07/03/2023 0 Comments

1. Bitcoin Mining Industry: The Highest User of Sustainable Energy

Despite its raging popularity, Bitcoin has lately been under scrutiny of environmentalists due to its energy-intensive mining process. It is well-known that mining of crypto assets requires substantial electricity usage. However, it is less known that the mining industry has made advancements to embrace sustainable energy for its operations.

A new research has established that the Bitcoin mining industry has become the highest user of sustainable energy. The data acquired from a recently developed analytic model revealed roughly 52.6% of the electric power used in the Bitcoin network is drawn from renewable sources.

Bitcoin Mining’s Impact on Environment

As the world’s largest blockchain network by market capitalization, Bitcoin consumes enormous amounts of energy to power its network. This high power consumption is majorly triggered by its complex cryptographic protocol, which employs Proof-of-Work (PoW) consensus.

In the PoW mining system, validation of new transactions and minting of coins are achieved by updating new blocks on the ledger. For creating new blocks, the Bitcoin network engages the miners in a fierce competition to solve complex cryptographic puzzles.

To arrive at the solution (a 64-digit hexadecimal solution called hash) first, miners use advanced computing hardware capable of producing billions of hashes per second. The process demands excessive amounts of electric power and is also computationally-intensive. The miner who wins this numeric guessing game adds the new block to the network and is rewarded with coins.

More computational power corresponds to more chances of winning. For this reason, miners all across the world have formed mining pools where they combine the hashing power of mining hardwares to generate more guesses. This increases the power demand to run these facilities, and sometimes, can even overload the local infrastructure.

As per the Cambridge Bitcoin Electricity Consumption Index (CBECI), the annualized power consumption of Bitcoin was estimated to be roughly 129 terawatt-hours (TWh). To put things into perspective, Bitcoin’s power demand exceeds the electric energy consumed by some countries, including Norway (approximately 124 TWh/year).

The electricity generation process for Bitcoin mining also emits tons of greenhouse gasses (GHG) into the environment. A renowned research center, Cambridge Centre for Alternative Finance (CCAF), released a report on the GHG emission of the Bitcoin network in September 2022. In the report, the annualized gas emissions of BItcoin was found to be nearly 48 Million tonnes of CO2 equivalent (MtCO2e), around 0.10% of the global GHG emissions.

Bitcoin’s Shift to a Greener Future

While the power consumption is undeniably high, Bitcoin has been striving to reduce its share in the global energy crisis and climate change. Miners have been opting out ways to make the hardware more efficient, but progress is still quite slow. Also, the community has been steering towards clean energy sources (like solar, wind) to power their mining operations.

According to the data shown in a recent report, the Bitcoin mining sector has been recognized as the highest user of clean energy. The analysis report was presented by a researcher and former climate activist, Daniel Batten, on his website. As per the analysis, between July 2019 and June 2023, the Bitcoin mining industry has seen an incredible upsurge in its sustainable energy mix up to nearly 52.6%.

Per the latest Q2 2022 report by the Bitcoin Mining Council (BMC), Bitcoin uses roughly 59.4% zero-emission power sources. Contrastingly, the September 2022 CCAF report showed it to be only 37.6%. The analyst devised a new model to understand the large difference in the Bitcoin’s energy consumption data provided in these reports.

The model, Bitcoin Energy and Emissions Sustainability Tracker (BEEST), precisely determines how much green energy is powering Bitcoin’s mining. It includes factors the CCAF has acknowledged to exclude in its report.

One such key parameter is off-grid mining, a mining process that uses non-traditional energy sources to decrease the GHG emissions. Other factors including flare-gas and vent–gas mining, off-grid mixed mining, current geographical hashrate, Marathon renewable migration, etc., have also been accounted for in the BEEST model.

By including all the prominent factors, the model depicts sustainable energy sources having a staggering share of 52.6% in Bitcoin’s mining process. Another finding of the report states, every year, the Bitcoin network uses around 4.49% more zero-emission power. The analysis also debunked the inference of the CCAF report that the Bitcoin industry primarily uses coal as the power source.

As per the data, Bitcoin achieved more than 38% increment in its sustainability energy mix during the last four years as compared to other global industries (e.g., banking, gold). Hence, Bitcoin currently ranks as the highest user of sustainable energy with other sectors trailing behind. The study also unveiled Bitcoin showing a remarkable reduction in its GHG emission intensity from beyond 500 g/kWh (July 2021) to nearly 296 g/kWh (June 2023).

2. Hut 8 relocates 6,400 rigs, sees growth in AI and high-performance computing

Hut 8 Mining is seeing new demand for artificial intelligence (AI) and high-performance computing as it looks to reenergize some 6,400 rigs being moved from its inactive North Bay site in Ontario, Canada.

As previously reported, Hut 8 is in an ongoing legal battle with its third-party energy supplier Validus Power over alleged failure to meet contractual obligations. Operations at the mining facility have been suspended since November 2022.

Hut 8 declined to comment on court case proceedings in correspondence with Cointelegraph, but it confirmed that 6,400 miners are being moved to Texas as the company looks to bring its idle equipment back online.

The firm expects this specific batch of miners to be operational by the end of July 2023, providing 600 petahashes per second of operational capacity, taking Hut 8’s total installed hash rate up to 3.2 exahashes per second.

A three-month hosting agreement for the 6,400 miners from North Bay has been agreed upon, with Hut 8 planning to renew the arrangement on a month-to-month basis. Hut 8 previously moved 988 miners from North Bay to its Medicine Hat facility in Alberta, Canada, in March 2023.

AI and high-performance computing continue to grab attention and attract investment. The likes of Palo Alto-based Inflection AI raised $1.8 billion led by Microsoft and Nvidia, with part of the investment earmarked for the construction of a 22,000-strong Nvidia H100 Tensor GPU cluster.

Hut 8 has also begun deploying its infrastructure to power services and solutions outside its Bitcoin mining-focused operations.

Leverton highlighted a new five-year agreement to provide computer infrastructure and hosting services to British Columbia’s Interior Health authority, as well as a case study carried out with 3D generative AI firm XYZ AI.

3. Why Investors Should Consider Owning the Bitcoin Miners Instead of Bitcoin

Bitcoin (BTC) continues to make headlines in 2022, and interest in the asset does not seem to be going away anytime soon. Many people are aware that they can invest in Bitcoin directly, but much less is known about the opportunity to invest in the Bitcoin miners that run the network. Bitcoin miners are the necessary backbone to the Bitcoin protocol as they help validate and secure transactions on the blockchain. These miners not only produce Bitcoin at a discount to the prevailing market price, but many of them are also holding this Bitcoin on their balance sheets. Today, many Bitcoin miners are publicly listed and available for purchase in many traditional retirement accounts. While investing in Bitcoin miners can carry the same volatility and risks as investing in Bitcoin itself, they could outperform Bitcoin in the long term.

Here are three reasons that Bitcoin miners are an important consideration for your portfolio:

1. Bitcoin miners are constantly dollar cost averaging into Bitcoin

Bitcoin mining companies can acquire Bitcoin in an incredibly cost-effective way due to their operations. A Bitcoin mining company has key expenses related to building out infrastructure, purchasing special computers, and electricity spend on keeping machines running. These inputs when managed correctly allow top operators to mine Bitcoin at an average cost of around $6,000 to $10,000 per coin, and they are mining new coins every single day. These miners are using their scale and access to cheap power to effectively ‘mint’ Bitcoin at a 75% discount to the current market price of $45,000. Today, 18.9 million Bitcoin are outstanding, and the total supply of Bitcoin will only be 21 million. The Bitcoin miners of today are continuously competing for higher market share of the remaining 2.1 million Bitcoin yet to be mined.

2. Most public Bitcoin companies are not selling

Due to the significant supply constraint of Bitcoin, many companies have committed to a strategy of holding all of their mined Bitcoin as opposed to selling it, resulting in massive Bitcoin positions on their balance sheets. As a result, their share prices are increasingly geared to the price of Bitcoin. This may offer investors in Bitcoin miners greater upside potential than simply owning Bitcoin, due to the miners’ significant ownership of Bitcoin, as well as their operational exposure to it. Furthermore, investors in mining companies may find that over the long term, they could own more Bitcoin by proxy for every dollar invested in mining stocks, than they would by purchasing Bitcoin directly. While many miners in the space have committed to this strategy of holding, some miners have chosen to sell their Bitcoin every day. An investor more interested in cash flow may find the difference between management teams’ decision to hold or sell Bitcoin to be a crucial aspect of investing in the miners.

3. Bitcoin Miners are similar to the payment processors of today

In addition to receiving new Bitcoin, the miners also receive and collect transaction fees on the network paid by users who transact with Bitcoin. Investors can think of transaction fees for Bitcoin miners as similar to companies like Visa, Mastercard, and Capital One. If Bitcoin transaction volume continues to increase, it will naturally allow for an increase in fees paid out to the miners who validate the network. Although transaction fees are not the bulk of rewards that miners receive today, there is a chance that as the network grows the transaction fees will also scale. Investors considering an allocation towards Bitcoin mining companies will have exposure to this tailwind of Bitcoin network usage.

As investors consider their options it’s important to highlight that owning Bitcoin directly offers qualities that other investments like mining companies can’t, specifically related to its use as a currency to purchase goods and services. Exciting developments across the world in the past year have led to increased optimism for Bitcoin being used by more people globally. While holding crypto directly can potentially be a solid long-term investment, investors may find enhanced upside potential by considering the miners as opposed to simply owning Bitcoin.

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Harvey CHEN

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