Where do Bitcoins come from? But does it matter?

Bitcoin mining requires considerable computer power, and therefore electricity, so naturally  the major Bitcoin miners have located to parts of the world where the price of electricity is  the lowest. 

The electricity cost to mine a Bitcoin 

Source: Changelly.com 

There is a widely held perception that Bitcoin mining has to be detrimental to the world’s  environment because it uses more power than individual countries, although many do not  realise that the tech sector alone accounts for 2-3 percent of all global carbon emissions  according to the UN. Interestingly, while there have been concerns about the amount of  electricity that cryptocurrencies such as Bitcoin use, we are now increasingly seeing  alternative headlines such as: “Why Energy Concerns Around Blockchain May Be a  Misconception”. 

The electricity Bitcoin mining uses compared to other countries 

Source: U.S. Energy Information Administration, Country Data, 2019 est. (or most recent available year)

Weekly Blockchain and Digital Assets Analysis by TeamBlockchain Ltd. 

Recently, US Federal Reserve Chairman, Jerome Powell, referred to Bitcoin as ‘essentially a  substitute for gold rather than for the dollar’. If this becomes the case, we could see a  significant increase in investors in Bitcoin and, as the chart below indicates, Bitcoin mining does actually use less energy than gold mining! 

The amount of electricity used to mine Bitcoin v Gold in a year 

Source: Cambridge University 

Of importance is that the price of generating electricity from renewable sources is now  often less than using fossil fuels. According to the International Renewables Energy Agency: “In the last ten years, the cost of electricity from utility-scale solar PV fell by 85 per cent,  onshore wind by 56 per cent and 48 per cent for offshore wind”. However, the problem is  that often renewable energy is generated in remote locations away from where any power  is consumed; it is also being generated 24hrs a day including at night when electricity  demand is usually at its lowest. 

The cost of renewable energy is falling 

Source: irena.com

Weekly Blockchain and Digital Assets Analysis by TeamBlockchain Ltd. 

This is where Bitcoin mining is able to help since, provided you have an internet connection, any surplus power can be utilised instead of being transported around a national grid or  stored in still relatively inefficient batteries. Bitcoin mining offers an opportunity to wean  the world off its fossil fuel dependency and transition over to using renewable energy  sources by acting as a complementary technology for clean energy production and storage.  An added benefit is that the more renewable energy plants there are, the lower the unit  costs become due to economies of scale, whereby encouraging more investment into  renewable energy projects and potentially bringing the marginal cost of producing  electricity from renewable sources close to zero. 

Contrary to popular belief, much of the energy required for Bitcoin mining comes from  renewable energy sources such as wind, solar or hydroelectricity power plants. Because  renewable energy projects can use surplus energy, they create at off peak demand to mine  cryptocurrencies such as Bitcoin. This can then enhance the investment returns for a  renewable energy project so encouraging further investment into other renewable energy projects. Bitcoin mining can act as a source of income for countries such as Iceland, Georgia,  Russia, Venezuela because these countries have Bitcoin miners located in these jurisdictions 

Value of Bitcoins mined per day 

Source: Ycharts.com 

Historically, China has accounted for up to 60% of Bitcoin mining, generating over $7billion  of income for the country p.a. However, due to recent action by the Chinese closing illegal  Bitcoin mining operations, Chinese Bitcoin miners are now relocating to the US and Kazakhstan, (which generated over $650 million worth of Bitcoin in the last year). This  means that fewer Bitcoins will be in the hands of one country i.e., China. 

As with many matters there is a lot of ‘fake news’ and misunderstanding. Certainly, rather  than Bitcoin mining being harmful for the environment, it is potentially helping economies  both generate much needed foreign reserves and also enhance the internal rate of return  for renewable energy projects. The more attractive returns from renewable energy plants  are supporting the environment, not destroying it as is claimed by naysayers such Elon Musk!

Weekly Blockchain and Digital Assets Analysis by TeamBlockchain Ltd.

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