During the current bitcoin cycle, we have seen cryptocurrency prices surge only to encounter a steep decline. Many investors are blaming Bitcoin's high energy consumption narrative for the correction, which was revived by Elon Musk.
ContentsBitcoin mining – how does it work?How green is bitcoin mining?Innovation opportunities through green bitcoin miningGovernments invest in renewable energy sourcesCollaborating with miners to build a better network ElectricPackIt's no secret that Bitcoin mining consumes a lot of electricity. The latest studies show that the amount of energy used to mine Bitcoin could be used to power a small country like Switzerland.
However, when Tesla decided to no longer accept BTC as a form of payment for its vehicles, the problem became even more acute. This was one of the initiators of the market price plunge and loss of more than 50% since its all-time high in May 2021.
However, if miners and governments can prove that Bitcoin mining can become sustainable, we could see another wave of investors coming to the markets to buy Bitcoin. In this article, we explore how going green in bitcoin mining can be a great long-term opportunity and drive innovation in the energy sector.
Before we get into the details of how bitcoin mining can be a catalyst for innovation, let's take a look at how this mechanism works.
Bitcoin mining is the process of validating transactions and creating new coins on the Bitcoin blockchain. Powerful computers called mining rigs solve increasingly complex mathematical puzzles to reach consensus and add blocks of transactions to the blockchain.
For their efforts, they are rewarded with transaction fees from transactions in the block, as well as new coins that are minted with each new block creation. However, this reward comes at a price. Miners consume huge amounts of electricity to provide this service.
It is therefore natural that people are concerned about the type of electricity used for Bitcoin mining. Additionally, until recently, the bulk of bitcoin mining operations were concentrated in China. This country is notorious for using dirty energy sources, such as coal. Many mining farms operate old power plants originally designed to supply now failing industrial regions.
That being said, the recent Chinese government crackdown on bitcoin mining has caused a mass exodus of miners to other more crypto-friendly countries. Although this had a negative impact on the price of bitcoin in the short term, the long term effects could be very beneficial.
Bitcoin miners will be incentivized to join more sustainable networks in Western countries where solar and wind power sources are much more popular.
In addition, it should allow for better decentralization of Bitcoin mining, and finally break the 60% monopoly of Chinese farmers on the Bitcoin hashrate.
With Bitcoin's growing popularity and value, entire countries are beginning to adopt cryptocurrency as legal tender. Let’s see how green bitcoin mining can enable these small countries to innovate.
Bitcoin is becoming extremely popular with institutional investors. However, what is even more important is that entire countries are starting to adopt Bitcoin as legal tender.
El Salvador has already passed the law to legalize Bitcoin, and eight other neighboring countries have expressed interest in following the small country's lead.
El Salvador pioneered the innovation by showcasing a bitcoin mining facility that could be fueled by harnessing the power of the country's volcanoes. Although this may seem like a gimmick at first glance, it shows that the interest in clean and renewable energy for Bitcoin mining is very real.
Governments adopting bitcoin will certainly be interested in mining the cryptocurrency. This could be a great way for smaller countries to turn to cleaner energy.
To avoid wasting energy, Bitcoin miners must either be very close to the power source or connected to an extremely efficient power grid. In countries where it is impossible to install mining farms near power plants, miners could be forced to participate in the financing of the overhaul of the electricity network.
This could be a boon for smaller countries where electricity is cheap, but their networks are aging and cannot support the high loads needed to mine BTC.
Mining Bitcoin requires a lot of energy, which has raised concerns among investors, both retail and institutional. However, with the recent crackdown on miners in China, many mining companies that relied on dirty energy have been forced to move to countries where more sustainable energy sources are popular.
Entire countries are adopting Bitcoin as legal tender and launching environmentally friendly mining operations. Therefore, we are forced to see Bitcoin mining as a source of innovation for the energy sector. This could help smaller countries update their power grids and access Bitcoin mining at the same time.
