The mainstream media has a misconception that exploitation Bitcoin is wasteful. Instead, exploit Bitcoin create economic value for excess, unused energy. So, Bitcoin will promote mankind to abundance.
To be able to discuss mining Bitcoin, we must first understand how it works, including Proof-of-Work and difficulty adjustment.
How Bitcoin Mining Industry Works
Bitcoin is a new currency that uses a Proof-of-Work (PoW) consensus mechanism to secure the network (SHA-256). “Work” is the computational process of solving a puzzle. Miners use computers specially designed for Bitcoin mining (ASIC) to compete with each other in the race to guess the huge numbers. On average every 10 minutes, according to the Poisson distribution, the first miner to guess correctly adds a new block blockchain Bitcoin and get block rewards. The rewards are derived from a deflationary block subsidy (halved every 4 years) and transaction fees paid by users to incentivize their transactions to be added to the next block.
PoW is based on asymmetry. The process of generating proof is expensive and difficult while it is extremely cheap and easy to verify it. Miners have to expend a lot of energy to be able to solve puzzles before their opponents even faster. As of June 10, 2022, this costs up to approximately $22,000 per BTC for miners operating in North America. At the same time, there is no cost to verify the block is valid, allowing all others participating in the network (full nodes) to quickly accept or reject the block proposed by the miner.
But PoW alone is not enough to secure the Bitcoin network. Miners will quickly adapt by specializing in solving a certain type of puzzle, improving device efficiency (CPU → GPU → ASIC), increasing the number of machines and thus increasing the overall hashrate. fast. This rush of competition will result in a shorter time interval between consecutively mined blocks and Bitcoin being released at a much faster rate than was required by the original supply schedule.
Satoshi Nakamoto solved this problem by adjusting the difficulty, a notable example of algorithmic homeostasis. In the long run, difficulty adjustment ensures new blocks are found every 10 minutes on average, adjusting itself every 2,016 blocks (2 weeks).
When blocks are mined too quickly (average less than 10 minutes between blocks), often due to increasing hashrate, the puzzle becomes harder with each adjustment to slow down the mining speed. On the other hand, when blocks are being mined too slowly (average more than 10 minutes between blocks), the puzzle becomes easier to accelerate mining back to the target equilibrium rate of 2,016 blocks every two weeks. At this rate, the halving is assigned every 210,000 blocks, which takes place in about 4 years.
In the long run, this homeostatic feedback loop determines the mining difficulty and typically balances out any deviations from the expected rate of 2,016 new blocks every 2 weeks. However, as the total hashrate increases more rapidly than the decrease in mining difficulty, the imbalance accumulates gradually due to the number of BTC Mining increased exponentially leading to the block reward halving occurring a few months earlier than expected. In fact, as hashrate increases rapidly, adjusting to higher difficulty every 2 weeks is not nearly enough to completely counter the trend of blocks arriving earlier than intended. This is ultimately why some of the first Bitcoin halvings (November 28, 2012, July 9, 2016 and May 12, 2020) were separated by approximately 3 years and 3 seasons.
This self-regulating system ensures Bitcoin supply schedule due to Satoshi Nakamoto originally set out is still being followed. Towards the end, the system will enforce the 21 million limit with the block reward halving approximately every 4 years.
Bitcoin Energy Usage
Bitcoin brings a unique product of value to mankind. It's the best money ever. Bitcoin provides a deflationary store of value, a means of exchange at the speed of light, and a precise unit of account for the global economy. When used with best security practices, Bitcoin protects an individual's purchasing power and property rights from confiscation, devaluation, inflation, counterfeiting, or other political abuses.
Historically, gold has provided similar benefits to mankind. For generations, people continued to debate the value and the gold standard.
“Gold mining is wasteful, but that waste can be reduced if gold is available as a medium of exchange. I think Bitcoin is similar. Bitcoin's transaction utility will far outweigh the cost of electricity. Therefore, not having Bitcoin is a net waste.”
Bitcoin miners can convert electrical energy anywhere on the planet into money (BTC). This is amazing and will completely change the energy market.
“For the first time in history, we have a way to sell energy, which is location independence,” said Dr. Saifedean Ammous said.
Bitcoin is the ultimate buyer of energy. This is the only use case that will buy energy anywhere in the world, anytime, for any length of time. Due to the competitive Bitcoin mining market, miners only thrive on cheap electricity with no other buyers willing to bid higher. Using energy sources that cost too much will push yourself into a loss-making path. This market system creates many new opportunities, such as using wasted gas to mine Bitcoin and reducing CO2 emissions.
Bitcoin miners use energy that would otherwise be wasted or not profitable enough to use. Large energy sources, such as Hydro-Québec in Canada, often generating excess electricity that could not be put to use before Bitcoin. Now, thanks to Bitcoin mining, these clean energy sources have a way to directly monetize excess electricity capacity. This reduces production costs for all electricity users as companies can earn the same or higher profits by providing more electricity to users for the same or less cost.
Wasting energy increases costs for everyone by lowering the demand curve below available supply. To achieve the same rate of return, manufacturers must raise prices to compensate for the resources wasted in developing sources with excess electricity capacity that cannot always be found. buying.
For example, imagine there is a rural hydroelectric plant with a fixed capacity of 5,000 megawatts available. Facility operators want to make a profit from their operations, as it costs a lot of money to build and maintain a plant. Users in rural towns have to accept variable prices, as they do not have an alternative source of electricity and have to resort to manual labor whenever electricity is not enough. Currently, the town uses only 3,000 MW of the existing 5,000 MW. A Bitcoin miner comes and buys the remaining 2,000 MW. Rural residents are no longer bound and are therefore freed from having to subsidize excess electricity they don't even use. Now, the rural hydropower plant can lower the electricity consumption price while still earning the same profit. Win-win for everyone.
Bitcoin mining is now profitable with low cost energy on many national grids. In the future, Bitcoin mining will only be profitable in the long run when the net energy cost is close to zero or even negative. For example, use waste heat for boilers or food production.
In addition, Bitcoin miners help stabilize the grid. They are very cost sensitive. If they want to continue to operate profitably, they cannot compete with high-priced electricity with users and businesses in the most scarce areas and are highly valued by existing market participants. They will shut down during high stress events instead of continuing to mine. As flexible buyers of electricity only when the price is cheap, Bitcoin miners can shut down immediately in response to increased grid demand fluctuations. This is unlike other large power users like smelting aluminum, which takes 4-5 hours continuously to power off.
Recently, Texas grid operator ERCOT asked locals to save electricity due to current heat waves. Bitcoin miners in Texas responded by shutting down over 1,000 megawatts worth of mining loads, allowing more than 1% of total grid capacity to be pushed back into the grid.
Bitcoin miners incentivize further investment in low-cost, stable base load power. The process of using energy has a direct correlation with the development of prosperity and empowerment of people. Fast-growing Bitcoin miners are users looking for low-cost electrical energy around the globe. They are the direct source of new solar, wind, and hydroelectric power plants coming online around the world.
Bitcoin mining is good for the planet. It reduces energy costs for everyone, increases energy market efficiency, stabilizes the grid and encourage mankind rapidly scaled up energy production to the point of excess.