiosis works so well that the Texas network operator (ERCOT) recently canceled the construction of several gas plants due to the 3 GW that miners can supply to the grid at any time.

Cherry on the cake, miners represent a significant financial boon for energy companies desperately needing funds to finance the energy transition.

Bitcoin vs Methane

The heat produced by the bitcoin industry can also be recycled. District heating, greenhouse farming, heating public pools, etc. There is plenty of potential since heat production generates 40% of global CO2 emissions.

Many projects are underway, particularly in Scandinavian countries:

The great advantage miners have is that they can set up almost anywhere. A Starlink satellite connection is enough to connect to the network.

This agility allows them to take advantage of gas when it is a byproduct of oil extraction. This is a gas that would otherwise be flared or worse, released into the atmosphere because it cannot be transported to civilization.

This methane (CH4) is burned into CO2 to reduce the greenhouse effect. CO2 is indeed 80 times less impactful than methane over a 20-year period. However, the combustion rate is often closer to 90% than 100%, for various reasons such as wind.

The alternative is to convert the gas into electricity to power bitcoin mining machines. Combustion then approaches 99.9%. Systematically deploying BTC miners would help combat global warming since 140 billion cubic meters of natural gas are flared each year (357 MtCO2e).

According to the report, 3.3% of the electricity consumed by miners comes from this type of gas. In other words, the share of renewable energy consumed by the Bitcoin network is not 52.4%, but rather 55.7%.

What exactly do BTC miners do?

If you’re still here, it means the topic interests you particularly. Catch-up course:

It is helpful to clearly distinguish the Bitcoin network into two parts: on one side transactions, and on the other the work of miners.

Cryptography is, however, the cornerstone of it all. A wallet is nothing more than a pair of private and public keys. In jargon, we speak of public key cryptography (or “asymmetric” cryptography).

In simple terms, bitcoins (numbers…) are “attached” to public keys generated from a private key. These public keys are commonly called “bitcoin addresses” used to receive bitcoins. Only the corresponding private keys allow bitcoins to be moved to another public key, i.e., to conduct a transaction.

These transactions are grouped into “mined” blocks approximately every ten minutes. This process (Proof of Work) is the other major facet of the Bitcoin network. It requires significant computing resources that protect the network from “Sybil” attacks.

PoW demands heavy investments in ASICs that can only be used to mine bitcoins. An attack on bitcoin is therefore economically unfeasible as it would cost billions of dollars.

Still here? Then let’s go further.

A block consists of a header containing some essential data such as the hash of the previous block (hence the expression blockCHAIN), a timestamp, a nonce, the Merkle tree root, etc. And, obviously, several thousand transactions.

Proof of Work

PoW involves frantically varying a nonce (that is, an arbitrary number) which, once hashed by the SHA-256 cryptographic algorithm with the block header, produces a hash.

This hash is essentially a number. “Mining a block” means finding a hash lower than a target number by trial and error. The target is continuously adjusted to maintain the pace of one block approximately every ten minutes.

On average, it takes 480,000 trillion trillion attempts to mine a block and receive the reward of 3.125 BTC. This is a huge number representing nearly 70 times the number of grains of sand in the Sahara desert. Or seven times the estimated number of stars in the observable universe.

Once the hash is found, nodes verify that it complies with all protocol rules. Otherwise, the block is rejected and the miner loses money.

These rules include, but are not limited to, that the block hash is below the target value; all transactions are valid; the reward amount paid to the miner is correct; the header contains the hash of the previous block; and so on.

Let’s conclude with some information gathered from the Cambridge report about ASIC manufacturers. The top three (Bitmain, MicroBT, and Canaan) control 99% of the market. Bitmain alone builds 82% of ASICs.

We also learn that in June 2024, the average efficiency of industry-scale ASICs was estimated at 28.2 J/TH, representing a 24% year-over-year improvement.

Bitcoin, the Next International Reserve Currency

Beyond addressing certain energy and environmental issues, stateless Bitcoin is primarily a potential reserve currency. According to Vaneck, China and Russia have started settling a fraction of their transactions in Bitcoin…

The CEO of BlackRock said nothing different in his annual letter to investors. Larry Fink believes the dollar will lose its status as the world reserve currency to Bitcoin if the United States does not reduce its budget deficit.

In this context, the international investment firm VanEck has done some calculations. Buying one million bitcoins would allow the United States to reduce its public debt by 35% by 2049.

The largest Russian miner, Bitriver, believes that in this context, “the development of the mining industry is strategically important for the major global financial powers, including Russia.”

Uncle Sam will very likely start accumulating bitcoins before the end of the year. There isn’t much time left to accumulate before nations worldwide join the race…

Don’t miss our article on this subject: Are the USA ready to give up the “exorbitant privilege” for Bitcoin?