Bitcoin Mining is Predominantly Renewables Driven | Christopher Bendiksen

all right um thanks everyone for tuning in uh my name is uh christopher bendixon i'm the head of research at coin shares uh we're a crypto investment firm a digital asset manager um we got a full suite of uh crypto investment products that i'm not gonna talk too much about here because i don't actually have time but you can check check us out on our website um i'm gonna talk uh about um bitcoins and uh renewables let me run about this all the way back sorry it's at the wrong end we're going to talk about bitcoin and renewables again i'm going to follow up a little bit on some of the previous points that philip made i'm going to come at this from a little bit of a different angle but it's not actually that different what we're going to talk about uh so uh as many of you have seen you know for quite some time now the media has been uh claiming that bitcoin money is an exceptionally damaging industry with regards to the climate um and it's even gone so far as certain people publicly asking that governments ban bitcoin entirely to quote unquote say the environment um i don't have time to cover any of those articles or their contents in full detail um but i've still collected uh my favorite quotes though so we have bitcoin mining maybe pumping out as much co2 per year as kansas um could be bitcoin predicted to be the nail in the coffin of climate change yeah okay um bitcoin can push global warming above two degrees centigrade in a couple decades no and then just my favorite bitcoin will burn the planet down the question how fast um so in this uh pretty quick presentation i'm going to make two points and i'm going to add my own opinion as a conclusion uh first i'm going to show that bitcoin mining is probably nowhere nearly as bad as uh some of these pundits are claiming and in fact it's our belief that bitcoin mining is predominantly driven by renewable energy uh secondly i'll claim that exactly contrary to what's being said bitcoin mining is an excellent opportunity for mankind to effectively increase the investment in renewables projects without having to involve neither taxpayers nor governments and so if they actually want a positive outcome for renewable my conclusion uh governments should simply leave bitcoin alone uh so the anti-mining argument goes something like this simplification so bitcoin miners are predominantly located in china that's true uh china mainly generates its electricity from coal that's also true uh therefore bitcoin mining is predominantly driven by coal based electricity uh we don't think that's true we think that's false and i'll get into why we believe this last one is false but uh let me first talk a bit about how we got there so uh when we were first introduced to this narrative this is quite a few years ago actually uh we were concerned too because you know it is true that bitcoin uses a lot of energy um but as we started looking a little deeper into the actual mining industry it also became increasingly clear that the dirty industry narrative is built on somewhat shaky grounds and it's based on methodologies that we consider to be not quite appropriate and not sufficiently granular so um almost all the large miners we spoke to initially were hydrominers uh and there's a greater diversity now so it already smelled a bit funky from the start so we started putting together an overview of the most important global mining regions and the way we did this was to troll the internet for any public announcement of mining facilities uh we read all available mining research we can find we lurked around tons of mining forums chat groups called emailed it and texted pretty much anyone that would answer us which initially weren't a lot of people but uh you know two two and a half years in uh more and more these days so it turns out there's actually quite a lot of information out there it's just very scattered and hard to collect so it's extremely time consuming which is why i don't think there's been that i mean there's there's a lot of good research coming out now but back then there really wasn't a lot but but here's here's where our estimate uh currently stands so uh as you can see on this map there are concentrations of miners in the pacific northwest texas eastern united states canada iceland the nordics caucasus iran russian southern siberia kazakhstan and certain provinces of china some very interesting patterns here a lot of miners are in mountainous regions and a lot of these regions are traversed by powerful rivers many are in regions that are windy and many are in regions that are relatively sparsely populated some are in regions where fossil fuels are extremely cheap and abundant and i also do have to make the point that mining on waste gas from north american oil fields here has enormous potential for future development marty will tell you all about that uh it's just not something that we've seen fully come to fruition yet it's on the cusp though which which you know we'll talk a little bit about that on top of this though a lot of these regions had relatively high renewable curtailment rates and this was particularly true within china um we already knew that mining is incredibly competitive and that the pressure on miners to access cheaper and cheaper electricity is extreme as philip mentioned this is presentation having come from an energy background i also knew that contrary to what a lot of people think renewables are often the cheapest sources of electricity available especially hydro geothermal and onshore wind it's just they tend to be in unfortunate locations you know on top of mountains like philadelphia so you know wind rain and volcanoes uh can't really be shipped around the world like coal and gas can uh renewable power plants need to be built wherever uh their geography allows them um so one of the main problems we faced with renewables uh not even considering the variable production issue of solar and wind and the side effects that that has on the grid uh one of the main problems we have is transmission losses so when we send power over long distances some is lost as heat and the problem increases with distance if the renewable power plant is far enough from demand centers the transmission losses can be so large that by the time the electricity reaches demand centers it can't actually compete on cost against fossil fuel plants which can be placed right next to its clients uh not to mention that long distance transmission lines are also expensive they're unsightly and unpopular you know someone has to pay for them which are the consumers through higher prices nobody wants them in their backyard and nobody even wants to look at them these are ugly um you know this is simplifying a complex subject but transmission losses are a major reason why we can't power more of the world with hydropower even if we have huge untapped capacity all over the world i mean i would know i'm from norway and we have so much of this stuff laying around we haven't you know we just don't know how to sell it uh by the time it reaches uh industry or consumers it's it's just too expensive so again contrary to what a lot of people think like we don't really send electricity over long distances in large quantities it's just not economical and this makes a lot of renewable energy stranded and it also mutes the argument that renewables spent on mining simply necessitates the addition of fossil fuels somewhere else that's just not how it works so at the source on a localized cost of electricity basis hydropower is the cheapest 24 7 available renewable energy in the world and we have a lot of it so this is an overview of localized cost of energy for global utility scale power projects so that is the total cost of electricity per megawatt over the project lifetime as you can see geothermal onshore wind and hydro generates some of the cheapest electricity available and this even underestimates hydro projects because they tend to outlive their projected lifetime and can be refurbished extremely cheaply compared to their construction cost which is mainly the cost of the dam itself so to add to this uh lots of large and mid-scale hydro dams do not run at capacity uh sometimes because of seasonality uh often um because they're too far from demand centers other times because they're built in the absence of corresponding grid capacity other times again because industry or consumers they were originally built to serve has since left or never arrived but the dam is still there so in fact absurd amounts of potential energy is wasted globally every year by letting water run over dams mostly in china which is by far the world's largest producing of hydropower and this is a massive drain on profitability of renewables so uh reuters estimated in 2015 that around a thousand terawatt hours were wasted in china that's enough to power britain and germany combined union governor uh rang chung faw said his province wasted 30 terawatt hours annually in 2018. i mentioned the reason i mentioned yunnan specifically is because it's a big bitcoin mining region uh same with sichuan another big bitcoin mining region that had 75 gigawatts of installed hydropower capacity in 2017 but it's great it can only handle half of that uh and for context here again uh the bitcoin mining network currently draws around 8.4 gigawatts or around 73 terawatt hours on an annualized basis so with all this in mind uh you know we started looking at the mining regions in more detail with regards to their energy mix so even if our methodology is a little bit more granular it's still very simple um for smaller countries like iceland or georgia or you know norway or sweden we figured it's pretty reasonable to assume that any minor within the country would use roughly the same energy mix as the national average but and i think this is extremely important for larger countries like china or russia the us or canada regional differences in renewables are so big that assumptions like that don't actually work like the energy mix in texas is not the same as in oregon nor is it the same in xinjiang or sichuan they might as well be different countries sometimes they even have their own greats like texas so for these large countries we found the renewables penetration in each localized region and we used that instead of national averages so here are the regions that we in 2019 uh found to be the the most important ones uh as you can see uh we selected four particular regions that are china and then a whole host of various countries and provinces and states on the east side um you'll note here that most of these regions have a much higher renewables penetration than the global average of 18 um and so in this model you know we group them into four groups so we have uh sichuan and then remaining china which is yunnan xinjiang and inner mongolia then we have their remaining non-relevant chinese regions which are all the countries in the right column and then we have the rest of the world um so of inside of the groupings we simply take an arithmetic average of all participants and we do that just to reflect the fact that these are estimates right uh i i want to just point that out just like you did these are estimates and we don't want to make the model seem more detailed than it is so using these uh in december we calculated uh this renewables uh penetration which was even on one of philip's slides um so the way we do that is that we we take the renewables penetration of each of those regions and then we add the global mining share to it and so global mining share we think is approximately 65 uh in china with 80 of that in sichuan and uh the remaining non chinese regions account for around 31 percent and then 4 scattered around the world so uh in this case the renewables estimate is 73 percent uh however there is a really important caveat to this table uh which we've come to realize over time uh it reflects the conditions of the last chinese wet season so let me talk a little bit about that um the more we learn about local dynamics within china the more we've realized it's not quite as straightforward as our initial estimates might suggest so whereas in the beginning we thought that mining operations when established were fairly static and and that is indeed the case in almost the entire world uh but it is not the case in china so in fact the chinese the chinese mining industry is highly seasonal uh and this is a result of seasonal weather causing the electricity prices to fluctuate in the hydro-heavy regions in the southwest so the wet season starts in the late spring and lasts until late fall approximately may to december and during the wet season electricity is cheapest in sichuan and yunnan which are hydro regions and in the dry season it is cheapest in xinjiang in inner mongolia which are coal and wind regions so to take advantage of that miners migrate so they migrate between the largest purple dot and almost i guess almost black dot i don't know if i'm color blind um so you know for those that wonder that's almost uh i think it's actually 2 000 kilometers so we have potentially gigawatts of miners moving thousands of kilometers twice a year think about that that's pretty clear that's pretty crazy and also to be clear you know we know these migrations happen but we're not yet quite sure of the extent uh there's a really um sexy data recently released uh by uh cambridge uh applein blindings team uh that suggests that it's actually pretty extensive so much more common than we first thought and since last december unfortunately we haven't had the opportunity to make a comprehensive estimate of minor locations this year but what we've gotten instead are those cambridge figures suggesting that the vast majority of internal chinese miners might actually move around with the seasons so instead of doing a proper new estimate i figured i'd instead show you what the renewables penetration would look like under the assumption that during the wet season uh 80 percent of chinese mining happens in sichuan and yunnan like our december estimate and in the dry season it's 80 percent xinjiang in our mongolia which looks a lot more uh like the current image suggested by that cambridge data so um here we've just adapted our methodology slightly um our four groups are now sichuan and yunnan uh that are now wet season china and then we have shinjangan in mongolia which is dry season china and then remaining relevant global mining regions and rest of the world so for mining shares uh we we've assumed uh the same uh international distribution as before uh 65 china um you know 31 percent uh remaining world and and four in in in the uh scattered among the non-important regions um and internally in china we've uh assumed that 80 percent of chinese hash rate flows between sichuan yunnan in the summer and xinjiang in mongolia in the winter every season and so the current dry season renewables penetration estimate looks like this uh where their shares of renewables for mining is 41 so as you can see uh it has a really large effect and the current uh wet season estimate would be 69 and that is even down from what we had earlier and that reflects increased mining in kazakhstan and um other you know iran which has essentially zero renewables which would put the annual renewables average at 55 uh you know and considering the fact that the seasons are roughly six months each um you know that's that's uh how we would target that uh so you know i i think that it is likely that the truth is closer to the average of the two uh but frankly we need more data to be sure and the fact that it changes so rapidly uh is a big challenge for us uh which is why the the approach that they've taken at the cambridge center is super super interesting um also for a fully for truly full view uh we need county level renewables figures in places like new york and texas because we know that miners tend to operate for example way upstate in new york where there are very few people very far from the population centers on the st lawrence basin where it's almost entirely hydro driven uh and in texas they tend to operate in land away from the cities as well uh in in in wind region but but also on uh on natural gas um so you know in in any case even under these assumptions uh renewables are the main driver of mining and again back to what philip is saying it's it's it's a cost issue it's because they are cheaper um and you know the the share of renewables in the mining energy mix is still multiples above that of the global average which leads me to the final point i want to make so bitcoin mining acts as a global electricity buyer of last resort if you're in a country with at least decent property rights and with a semblance of political stability and you can produce and sell electricity at you know call it like three cents a kilowatt hour you will have instant demand for miners uh nick carter made an excellent mental image of this a few years back he imagined uh global electricity prices as a surface relief map uh and on this map the peaks would represent the high electricity prices and the bottoms or trough split represents low prices and mining acts as a glass of water poured out over this map it seeks out the bottoms and it smoothens it out so this means that we can use mining to bootstrap renewables projects that are otherwise too remote to warrant initial investment instead of having to front load the entire project with enough capital to immediately connect it to the grid miners can come in sit right on the site and monetize that electricity immediately so as soon as the renewables project itself reaches certain roi goals return on investment goals it can be refinanced and connected to demand centers uh miners can move on to the next project and the end result is cheap renewable energy for industry and consumers no need for subsidies just a free market doing its thing keeping in mind that the energy sources with the lowest levelized cost of electricity are renewables particularly onshore wind geothermal and hydro what we're effectively doing then is a voluntary redirection of capital from savers to renewable energy projects increasing investment in that sector and all at the same time safeguarding a globally independent hard asset monetary system and that's something i think we should take the time to think about with a little more depth and nuance thank you very much you