Bitcoin Mining Survey: Are We Wasting Energy, or Creating It?

At present, some renewable energy projects around the world are in a loss-making state (net returns are usually negative). The emergence of Bitcoin miners has actually brought life to many dying renewable energy projects, because they have become a new force among global electricity buyers, and they also tend to gather around relatively low-utilization renewable energy infrastructure.

Global warming, melting glaciers, holes in the ozone layer... Will Bitcoin mining accelerate energy consumption and cause the environment to deteriorate?

Sorry, the answer may disappoint you - because 74% of the electricity in the Bitcoin mining network comes from renewable energy. Let me give you a little popular science: Renewable energy refers to non-fossil energy such as wind energy, solar energy, hydropower, biomass energy, geothermal energy, and ocean energy. It is an inexhaustible energy source. Compared with non-renewable energy sources that will be exhausted, it is harmless or minimal to the environment, and the resources are widely distributed and suitable for local development and utilization.

Of course, you may question this number, after all, many media have firmly believed that the huge energy consumption of Bitcoin mining will cause damage to the earth's environment. However, through the analysis of multiple key indicators such as the location, cost, efficiency, power consumption and power source of the Bitcoin mining network by British research institution CoinShares, you will find that this number is actually very reliable.

Bitcoin mining and renewable energy: a perfect combination

It is undeniable that the Bitcoin network based on the proof-of-work consensus algorithm consumes a lot of computing power, and network maintenance also requires a lot of hardware, so it does consume a lot of electricity. Previous analysis by the Cambridge University Center for Alternative Finance Research showed that Bitcoin mining energy consumption accounts for about 0.25% of the world's total energy consumption. From this perspective, if these estimates are accurate, then Bitcoin mining energy consumption is almost equivalent to the energy consumption of the entire country of Colombia, which has a population of about 50 million (as shown in the figure below, data source cbeci.org). In addition, the agency also believes that this year's energy consumption peaked in early or mid-July and remains near the historical high of 60-75 TWh per year.

But the problem is that we cannot simply think that the high energy consumption of the Bitcoin network is a bad thing. In people's stereotypes, Bitcoin mining always chooses areas with sufficient electricity supply and consumes huge amounts of energy. But surprisingly, compared with many other large industrial sectors in the world, Bitcoin mining has a higher utilization rate of renewable energy. And even in the worst case, when all electricity is generated by burning coal, the emissions of the Bitcoin network are still far less than 1% of global carbon dioxide emissions.

On the other hand, some renewable energy projects around the world are currently in a loss-making state (net returns are usually negative), and the emergence of Bitcoin miners has actually brought life to many dying renewable energy projects, because they have become a new force in global electricity buyers, and they also tend to gather around relatively low-utilization renewable energy infrastructure. At the same time, Bitcoin miners always look for areas with the most efficient energy to reduce operating costs. This way of thinking can also promote innovation in the development of renewable energy - therefore, when Bitcoin miners meet renewable energy, it is undoubtedly a perfect combination.

Geographic distribution of Bitcoin miners

If you look at the global distribution of miners in general, you will find that they are distributed fairly evenly (as shown in the figure above), but a closer look will also show that miners do tend to cluster in certain similar geographic areas, and generally choose areas that are crossed by rivers, have relatively small populations, or are hilly and mountainous areas.

Among these regions we find the main Bitcoin mining centers:

• Washington and New York in the United States;

• The Canadian provinces of Quebec, British Columbia, Alberta, and Newfoundland and Labrador;

• Iceland;

• Northern Scandinavia (Norway and Sweden);

• Caucasus (Georgia and Armenia);

• The vast majority of Yunnan and Sichuan provinces in China.

Some small Bitcoin mining centers are located in:

• Austria;

• Montana, United States;

• Siberian Federal District, Russia;

• Guizhou Province, China.

However, there are some major mining areas that do not meet the above classification criteria, such as Iran and China's Xinjiang and Inner Mongolia provinces. In addition, some small Bitcoin mining areas do not seem to meet the above geographical location criteria, including:

• Florida, Texas, and Arizona in the United States;

• Western Australia and New South Wales, Australia;

• Belgium;

• Belarus;

• Northwestern Federal District of Russia;

• Argentina;

• Venezuela;

• Israel.

So, how do we calculate the utilization of renewable energy in Bitcoin mining?

When calculating the utilization of renewable energy in Bitcoin mining, CoinShares assumes that no matter where the miners are located, they use the average of the power generation mix in their region, including coal power generation, nuclear power generation, or renewable power generation; then, they estimate the percentage of Bitcoin computing power residing in each region by administrative region, and finally multiply the renewable energy penetration rate of each relevant mining area by the percentage of the total global mining industry accounted for by the region, and then derive a global weighted average estimate of the penetration rate of renewable energy in the total power generation of the Bitcoin mining network.

According to the research of the International Renewable Energy Organization, hydropower has the lowest actual cost among all power generation technologies. Given the important position of hydropower in renewable energy, we decided to classify the geographical clusters of Bitcoin miners into two different "baskets". The first "basket" can be called the hydropower area, and the second "basket" is called the non-hydropower area, and the analysis of the "first basket" will be focused.

Of course, we are not saying that other renewable energy sources are not important. For example, Iran mainly uses fossil fuels, nuclear energy, solar energy and wind power to mine, while miners in Xinjiang and Inner Mongolia in my country mainly use natural gas, or coal as the main power source and wind power to mine. In addition, there are some miners who use solar energy as their main power source, but this operation is still relatively rare at present.

As for hydroelectric renewable energy, it is estimated that 60% of the world's hydroelectric mining occurs in China. Sichuan alone accounts for 50% of the global Bitcoin mining computing power, and the remaining 10% is more or less scattered in Yunnan, Xinjiang and Inner Mongolia. With the arrival of the flood season in southwestern provinces of China, including Yunnan, Guizhou and Sichuan, the region has taken a leading position in hydroelectric renewable energy Bitcoin mining in my country and even in the world, especially Sichuan Province. During this period of abundant rain, the local electricity price may be the lowest in the world, which makes it one of the most attractive Bitcoin mining areas in the world. Many miners will deploy a large number of mining machines in advance in the local area - it can be said to be truly "preparing for a rainy day".

Here, let’s review the historical data and see the impressive achievements of Sichuan Province in the utilization of renewable energy for Bitcoin mining in 2017. According to data released by Morgan Stanley Research in October 2018, the renewable energy penetration rate in Sichuan Province reached 90% in 2017, and this indicator is also very high in other provinces in my country, as follows:

It should be noted that the renewable energy penetration figures in different provinces of my country may change in the fourth quarter of this year, because with the end of the flood season, many miners will migrate to Xinjiang and Inner Mongolia and continue mining using local natural gas and wind power.

Now, let's get back to the use of hydroelectric renewable resources for Bitcoin mining. If 60% of hydroelectric mining occurs in China, how is the remaining 40% distributed around the world? CoinShares estimates that 35% of the global hydroelectric mining Bitcoin computing power is evenly distributed between Washington, New York, British Columbia, Alberta, Quebec, Newfoundland and Labrador, Iceland, Norway, Sweden, Georgia and Iran. However, the renewable energy penetration rates in these regions vary, with some penetration rates as high as 100% and others as low as 0%.

Data sources: EIA (November 2018), R2E2 (July 2017), Natural Resources Canada (September 2018), SATBA (February 2017)

CoinShares used the above method to derive a renewable energy penetration rate of 74.1%. In fact, this number may be relatively conservative, because the proportion of many regions is actually higher than the local average, such as New York State. However, although the number of 74.1% seems high, it is actually lower than in November 2018, when the global renewable energy utilization rate for Bitcoin mining was as high as 77.8%. This also shows that in the past year, some miners have begun to choose other power sources to mine in order to catch up with the bull market. For example, a large number of miners in Oregon, USA, have flocked to power resource areas dominated by natural gas, such as Iran.

Bitcoin mining global renewable resource penetration analysis table

Data sources: Morgan Stanley Research (October 2018), EIA (November 2018), Natural Resources Canada (September 2018), R2E2 (July 2017), SATBA (February 2017), CoinShares Research (May 2019)

Seasonality of renewable energy utilization in Bitcoin mining

As mentioned earlier, Bitcoin mining is subject to seasonal liquidity to a certain extent, which is particularly evident for Chinese miners, mainly due to seasonal changes in rainfall in the southwestern Chinese "Yunnan, Guizhou and Sichuan" region and changes in hydropower prices.

With the advent of the annual "flood season" or wet rainy season, electricity prices in the southwest region have fallen to $2.5/kWh, almost reaching the lowest level in the world. According to relevant analysis data, more than 100 TWh of electricity is wasted each year in Yunnan, Guizhou and Sichuan provinces alone. However, Bitcoin miners have made good use of this resource and have become the largest local electricity buyers, bringing huge profits to many hydropower stations and power plants.

However, when the dry season returns, electricity prices in the "Yunnan, Guizhou and Sichuan" regions will rise again, causing some miners to migrate to Xinjiang and Inner Mongolia because of cheap coal and wind power. According to some sources, as many as 500,000 mining units migrated to Xinjiang last year. However, relocating mining units is an extremely expensive task, and only the most capital-rich miners have the strength to carry out large-scale relocation, and their relocation costs can usually reach seven figures (US dollars), while also bearing the risk of up to 20% mining unit breakage rate.

Taken together, these migration patterns will result in seasonal variations in the renewable energy penetration of Bitcoin mining. As a result, CoinShares expects its estimates of the total renewable energy penetration in the mining energy mix to vary with the seasons.

Summarize

Over the past year, the Bitcoin bear market has made it difficult for many miners to survive. Although the sluggish market is very painful for the eliminated miners, the "surviving" miners have proven to be better able to cope with further market downturns.

At present, Bitcoin miners are still distributed in areas dominated by cheap hydropower, such as Scandinavia, the Caucasus, the Pacific Northwest, eastern Canada, and southwestern China. In addition, the migration of miners that can be observed at this stage is mainly limited to the country, that is, after the dry season arrives, miners will relocate from Sichuan/Yunnan/Guizhou to Xinjiang/Inner Mongolia and other places. This is certainly an interesting model, but some miners will choose to stay in Yunnan, Guizhou, and Sichuan because of concerns about the high relocation costs and damage rates, waiting for the next flood season to arrive.

Combining the global Bitcoin mining locations and the renewable energy penetration rates in the corresponding regions, it is estimated that the current penetration rate of renewable energy in the Bitcoin mining energy mix is ​​74%, which is more than four times the global average.

In short, Bitcoin miners are the main force in the purchase of renewable energy electricity around the world, and they are usually concentrated around relatively underutilized renewable energy infrastructure. So, if you want to promote the development of renewable energy to protect the earth's environment, should you re-understand Bitcoin miners?