- The major energy source used by the Bitcoin network is hydro, which accounts for 23% of all Bitcoin mining
- 55.51% of the Bitcoin mining energy sources are non-renewable energy namely Coal, Gas, Nuclear, Flared gas and other Fossil Fuels
- Solar energy in particular has a surprisingly low participation rate
Great concerns about the energy footprint of Bitcoin mining are a thing of the past according to recent reports. After initial concerns that the majority of Bitcoin mining was from non-renewable energy sources such as coal, the conclusion is now that the top source of Bitcoin mining energy is hydroelectric energy. This will be taken as another feather in the cap of the world’s leading cryptocurrency by crypto enthusiasts. Renewable energy is the preferred energy source because it is sustainable energy.
The report is based on a revisitation of a previous study by the Cambridge Centre for Alternative Finance (CCAF), which suggested that coal was the major energy source used by the Bitcoin network. However, this conclusion was based on a dataset that did not include off-grid mining, as acknowledged on their website. The term off-grid means using energy that is not connected to traditional power sources. In many cases, off-grid endeavours will usually focus on green energy practices. Therefore, the author of the report, in their February 2023 article in Bitcoin magazine, suggested that this conclusion would need to be revisited.
Hydroelectricity major Bitcoin mining source
The Batcoinz report is the result of that revisitation, which takes into account off-grid mining to provide a more accurate picture of the energy sources used by the Bitcoin network. The report reveals that the major energy source used by the Bitcoin network is hydro, which accounts for 23% of all Bitcoin mining.
The Batcoinz report explains why hydro is the most significant sustainable energy source for Bitcoin mining. According to Our World in Data, 15.8% of power on the grid is hydro. However, more than half of all sustainable off-grid mining is hydro-powered. The report provides examples of sustainable mining companies such as OceanFalls, Blockfusion, Hut8, Iris, Sato, Terawulf, Statar/Lake Parime, Gridshare, and HPG, which are either 100% powered by hydro or majority-hydro powered. We took a look at the Kenyan company Gridless which is using excess power generated from Independent Power Producers for Bitcoin mining. They too have a major focus on hydroelectricity.
The report also reveals that the next highest sustainable energy source for Bitcoin mining is wind, which now represents almost 14% of all Bitcoin mining power. Companies such as Marathon, with 14 EH of hash rate, the heavy component of which is behind-the-meter wind farms, as contributing to this strong showing. The report also highlights the high proportion of wind energy on the ERCOT grid, where almost 1/4 of the Bitcoin mining network is now located, as another factor for the strong showing from wind (see ERCOT 2023 Generating Capacity below).
Bitcoin mining fully electrified
The report acknowledges that, like electric vehicles (EVs), Bitcoin is a fully electrified technology with zero direct emissions. However, using electricity generated, in part, from fossil fuels produces emissions for both EVs and Bitcoin mining. The report points out that Bitcoin mining is not 100% tied to the grid like EVs, so its emissions and energy source may differ from the nation’s grid mix.
The report compares Bitcoin mining to EVs and reveals that mining uses a similar proportion of gas (21.14%) but significantly lower use of coal as an energy source (22.92%). This is 38% less than EVs. EVs have coal as their major energy source (36.7%), followed by gas (23.5%) if globally distributed proportionally.
The report provides a dynamic pie graph that reflects the network as of 30 March 2023. Changes in hash rate, power consumption, and mining activity will impact overall percentages. The report also includes future forecasts based on the BEEST model, which suggests that the sustainable composition of the Bitcoin network is currently increasing at 6.2% per year. If sustainable energy growth continues to trend upward, then this is likely to cause the relative percentages of coal, gas, and other fossil fuel sources to decline.
The report provides a methodology that includes using the CCAF model to identify the on-grid portion. Using Our World In Data statistics to calculate the breakdown of the on-grid portion by energy source. They use the BEEST model to assess exclusions not factored into the CCAF model (i.e., ERCOT data and off-grid mining data), assessing sustainable energy breakdown for each of the known sustainable-energy based mining companies (bottom-up calculations, aggregating data miner-by-miner), and reporting fossil-fuel-based off-grid mining.
Why the fuss over Bitcoin mining energy source
Sustainability has become a big talking point particularly when it comes to energy. Energy is in greater demand than ever and the cost of it is coming into focus too. People favour renewable energy sources because they have a minimal environmental impact and can naturally renew themselves. The major use of energy has been one of the greatest criticisms of cryptocurrency mining. The sources of this energy have been the main talking point.
Not time to celebrate yet, Bitcoiners
The pie chart shows indeed that hydroelectricity is the major individual energy source for Bitcoin mining. However, the report seems to put this forward and pays little attention to the aggregated power sources. 55.51% of the Bitcoin mining energy sources are non-renewable energy namely Coal, Gas, Nuclear, Flared and other Fossil Fuels. So with more than half of Bitcoin mining coming from non-renewable energy sources perhaps it is not quite a time to celebrate yet.
On the upside, there is potential to increase the influence of renewables and crowd out non-renewable energy sources. Solar in particular has a surprisingly low participation rate. Especially from the African perspective where it has become the first port of call as an alternative power. Solar energy remains one of the cheapest energy sources in terms of construction cost. Wind energy ranks second in that regard. They continue to become cheaper. So there is great potential for their share of the Bitcoin mining power supply to increase.
With more centres in Africa battling with power shortages and mining needing to clean up its image, there’s an opportunity for Africa here. We need to look into incorporating wind and solar energy into more projects like Gridless.