Bitcoin and other cryptocurrencies are now a big business. According to Coin Market Cap, the global market capitalization for these coins exceeded $170 billion at its peak. Bitcoin has surpassed $70 billion in its value alone, up from zero eight years ago. The enormous amount of power needed to “mine” Bitcoin is a significant problem that could eventually make it less successful.
Because bitcoins are created by specialized computers searching for the correct codes (hash keys), it is similar to digging for gold. As more people try to find virtual gold, electronic digging requires more power. It is estimated that mining would need as much electricity as Denmark’s entire population by 2020.
This is just the beginning. As bitcoin’s algorithm evolves, it will become more and more difficult to mine. Mining power demand will rise exponentially with a 132-year discovery cycle to mine all 21,000,000 bitcoins. What can we do if we are concerned about blockchain and cryptocurrency’s power and want to protect our environment and climate?
One thing we can do, however, is to consider the possibility of using environmentally-friendly power for mining.
In this article, I will examine the potential of solar power for Bitcoin mining. It can be very profitable, and it is far more sustainable than other options.
Due to my experience in solar power development, I was aware of the difficulties involved in obtaining a power sales contract. This is what prompted me to consider combining solar power and Bitcoin mining. Although there are many challenges to solar power development, the most challenging part is obtaining a sales contract. This is because there are too many market participants competing for the same contracts.
Mining Bitcoin can be a great way to generate significant revenue, potentially much more than with typical power sales contracts to the grid. It is also possible to get a lot of income without any sales contract. The cost of electricity is the most critical factor affecting bitcoin mining profitability. If solar power is less expensive than buying grid power, combining mining operations with on-site solar power might make sense.
At this time, I have not heard of any significant mining operations that use low-cost solar power on a large scale. Genesis Mining is a “cloud mining” operation. Other mining operators also use Iceland’s geothermal power, which is inexpensive and long-lasting. This resource is much more limited geographically than solar power, which is available and being developed around the globe.
Solar-powered Bitcoin mining can be very profitable with payback times of less than a year. Bitcoin revenue is almost free for 25 years, with minimal ongoing costs for solar farms. However, the mining machines will still need to be updated periodically.
You can also obtain very low-cost or even negative-priced grid power to boost the profitability of your solar mining operations.
Future mining operations could use a significant amount of solar power, wind power, or geothermal power to reduce their power consumption and the environmental impact.
Grid power that is low-cost and affordable
Specific markets in the U.S. pay businesses more to use excess grid power. A negative-pricing scenario is when the grid receives too much power. The grid operator must either temporarily close down (curtail) power plants or pay customers for excess power to avoid curtailment.
Although many factors can cause negative pricing, it is becoming more common to be caused by renewable energy sources such as solar and wind power. California is one example. It has seen an increase in negative pricing when there is solar power production.
Negative pricing occurs because California’s grid generator assets cannot be turned off or down as solar production increases. Some baseload must run all the time. As solar plants can generate more power than the baseload plus solar power, it is necessary to reduce or sell some of this power. The negative-priced power will increase as the duck’s belly gets bigger (lower in this chart). Also, check out can you mine crypto at home?
Texas has seen negative pricing for many years. This was due to excess wind power.
It is almost sure that negative pricing will increase due to the emphasis on renewable energy in many states.
Backup plan: Sell power to the grid
What happens if Bitcoin’s price falls ultimately, leaving Bitcoin mining with little or no profit? This would be unlikely given the rapid growth of Bitcoin in the past eight years. Bitcoin’s market capitalization is now $68 billion, an increase of zero in 2009. However, it is prudent to think about alternative revenue streams to Bitcoin mining.
Another option is to build a solar farm, with the local utility acting as the backup power taker. However, this will reduce the risk but make it more difficult to mine Bitcoin.
A 1-megawatt solar plant can be granted a power sale contract in California and other states. To be eligible for a power sale contract, the project must first be connected to the grid. This increases cost, time, and complexity. There is no guarantee that you will win a contract. The risk of pure Bitcoin mining is significantly reduced by obtaining a backup grid sale contract.
This allows farm owners to mine Bitcoin as much as they want, rather than sending it to the grid. If mining is profitable, they will engage in mining. However, if selling power to the grid is more lucrative, they would do so.
In two years, the solar-plus Bitcoin operation can pay for itself. This adds another layer of insurance. The risk of losing your investment is therefore minimized and quickly eliminated. There is a minimal risk after the project costs have been repaid.