Cryptocurrency mining could become the new face of energy storage. Here’s how

Bitcoing 2018

Regulating the no man’s coin – the rapid rise of cryptocurrencies has regulators scratching their heads (United Nations, 2018)

This article is brought to you thanks to the strategic cooperation of The European Sting with the World Economic Forum.

Author: Enass Abo-Hamed, CEO, H2GO Power & Daniel Evans, Co-founder, Gibraltar Stock Exchane

If we want to prepare for the future, we must acquire a stake in the new and crucial area of technology called blockchain.

Amongst other applications, blockchain enables peer-to-peer transactions of cryptocurrencies, such as bitcoin, over the internet. These cryptocurrencies usually have no central authority and are open source. Transactions are confirmed by miners when they are gathered into blocks and added sequentially into a chain.

To add blocks to the chain, miners need to solve difficult mathematical problems in a particular sequence. This procedure uses significant amounts of energy to power computing processing. Miners are incentivized in two ways: the reward for solving blocks and transaction fees. The higher the processing power, the higher the chance of adding blocks for rewards.

This competition for ever-increasing processing power has driven a protrusive energy consumption spike. The Bitcoin network alone is estimated to use 2.55GW of power annually, almost the same annual consumption of Ireland. While accurate quantification of the mining demographics remains a difficult task, it is estimated that 75% of all the world’s cryptocurrency mining capacity is based in China. The power required comes from polluting sources like burnt coal or diesel, therefore, the more cryptocurrencies mined, the higher the emissions.

Renewable energy excess and cryptocurrency mining

Renewable energy generation often breeds excesses that ends up being wasted rather than consumed. On a sunny or a windy day, when solar panels or wind turbines generate power that exceeds users’ demand, if the grids are overloaded, clean energy is abundantly wasted. Today, it is mostly cheaper to waste excess renewable energy than to store it in typical Li-ion batteries. This is a common disposition worldwide and it is far from being cost-efficient or economically sustainable.

If we want to bend the curve on carbon emissions and rising temperatures, we need to focus on energy generation and consumption behaviour. Every year, total generation from renewable resources increases by 2.9%. The renewable share of world electricity generation will grow from 22% in 2012 to 29% in 2040. While this projection presents important advancements in the shape of increased clean energy adoption, the intermittency and excessive generation will continue to grow in tandem. It will present operational and financial challenges to grids, investors and consumers.

Therefore, as the modern energy map is being redrawn with wind turbines and solar panels, we must look beyond the existing financial models to incentivise the transition. Cryptocurrency mining could be the answer.

Embracing new approaches, such as mining cryptocurrencies with excesses of renewable energy that have been generated, has tremendous potential to address financial and technical gaps. It can convert waste to value and reduce financial risks. The returns of cryptocurrency mined in this way could stimulate a wider range of additional investments in renewable assets.

Cryptocurrency mining can be regarded as an effort to turn electricity consumption into financial gain. Today, cryptocurrency mining is mainly fuelled by electricity from non-renewable resources, which are low-cost in comparison to electricity from renewable sources. The new approach proposed herein suggests mining cryptocurrencies with clean energy using excesses to cut emissions and costs by converting it into cryptocurrency with value.

There are a number of options for routing renewable energy once it has been generated (from wind, solar or other renewable methods), including:

1) Sale to the grid at the wholesale market price;

2) If the grid is overloaded, the excess is then stored for later release when demand from the grid is high and electricity prices peak;

3) When the demand for storage is low because batteries are fully charged or it is cost ineffective vs. demand, the excess electricity could be used for cryptocurrency mining.

Whilst the first two options currently exist and manage to monetize renewable energy assets, the proposed third option introduces an additional revenue stream to the pool. The benefits of utilizing excess green energy to mine cryptocurrencies won’t only turn waste to value but also help cryptocurrencies become greener. For every block added to the chain by this method, there will be no accompanying carbon emissions.

According to the energy regulator, in 2017, 12% of the wind power generated in China was wasted as excess. With the proposed approach, instead of switching the turbines off as excess green power accumulates and gets wasted whilst the brown power is always on to guarantee a reliable supply, clean power that is not being sold to the grid or stored can now accumulate value as mined cryptocurrency. This financial incentive can help make a substantial impact on decarbonization targets and the environment.

This model can be seen as a closed loop with a domino effect where one action instigates another. At the point cryptocurrency is mined, its value can be reinvested in additional renewable energy assets to start another course. This has the potential not only to make the cycle sustainable but also to drive the growth of the system.

How does the value add up?

There are a number of ways to calculate estimated revenues from cryptocurrency mining. The common factors for mining all cryptocurrencies are: the amount of hashing power (computer calculation power) a miner possesses, energy consumption, cost of electricity, and mining pool fees. The hourly profit can be calculated to validate this proposition, using the following:

  • 1.2 MW shipping container sized mining rig with ~8,800 TH (Tera Hash)/s of hashing power, manufactured by Bitfury – a major commercial cryptocurrency mining hardware producer and mining pool operator;
  • We can assume no electricity costs for mining as the miners are consuming otherwise wasted excess;
  • No mining pool fees.

The table below looks at the major mineable cryptocurrencies. It also lays out the crucial differences between them which affect mining profitability. This should help prospective miners to choose which cryptocurrency to mine on a windy or sunny day based on profitability.

Most of the factors listed often change which affects how difficult it is to successfully mine. The exchange rate between a cryptocurrency and cash also affects the profitability of mining. When cryptocurrency prices are high, mining is more profitable.

The monthly profit rate included in the table, in addition to hourly profit rate, assumes that mining is carried out continuously, 24/7. To cover all the scenarios presented in the figure, it is expected that the amount of excess energy produced and used for mining would only be enough for a few hours per day rather than all day long. The hourly rate is most applicable for the use case of excess energy generation. The longer a miner is operational, the higher the chances they will find a block.

All information above is correct as of 18 Aug 2018. Network hash rates and profits are rounded estimates.

How can a proposition like this have an impact on our daily lives?

Among the many possibilities where this concept may have benefits, here are a few:

1. Your home: this can be seen as the ‘your home works for you’ approach. It applies to small, autonomous, off-grid residential systems where power is generated by individually owned solar/storage systems. Excess electricity can be used to mine cryptocurrencies and generate an income at home.

2. Commercial and industrial applications: this scenario proposes to leverage the excess electricity at a larger scale to channel much larger amounts of computer processing power for cryptocurrency mining. This approach is mostly fit for installations of renewable energy assets off-shore, in remote areas, and deserts, for example, where transmission or storage are costly and a paramount percentage of the excesses are wasted as a result of the scale and location.

3. Your building and your city: this is a circular economy scenario. When owners/residents of a high rise, business offices in a financial district or a business park share the generation and storage assets, and the capital expenditure to acquire the assets, they can also share the profits stemming from the excesses generated. This scenario can be compelling for the high percentage of excess generated by larger buildings. Adoption of this model could drive decarbonization in urban environments. All these elements combined, facilitated by blockchain technologies, can contribute to the success of “smart cities”, widen the scope for automation and aid the transition to greener environments and economies.

What comes next?

Adoption of renewable energy generation continues to grow at an impressive rate but curtailment, transmission, consumption and efficiency management remain persistent problems. While this proposition doesn’t explore the intercrossing factors of the proposal, it sheds light on the value that new technologies like blockchain can bring. The solution to one technology’s weaknesses can, perhaps, be found in the strengths of another.

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