This is an opinion editorial Kent Halliburton, President and CEO of Sazmining.
While the goal of the Bitcoin white paper was to start a financial revolution by introducing the first effective peer-to-peer electronic money system, we are now seeing the beginning of Bitcoin’s second revolution: Energy.
Bitcoin miners serve as energy consumers of last resort, can operate from anywhere, and can be switched on and off with almost infinite flexibility. Thus, bitcoin mining can provide viable renewable and remote energy sources that are otherwise harmful. In addition, miners can drastically limit humanity’s emissions problem by turning waste energy into digital gold. Interestingly, these improvements in our relationship with energy are happening even before bitcoin becomes the next global reserve asset. Could Satoshi Nakamoto’s unheralded energy revolution precede the first revolution of a peer-to-peer monetary system? While we can’t say for sure, the data suggests this may be the case.
The Energy Revolution is Gaining Steam
Although imperfect, the best metric to compare Bitcoin’s monetary and energy revolutions is growth. Let’s look at growth rates between the total number of bitcoin owners and the total hashrate of all bitcoin miners. Hash rate, the total computing power miners use to process bitcoin transactions and earn new bitcoins, serves as a good proxy for miners’ energy consumption. However, this still does not tell us directly about the increasingly positive effects of bitcoin mining on the energy sector. After all, if more energy consumption by bitcoin miners simply corresponds to more energy demand, then Bitcoin will not cause a paradigm shift in our relationship with energy in general. But as we will see, bitcoin mining has its energetic benefits Bitcoin’s power consumption rose along with it.
Total Hash Rate of the Bitcoin Network (source)
As you can see in the first chart, the number of bitcoin users grew rapidly until mid-2021, when the rate of growth slowed. The decline in acceptance roughly corresponds to bitcoin’s price falling from $61,000 to $32,000. Although the hash rate also collapsed at this time, it has steadily rebounded and continues to reach new highs. Although Bitcoin adoption is slowing down, the network’s energy consumption and mining activity continue to grow significantly.
As mentioned earlier, the increase in energy consumption of bitcoin mining alone does not tell us that Nakamoto’s second revolution is underway. To claim this, we need to know how much of that energy comes from renewables, waste and captive energy. The Bitcoin Mining Council’s Q3 2022 report explains that the stable electricity mix of bitcoin mining is about 60% as of October 2022, which is about 3% more than a year ago. Bitcoin miners buy renewable energy as a last resort; they do not consume energy that would be purchased by other consumers. Instead, they buy energy from others when demand is low, increasing the profitability and therefore viability of renewable energy sources around the world. As the renewable energy consumption of Bitcoin production increases, so does the global clean energy market.
Future Indicators of Nakamoto Revolutions
In addition to measuring the number of existing bitcoin holders (or wallets), another metric for evaluating the success of Nakamoto’s monetary revolution is the number of bitcoin-related transactions per unit of time.
The Lightning Network, a Layer 2 technology designed to make bitcoin transactions cheap, fast and user-friendly, is becoming increasingly popular as bitcoin transforms from a store of value to a medium of exchange. The number of transactions per unit of time on the Lightning Network will be a direct indicator of the growth of bitcoin as a monetary instrument.
As more and more energy projects benefit from bitcoin mining, Nakamoto’s energy revolution will be measured by tracking all of the following:
- Tons of carbon dioxide equivalent decreased per unit of energy expended by bitcoin miners per unit of time.
- Watt output by closed energy sources would be impossible without Bitcoin mining.
- Wattage output by intermittent (and renewable) energy sources, which would be impossible without Bitcoin mining.
As we learn more about both the Lightning Network and the intersection between bitcoin production and the energy sector, we will be able to compare how far each of the Nakamoto revolutions has progressed over time. As mentioned earlier, while there may not be a moment when both revolutions will officially take place, we will at least be able to gauge the pace. each advances.
What We Now Know About Binary Revolutions
Available data shows that the growth of bitcoin holdings has slowed relative to the growth of mining. If these trends continue and If bitcoin miners’ renewable energy mix continues to be among the greenest on the planet, Nakamoto’s second revolution may actually surpass the first. Bitcoin could gain a reputation as an important asset in the fight against global warming and rival its emerging reputation as the next global reserve asset.
Nakamoto’s unexpected energy revolution will continue to gain momentum. Fortunately for humanity, it doesn’t matter which of the Nakamoto revolutions happens faster. We all win with dramatically improved money and energy.
This is a guest post by Kent Halliburton. The views expressed are entirely their own and do not necessarily reflect the views of BTC Inc or Bitcoin Magazine.