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A lot has been said over the past several months about the environmental impact of Bitcoin mining. Critics preach about how Bitcoin’s supposed carbon footprint will usher in the end of days, while supporters are equally outspoken about Bitcoin’s ability to revolutionize the energy sector. With so much noise, it can be difficult for the average crypto participant to navigate the conversation.
To open-minded learners, the most recent development in this narrative is sure to be of interest: Greg Abbot, the Governor of Texas, and Ted Cruz, the former presidential candidate and current Senator, have both come out solidly in favor of Bitcoin. On top of that, they both stated publicly that they believe that Bitcoin mining can save Texas’ struggling energy sector. For those who need a refresher, Texas’ energy grid failed miserably this past winter as record-breaking low temperatures decimated energy providers and contributed to the deaths of hundreds of citizens.
Critics have immediately sprung up in opposition, questioning how the addition of a large group of energy consumers to what is already an overworked energy system will lead to improvements. In simple terms, their complaint centers on their apparent misunderstanding of how supply and demand works.
Energy for Everyone
For a good or asset where supply is fixed, increased demand will always lead to increased prices. Bitcoin’s twenty-one million coin supply cap for example is often cited as one of the primary factors contributing to its meteoric price increase.
However, the supply of energy is not fixed. In fact, it’s widely known that the majority of energy produced in the world today gets wasted before anyone has a chance to use it. The sun is always shining, water is always running, and wind is always blowing somewhere, but it doesn’t all get captured as renewable energy. The fossil fuel industry is even worse at conserving energy with oil spills and the uncontrolled flaring of natural gas being just some of the direct contributors to both worldwide energy waste and environmental destruction.
Long story short, there is plenty of excess energy out there. All that’s lacking are incentives that will induce someone to invest significant amounts of time and money to create infrastructure to capture it. Bitcoin mining is that incentive.
If They Come, You Will Build It
Consumer demand for energy is always changing. A pair of examples:
People want energy to heat their houses when the weather is cold or to cool them when it’s hot. But what about the many places and times in which the weather is temperate?
People typically travel a lot in the summertime, and much less during the wintertime. But what about when travel is halted for months on end due to a global pandemic?
The unpredictability of consumer demand for energy means that producers are constantly guessing how much energy to produce and how much infrastructure to build. And they often guess wrong, as seen in Texas last winter.
The energy demand of Bitcoin mining on the other hand is much more predictable. Granted, the number of miners does tend to dip during bear markets, but overall it has seen massive and rather consistent growth for years. Take a look at Bitcoin’s hash rate over the past few years for example. It has had many ups and downs, including a large dip after China’s recent ban on mining, but has maintained a general upwards trajectory:
Why does this matter in the context of increasing the supply of energy in Texas and elsewhere? Simply put, Bitcoin miners use a lot of energy. And they need to use it constantly in order to keep mining and stay profitable. For power companies, Bitcoin miners can be excellent customers.
Good business is all about building for your best customers. Power companies will have huge incentives to build out their infrastructure to keep up with the ever-growing demand from Bitcoin miners for energy. If they don’t, they risk losing them as customers to someone else who will make those investments.
Bitcoin to the Rescue
So how does increasing power supply for Bitcoin mining save people from a once-in-a-lifetime mega-winter event in Texas? To understand that, we have to remember that building out energy infrastructure is rather permanent. Nuclear power plants, wind farms, solar farms, and more take years and large amounts of money to completely roll out. Once in place, they’re unlikely to be taken offline for quite some time. As a result, the incentives that Bitcoin mining provides will lead to an increased energy supply for the long-term.
In moments of crisis, Bitcoin miners can easily take their demand out of the equation. It’s as simple as turning off their machines. Critics have openly asked why miners would agree to do so since mining is so profitable. There are a lot of possible reasons, but I believe the following are the most likely:
Supply and Demand
Whether or not Bitcoin mining is profitable is almost always determined by the local cost of energy. In other words, Bitcoin mining is only profitable up to a certain energy price point. During a weather crisis, everyday consumers are likely to be willing to pay more to use energy to save their lives than what miners can pay to profitably mine Bitcoin.
Government Intervention
For better or for worse, it’s common knowledge that governments don’t care too much about corporate profitability when it comes to public policy. While blanket bans on mining are impossible to entirely enforce, we can expect governments to apply pressure against corporate Bitcoin miners in times of energy crisis.
Goodwill
Let’s face it. Public relations is a key part of any company’s business strategy in this day and age. As a result, Bitcoin miners will be incentivized to turn off their machines when peoples’ lives are on the line. Not doing so would likely be worse for business than temporarily turning them off.
Don’t Believe The Critics, Do Your Own Research
All Bitcoin critics are only focusing on what they see as negatives, and are completely ignoring any benefits. Do we want to limit revolutionary technology because of what a handful of naysayers who haven’t actually researched the topic say? We should know better than that.
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Crypto Roundup 🤠
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Corporate Crypto: Square’s CEO, Jack Dorsey, has indicated that the company may begin mining Bitcoin as the next step in the process of adopting it. Read more
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