This is an opinion editorial by Kent Halliburton, president and COO of Sazmining.
Although the intent of the Bitcoin white paper was to usher in a financial revolution by introducing the first effective peer-to-peer electronic cash system, we are now seeing the start of Bitcoin’s second revolution: energy.
Bitcoin miners serve as power buyers of last resort, can work from anywhere, and can be turned on and off with almost infinite flexibility. As such, bitcoin mining can generate viable remote and renewable energy sources that otherwise would not have been profitable. Additionally, miners can convert waste energy into digital gold, drastically reducing humanity’s emissions problem. Interestingly, these improvements in our relationship with energy are already underway, even before Bitcoin has become the next global reserve asset. Could it be that Satoshi Nakamoto’s undeclared energy revolution really takes hold before the first revolution of a peer-to-peer cash system? Although we can’t know for sure, the data suggests that might be the case.
The energy revolution gains momentum
Although imperfect, the best metric to compare Bitcoin’s monetary and energy revolutions is growth. Let’s look at the growth rates. between the total number of bitcoin holders and the total hash rate of all bitcoin miners. The hash rate, the total computational power used by miners to process bitcoin transactions and obtain new bitcoins, serves as a good indicator of miners’ power consumption. However, this still does not give us direct data on the increasingly positive effects of bitcoin mining on the energy sector. After all, if higher energy consumption by bitcoin miners simply corresponds to higher energy demand, then Bitcoin will not have caused a paradigm shift in our relationship with energy. But, as we will see, the energetic benefits of bitcoin mining have increased along with the energy consumption of Bitcoin.
Total hash rate of the Bitcoin network (source)
As you can see in the first graph, the number of bitcoin users increased at a rapid rate until mid-2021, when the growth rate slowed down. The drop in adoption roughly corresponds to the price of bitcoin falling from over $61,000 to under $32,000. While the hash rate also plummeted around this time, it has steadily risen again and continues to reach new heights. Although bitcoin adoption has slowed, network power consumption and mining activity continue to grow significantly.
As mentioned above, the increase in bitcoin mining power consumption alone does not tell us that the second Nakamoto revolution is underway. To argue that, we need to know how much of that energy comes from renewable, waste, and stranded energy. The Bitcoin Mining Council’s Q3 2022 report explains that the sustainable electricity mix of bitcoin mining is nearly 60% as of October 2022, up 3% from a year ago. Bitcoin miners buy renewable energy as buyers of last resort; they are not consuming energy that other consumers would have purchased. Rather, they buy the power precisely when there is little demand from others, increasing the profitability and thus the viability of renewable energy sources around the world. As bitcoin mining’s consumption of renewable energy increases, so does the global market for clean energy.
Future Indicators of Nakamoto’s Revolutions
In addition to measuring the number of existing bitcoin holders (or wallets), another metric to measure the success of Nakamoto’s monetary revolution is the number of transactions per unit of time involving bitcoins.
The Lightning Network, a Layer 2 technology designed to make bitcoin transactions cheap, fast and easy to use, is growing in importance as bitcoin evolves from a store of value to a medium of exchange. The number of transactions executed on the Lightning Network per unit of time will be a direct indicator of the growth of bitcoin as a monetary instrument.
As more and more energy projects take advantage of bitcoin mining, Nakamoto’s energy revolution will be measured by tracking all of the following:
- Tons of carbon dioxide equivalent reduced per unit of energy consumed by bitcoin miners per unit of time.
- Wattage output from stranded power sources that would have been unfeasible in the absence of bitcoin mining.
- Power output from intermittent (and renewable) energy sources that would have been unfeasible in the absence of bitcoin mining.
As we receive more data on the Lightning Network and the intersection between bitcoin mining and the energy sector, we will be able to compare how far each of Nakamoto’s revolutions progresses over time. As stated above, while there will never be a single moment where either revolution has officially occurred, we will at least be able to measure the speed. in which each one is progressing.
What we now know about dual revolutions
Current data indicates that the growth of bitcoin owners 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, then Nakamoto’s second revolution could surpass the first. Bitcoin could gain a reputation as a major asset in the battle against global warming, rivaling its emerging reputation as the next global reserve asset.
Nakamoto’s unintended energy revolution will continue to grow in strength. Fortunately for humanity, it doesn’t matter which of Nakamoto’s revolutions is happening the fastest. We all win with drastically improved money and energy.
This is a guest post by Kent Halliburton. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
