Bitcoin Mining Overview

Out of my intellectual curiosity, I began conducting research on bitcoin mining and how it relates to carbon footprint and energy specifically. Throughout my research, I learned that domestic bitcoin mining is growing in the utilization of renewable energy and stranded hydroelectric power. These energy sources are not only more sustainable for the environment but also cheap. Additionally, bitcoin miners are flocking to rural areas, especially where there has been a population exodus.

State Of Bitcoin

As the asset class matures, it’s necessary to review the landscape, provide material insights as well as evaluate who’s best positioned to gain from this technology.

Founded by Satoshi Nakamoto in 2009, bitcoin is the world’s first cryptocurrency. Bitcoin is stored and exchanged securely on the internet through a digital ledger called blockchain. A blockchain is a growing list of records, called blocks, that are linked using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. Bitcoin is divisible into smaller units known as satoshis with each satoshi worth 0.00000001 bitcoin.

Originally invented to be “electronic cash,” bitcoin has become a popular investment and store of value often compared to gold as “digital gold.” Owning bitcoin is advantageous for many reasons, including its decentralization and lower fees than other traditional online payment methods. Bitcoin also has the world’s largest market cap compared to other cryptocurrencies and stock-to-flow ratio. Bitcoin has a market cap of $168.3 billion, a volume of $27.2 billion, and a circulating supply of 18 million.

Bitcoin Mining

Bitcoin mining involves solving proof-of-work consensus algorithms or mathematical equations that secure the network in exchange for new bitcoin. Solving these complex puzzles requires a GPU (graphics processing unit) miner or an application-specific integrated circuit (ASIC) miner — which equates to using a lot of energy.

A hash is the output of a hash function, and, as it relates to bitcoin, the hash rate is the speed at which a computer is completing an operation in the code. A higher hash rate is better as it increases the opportunity of finding the next block and receiving the reward. Often, miners group together into “mining pools” to share block rewards in proportion to their contributed mining hash power.

Bitcoin Mining Landscape

It’s speculated that more mining will be coming stateside when domestic institutions finally move into bitcoin and for cheaper, more sustainable sources of energy as well as a hedge against Chinese regulations.

Environmental Impact

It requires 627 kilowatt-hours of electricity to run the servers needed to verify the ledger on each bitcoin transaction. This emits 0.44 metric tons of carbon dioxide, which requires $5.32 in carbon credits to offset. More than 60% of the processing power used to mine bitcoin is in China. Coal, a significant contributor to human-made climate change, is the largest generator for mining abroad.

Emerging Ecosystem

In spite of bitcoin’s eco-unfriendly reputation, some organizations, large and small, are using blockchain to power a regenerative agricultural revolution. Mostly, to reverse the flow of carbon dioxide into the atmosphere.

Some notable nonprofit organizations have already adopted the technology.

Opportunity

Domestic bitcoin mining can be a boon not only for entrepreneurs and investors but also for the mostly rural town areas and its citizens that are cut off from technological development and emerging markets in more urban areas. The surge in mining presents a considerable opportunity for public/private partnerships and organizations that address environmental challenges like climate change and habitat loss. For example, The Conservation Fund could be an excellent partner to these mining companies.

The wood processed in the plant comes from forests that are sustainably managed, protecting clean air, clean water, and wildlife habitat in the process of harvesting trees.

Bitcoin miners could potentially partner with the Fund and other similar organizations to sustainably manage the land, changing the narrative from bitcoin fueling climate change to fueling the economy. Other services could be used to fund community efforts from a percentage of crypto mined, offset carbon emissions, utilize the Fund’s extensive community partnerships, easements, or more. Bitcoin is a volatile macro asset, but it’s only going to gain more strength, and with that, more need for mining.

Bitcoin mining centers share a similar design as the commercial data centers that we are all familiar with today. Bitcoin mining requires sophisticated hardware and cooling mechanisms to achieve economies of scale. The positives for bitcoin mining data centers compared to commercial or enterprise data centers is that the mining centers are designed only to do one thing. There is no requirement for customers to be located within a two-hour drive to their data center as most traditional data centers require. Bitcoin mining is decentralized, and its customers are distributed across the world. Two servers are equivalent to one furnace in a home.

Bitcoin mining centers might require more power and cooling capacity; however, with bitcoin halving every four years, the energy consumption should fall proportionately.

While more companies are utilizing renewable energy, the use of bitcoin still produces electronic waste generation the size of Luxembourg, the power consumption of Austria, and a carbon footprint comparable to the carbon footprint of Denmark. This could be a driver to mitigate their footprint or impact on the environment through the Fund.

Investment & Regulation

Conclusion

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