01 Sep 2022

Bitcoin miners are unique energy consumers

Most people disregard bitcoin mining as just yet another energy-intensive industry, but there is one big difference: bitcoin miners are uniquely flexible concerning when and where they consume energy.
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In our research report titled "How Bitcoin Mining Can Transform the Energy Industry", we explain how the unique flexibility of bitcoin mining as an energy consumer enables it to be used as an energy tool that can help solve several energy problems. In this blog post, we go through the five power consumption characteristics of bitcoin mining that make it a uniquely flexible energy consumer.
Electricity makes up around 80% of a miner's operating costs. Because of the importance of the electricity input, we consider mining an electricity refining process: The miner sends electricity into its machines, which refines the electricity into bitcoin.
Source: Cambridge University
The bitcoin mining industry is global with low barriers to entry, making it very competitive. The only way to stay competitive long-term is to minimize costs. Since electricity is such a significant part of the cost structure, miners are highly incentivized to respond to changes in the electricity price by adjusting power consumption or moving their operations. An example showing the price-responsivity of bitcoin mining is Norwegian miners responding to increased electricity prices in the southern part of the country by moving their operations further north, where electricity is cheaper.
A bitcoin miner "sells" hashes to the Bitcoin network. Since each hash is independent of the previous one, a bitcoin miner can interrupt its production and energy consumption at a moment's notice. It can not only interrupt its consumption but also granularly adjust it up or down in kilowatt increments.Since bitcoin mining is an interruptible and price-responsive load, the process is exceptionally suitable as a demand response tool that can help strengthen electricity systems.
Location agnostic
While most other energy-intensive industries produce physical products that need access to supply chains, bitcoin miners produce hashes, which are information goods sold through the internet. Therefore, a bitcoin mining facility can generally be built in any location with cheap energy and internet access.
The location agnosticism of bitcoin mining makes it possible to take the energy consumer directly to the energy source. Bitcoin miners are the ultimate customers of previously stranded energy resources, which is why oil producers have started to use natural gas that they otherwise would flare to mine bitcoin.
ASICs, the machines used to mine bitcoin, consume anywhere from 1 kW to 5 kW. It's possible to combine different amounts of these machines into different levels of load. Whether an energy asset owner wants a bitcoin mining load of 5 MW, 20 MW, or 100 MW doesn't matter: all load sizes are possible by changing the number of machines.
The modularity of bitcoin mining makes it possible to design a bitcoin mining load to match the available energy generation capacity. This is especially relevant when matching the bitcoin mining load with the excess production capacity of a stranded renewable energy generator to improve its economics.
We can design a bitcoin mining load in specific ways to maximize portability. Filling specially designed shipping containers with mining machines has recently emerged as a way to optimize portability. These container solutions are designed after the plug-and-play principle and can quickly be shipped to other locations if needed.
An example of the portability of mining was the annual Chinese mining migration, in which Chinese miners moved their machines between regions in China due to seasonal differences in hydroelectric power availability caused by wet and dry seasons.The portability of bitcoin mining makes it easy to move a mining facility to soak up excess energy and quickly move the facility to another location if the energy stops being in excess in the first location.
A unique energy consumer
These power consumption characteristics make it possible for bitcoin mining to serve as an energy tool we can use to solve some of our biggest energy challenges. Bitcoin mining can strengthen electricity grids, improve the economics of renewable energy, mitigate natural gas flaring, and lower heating costs by repurposing the heat. Learn more in our research report.
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