Video summary
The video presents a detailed analysis titled "The Green Bitcoin Theory," developed by Prof. Dr. Philipp Sandner and Daniel Wingen to examine how Bitcoin's energy consumption is intrinsically linked to sustainability. The core argument challenges the common narrative that Bitcoin mining is inherently environmentally damaging by highlighting that miners are primarily motivated by the need for low-cost electricity. According to the research, approximately 73% of the energy currently used for Bitcoin mining comes from renewable sources like wind and hydropower, which offer significantly lower prices than conventional coal or gas plants. This economic reality forces mining operations to gravitate toward green energy sources to remain profitable, effectively making the network a consumer of surplus and sustainable power rather than a drain on traditional grids.
The theory further explains this dynamic through the lens of mining efficiency and market competition, comparing the Bitcoin ecosystem to the gold mining industry. In this framework, the most efficient miners, who utilize the latest hardware and access cheap renewable energy, operate on the left side of an efficiency curve and maintain healthy profit margins even when Bitcoin prices fluctuate or after halving events. Conversely, less efficient miners relying on expensive conventional energy sources are driven out of the market when profitability decreases. As the total hash rate increases due to new entrants and better technology, competitive pressure forces the remaining network to become more efficient overall. This natural selection process ensures that only those with access to cheap, green energy can survive, thereby increasing the proportion of sustainable energy usage within the network over time.
Looking forward, the presentation outlines a theoretical feedback loop where increased competition in Bitcoin mining stimulates innovation across the entire value chain. As miners are forced to invest in better hardware and cheaper energy sources to stay competitive, this demand incentivizes upstream actors like engineering firms and utility companies to increase their research and development spending. These entities are motivated to improve cooling technologies, turbines, and power generation facilities to provide lower-cost electricity, creating a cycle where the Bitcoin network drives technological advancement in energy production. While the theory suggests that current inefficiencies exist, the long-term trajectory points toward a scenario where rising market capitalization and hash rates lead to substantial increases in R&D spending, ultimately resulting in a more efficient and greener global energy landscape.
Read the full video transcript
let me quickly start
and the idea was also together with
daniel wingen who is
one of the organizers of this conference
to analyze
the way bitcoin consumes energy
we already know that bitcoin is not that
bad
uh as people say so people we all know
already know that people
that uh consumption is partly done by
sustainability
energies that's basically a sustainable
energies
wind energy and so on and the idea now
is that
we want to go much more into detail here
what happens in case of
the hash ray is changing and so on
that's basically the goal the goal of
this research
and therefore let me quickly jump into
this uh slides for a couple of minutes
and then we i think it's best to discuss
them in more detail
so we have also formulated this article
here we called it the green bitcoin
theory
how our bitcoin electricity consumption
and especially green energy are
related um well
my my name is philip zandner i myself i
am head of the
frankfurt school blockchain center in
germany
we have the blockchain center three and
a half years ago and we focus on
everything related to blockchain and
finance
that's bitcoin yes but that's also
ethereum and that's also for example
digital currencies also including the
euro for example
on ledger especially in germany the top
of digital euro
on lecture pops up more and more these
days but
that's not the topic for today so i will
i think i do not need to show the uh the
introductory slide i think this is very
very much
that is a very nice nice light for
introduction
the always um where is bitcoin in
comparison to other
assets and here you see for example
bitcoin having a market capitalization
of 190 billion that was last year
and uh stock markets being 75 trillion
that was also last year
and gold being eight trillion last year
that's now being
nine trillion and here the interesting
thing is the question
uh where to compare bitcoin with i think
we all know that a very good comparison
might be gold
and then you can now do the math and you
divide 187 by 8 trillion
and then you end up by a share of 1.5 of
bitcoin's capitalization in comparison
to gold i think that's
that's the comparison that matters and
the question is
five percent is it fair is it too low is
it too high
and so on but i think it makes much more
sense to compare bitcoin to
a gold as a commodity but i think this
is known by everybody
um i will jump over this that's
basically related but
um now we are going into the core of the
topic so i think
everybody in the room knows the basics
of mining mining has a very long-term
weaker effect
uh on the bitcoin price that's also in
comparison to the
stock flow theory i think this is pretty
clear to everybody
and then bitcoin has a very strong
short-term effect on mining so in case
the bitcoin price
is changing or in term in times where we
have mining
then the mining intensity the mining
volume um
quickly changes overnight and the
question is always how these
circles are changing over time because
we have the short-term effect
from right to left and the long-term
effect from left
to right so this is now the introduction
to our
theory which we are outlining and here
you see
that of course the architecture of the
bitcoin network is basically
embodied in the bitcoin code
this then allows bitcoin mining mining
companies to operate
the mining hardware consumes electricity
i think this is trivial
and this is uh to mention some figures
here in january it has been ten thousand
notes
and uh 116 quintillions of hashes
per second this leads to a very high
energy consumption
which is basically not good i think
that's the media narrative we all know
but the question and now i think it gets
interesting is more or less
the question uh which engine energy is
actually consumed
what is motivating mining companies
actually to operate
and what energy sources are allowed
allowing
low cost of electricity because now you
can connect the dots
and this means uh 73 of energy is coming
from renewables according to this
study mentioned here then mining
companies
only continue to operate if there is
access to low-cost electricity
and the question is which energy sources
are providing
access to so uh low-cost energy and here
you see
mainly hydropower power wind power which
which
allows um an electricity price of
two to three euros per kilowatt hour
whereas um
with secondary priority you can also of
course have coal and gas power plants
which are producing electricity
with five to six euros and kilowatt
hours one of the authors of this study
has been andreas straub he's also from
germany he works at an
energy utilities company for years and
investigates mining also on behalf of
the energy utilities company and the
figures and the electricity know-how is
also coming from him so we really
validated what's
what's going on here and if you connect
the dots then you see here
that in case mining companies aim for
low-cost energies
then they at some point of time have to
choose uh for example hydropower wind
energy because only these
energy sources are providing a low cost
electricity price of two to three euros
per kilowatt hour and this then leads to
the share of 33
73 of renewables with now our hypothesis
that it will be
increasing and now i think we are going
into the detail and i think now it's
it's getting really interesting
so what you see here is that you have on
the x-axis
the efficiency of mining companies so
this means
you have low efficient mining companies
on the right-hand sides that's basically
those mining companies operating with
old hardware
they have access just to high-cost
electricity
that's for example conventional energy
sources such as golden cars
and on the left-hand side you have
mining companies which are highly
efficient
that they have the latest generation
mining hardware in place
they have access to low-cost electricity
and they have
for example access to excess energy
which is not needed in the electricity
grid
or renewables so what do we see here and
this is very important is that we have
some kind of distribution here
concerning the efficiency grade of
mining companies
some of them are very efficient they are
left some of them are not so much
efficient they are on the right hand
side and of course the lion's share of
the mining companies
due to statistical reasons somewhere in
the middle having this kind of bell
shaft
corpse curve and this is then reflecting
the population of all mining companies
having different
efficiency profiles
and interestingly because uh production
of bitcoin only requires or mainly
requires electricity and hardware we can
also
mention that here that on the xs's exit
the efficiency being depicted here it's
also the production price of one bitcoin
so ideally in a theoretical environment
um we see that um that the efficiency is
strongly related to the production price
of the bitcoin
this means of one bit that those
companies which are operating at a high
efficiency
they are on the left-hand side they
should then be having
more a higher margin profit margin when
they produce bitcoin
in comparison to those mining companies
which are
have a low very low efficiency that's
exactly the same like a gold mine
on the x-axis you would depict the gold
price and then you have low efficient
gold mines and you have high efficient
gold mines and of course those um
gold mines which are highly efficient
they have a higher profit margin such
that for them it's more fun
to operate so now let's see that the
bitcoin price is uh 9000 us dollar
that's basically here and what happens
now is that the mining company
sitting here on this bell shaped curve
in with this blue dot
um you can now see that this mining
company is
the profit margin per bitcoin for
example um
850 8500 us dollar is basically the cost
for this mining company when they
produce one bitcoin
so the profit margin is 500 us dollar
for example that's that's just some
numbers here but it
it does make sense so this mining
company will continue to operate mining
because for this company it's fun
because they are having of course a
profit for this mining company on the
left-hand side
it's even more fun to operate because
they have a very very high efficiency
profile so for them the profit margin is
much much much higher
so now what happens if the bitcoin price
for example is
decreasing or alternatively it's the
same mechanism if
bitcoin halving occurs then for example
or but let's stick with the example that
the bitcoin price is decreasing to 8500
us dollars
then suddenly this mining company which
is sitting here
has a higher production cost for
producing the bitcoin so it's operating
at a loss so there is a loss for each
bitcoin being produced the bitcoin is
produced at say eight thousand six
hundred us dollar
and it can sell it for 8 500 so there is
a loss
so this mining company at some point of
time will stop
operating because why should it produce
bitcoin at a higher price
then it could sell it on the market
whereas this mining company on the
left-hand side it still operates
because it's more efficient so the
profit margin is still there
and therefore this company on the
left-hand side
continues to operate but what you should
keep in mind here is that
once the bitcoin price decreases or once
that's more important
bitcoin mining uh bitcoin hafening
occurs
then those mining companies are driven
out of business which are on the right
hand side
that's those companies who are running
on old mining hardware that's those uh
companies who are having access to high
cost electricity
or who have access to conventional
energy sources such as golden cars they
are just
less efficient and therefore a lower
bitcoin price or
a lower block reward occurring after
harvening
will lead to the fact that they will
simply be driven out of business
but those mining companies which are
more highly efficient on the left-hand
side they will stay in the business
because they have a better efficiency
profile which is rooted in
the latest generation mining hardware
low cost electricity and so on
i think this study can be known by some
of the listeners
you see here that in total the share of
renewables which are used for mining is
73
that's basically uh sitting here on the
lowest line on the
second column from the right hand side
and that's basically a very very
interest interesting study where they
analyzed
how much energy is used for mining and
also
which energy resources are used such
that the bitcoin mining network can
operate
so you have here an aggregate total of
73
of the entire network which is running
on renewable energies for mining
according to their studies of course
which can be disputed
but that's at least like the starting
point from our
further argumentation also 73 of the
energy which is being consumed is not
coming from coal and gas but rather from
renewables
and now there's coming the final logic
here of our paper which is a theory it's
not
proven it's not empirically analyzed but
it's a theory which can then be
analyzed exposed after time has passed
so you see this value chain here
you have engineering companies on the
left hand side they are producing
um equipment such that electricity can
actually be
serviced to those who want to consume
electricity
then you see the energy suppliers that's
basically the utilities companies
they are operating power plants and they
are servicing the
kilowatt-hour electricity for example to
bitcoin mining companies here more the
right-hand side and the bitcoin mining
companies of course they are jointly
operating the bitcoin network but that's
basically the value chain which
can be observed here and now that's uh
that's basically the core of our theory
you have now the bitcoin network where
the hash power is increasing
so the hash power is increasing uh
because
new entrants are coming into the mining
business because
uh mining um hardware is being improved
or because hafening is being taken place
that's basically not increasing the hash
power but it's basically reducing the
block
reward and has the same effect we could
just change the words here
so the the required efficiency to
continue mining
needs to be improved here so in case the
hash power is increased because we have
new entrants or because because the
mining hardware is improved
then the profitability of the bitcoin
mining companies goes down
so you have competitive pressure on
mining companies
because the hash power is increasing
this leads
to the fact that you have two strategies
here on behalf of the bitcoin mining
company
the mining company can either choose to
invest
this means they are purchasing new
hardware they are purchasing
cheaper electricity because they are
then doing investment in
more in better energy resources which
are having a better efficiency profile
or alternatively that's on the lower
half here they will
decide to stop operations this is of
course also a valid business
strategy so once again you have hash
power increasing you have then second
profit profitability decreasing because
of competitive pressure
then you have the investment increasing
by the companies because a company
operating in mining seeks to get access
to lower cost energy or
it invests into a better hardware to
leverage the energy
in a more efficient way that's the the
upper argument or the lower argument is
that a company in case it does not want
to invest
simply stops operating and goes out of
the bitcoin network
but this higher investment then leads
energy suppliers
to increase their r d spendings and
because
an energy supplier would then have an
incentive to produce
higher lower cost energy they are
increasing the access to low cost energy
they are
starting to utilizing renewables they
are starting to utilizing depreciated
power plants they are starting to
improving their equipment because then
you invest in
r d to increase the efficiency of energy
production that's happening at the stage
of the
energy suppliers and then you see this
now just with one small error in
comparison to
three on the right hand side you also
see
or you also should observe a smaller
effect on behalf of the
engineering companies which also should
invest a little bit more in r d
because they now have an incentive to
improve cooling
generators turbines and energy producing
facilities and other equipment
so because the bitcoin network increases
the hash power downstream
you have upstream and higher r d
activity
on the level of energy suppliers and
engineering companies
that's the theory we are having and we
are still quite much convinced
that it should work like this but of
course this
needs to be empirically checked in the
future but you see here and that's
basically then uh the key message here
that the bitcoin network at some point
of time
in case uh hash rate is increasing in
case its importance is increasing
should have a positive impact on r d
spendings uh at these two stages of the
value chain on the left hand side
and uh but we also did some we are back
on the envelope estimations and we
already know that this is
not occurring right right now but it
might occur
once the bitcoin market cap is
increasing such that basically
the levers which are being in place here
like the
volume of r d spending and so on that
they will then show
larger figures so i said it's just an
uh it's not proven yet it's just a
theory but ultimately this
uh this movement of uh an increased hash
rate towards
higher rmd spendings could lead to the
fact that
money is being spent for a higher
efficiency electricity
[Music]
equipment or utilities plus and that's
more important
the entire the entire mechanism
of efficiency profiles of mining
companies
should lead to at some point of time to
the fact
that more mining companies are driven
out of the market
who are relying on conventional energies
and the share of those mining companies
operating
with high efficiency with sustainable
energy resources
should increase