Recently, the Securities and Exchange Commission approved the Spot Bitcoin Exchange Traded Fund, so for the first time, people can invest in funds that include Bitcoin without the need for a cryptocurrency wallet. “Spot” funds invest directly in assets rather than betting on futures contracts.
The demand for original cryptocurrencies is expected to continue to grow, and Bitcoin mining operators are positioned to meet that demand. Two years ago, Marketplace's Lily Jamali visited a store in New York state. She reported that numerous computers consumed large amounts of electricity to generate new Bitcoins.
Ben Hertz Shargel of Wood Mackenzie, a consulting firm, told Lilly that the SEC's move is likely to increase miners' enormous energy consumption. Texas is a hub for Bitcoin mining, and this increase could, among other things, stress the state's already fragile power grid.
Below is an edited transcript of their conversation.
Ben Hertz-Shargel: It would send a long-term price signal to these miners, encouraging them to redouble their efforts and build newer, larger facilities. And Texas, like certain other states, is actually targeted for different types of load growth, energy demand growth, and not just growth from traditional data centers or crypto mines. [electric vehicle] Charging base and manufacturing facility. Therefore, it is a challenge to cope with all this increased demand. In Texas, miners were already costing consumers $1.8 billion a year in increased costs, and that was before these ETFs were approved. And this is going to really trap it and potentially drive it to extreme levels.
Lily Jamari: So, even if some people think that the demand for Bitcoin will disappear, it is clear that this is not the case, at least not in the short term. I also visited a Bitcoin mining facility in upstate New York from late 2021 to early 2022. I was shocked to read that you wrote that Bitcoin mining in 2022 would consume 60% of the electricity as it does today. Why does it cost so much to generate one Bitcoin today?
Hertz Schergel: After all, the demand for Bitcoin is increasing. And the arms race is happening every day, with Bitcoin miners operating ever-larger data centers capturing an ever larger slice of the pie in terms of the revenue that Bitcoin mining generates. And the arms race led to bigger and bigger facilities, more countries, and bigger investments. So, yeah, the really scary statistic is that in 2022, the amount of electricity consumed by mining will be 20% of the amount of global centralized data computing and data transmission combined. And the reason this is such an amazing statistic is that the latter two types of energy demand, data computing and data transmission, are actually an outgrowth of the Internet, the cloud, which is now kind of in its infancy. Because there is. [artificial intelligence] A summary of the industrial revolution. So the problem is that you need to evaluate. Is the value that Bitcoin provides, essentially a store of value like gold, worth one-fifth of the value that all other forms of energy demand provide?
Jamari: It's worth mentioning that Texas is the only state in the country with its own power grid. Did I understand correctly?
Hertz Schergel: Other states have their own grid operators. But yes, Texas is electrically self-sufficient in a way that other states are not.
Jamari: Yes, that's why it's especially vulnerable. I ask this question because we are approaching the third anniversary of the winter storm that left many people without power. In the end, 250 people died. And just this week, the state experienced a winter freeze. So understand how much pressure Bitcoin miners put on the grid in moments like this.
Hertz Schergel: There is a claim, and I think it's a commonly held belief, that miners will shut down when the grid gets stressed and energy prices go up. In fact, many of the miners we have seen firsthand continue to operate under these stressful conditions, even when prices are extremely high. Not only does this raise prices in extreme ways for consumers after the fact, but it risks bringing grid operators ever closer to the point where they will need to consider brownouts. So the reality is that these miners are basically expanding the grid 24/7. And while it may turn off in extreme cases, it doesn't turn it off in all cases. And that just brings the grid closer to undesirable points where you risk having to turn people's lights off.
Jamari: And I know, not that long ago, Bitcoin miners, especially in Texas, were being compensated or compensated for restoring power to the grid during these extreme weather events. I did. Is that still the case?
Hertz Schergel: That's still the case today. And what that does is the cost of investing in the grid that year just gets bigger and bigger every year, and is passed on to other customers. And I think it's also worth pointing out that big tech companies are the biggest buyers of clean energy in the United States. Meanwhile, Bitcoin miners are starting to set up facilities near renewable facilities such as wind and solar farms. However, you are simply still using the same units of power that other customers benefit from that facility. They are not offsetting demand in any meaningful way.
Jamari: This is interesting because it is a discussion made by Bitcoin miners. So the fact is that they are now starting to set up factories next to existing renewable energy projects. they say: We are not making things worse. ”
Hertz Schergel: That is correct. But it makes very intuitive sense that if you park your facility right next to a solar farm, for example, and it starts consuming electrons from that facility, those electrons will end up going to other customers in Texas. . So just what you happen to be doing as a consumer of them ends up increasing the overall demand on the power grid. That means grid operators will have to dispatch ever more expensive and carbon-intensive generators to meet the increased demand you cause. Therefore, there are no sustainability benefits. This is very different from what big tech companies are actually doing by promoting the construction of new renewable facilities. Therefore, these facilities meaningfully offset the emissions associated with their demand.
Jamari: Are there any indications that regulation may help limit some of this activity?
Hertz Schergel: Yeah, I mean, I think what we've seen across the country is that most states are more concerned with protecting Bitcoin mining than restricting it. They typically introduce laws that prohibit states from “discriminating” in types of data centers or facilities based on purpose.I think there was some backlash in Texas because of this perception. [that] These are huge energy loads, comparable to the size of cities and other unusual types of demand sources. So I think the idea was to limit the amount you pay to suppress it. I think it's important to identify when they say they're putting power back into the grid. That is, they typically contract for power from a generator and simply choose to refrain from consuming that power, allowing their provider to consume it. Clear the electricity and sell it to the grid. That is, they are just making available things that would have been available anyway if they did not exist.
This is Lily's story when she visited the Bitcoin mining operation she mentioned. Her report focused on what local residents in Massena, New York, think about the arrival of Bitcoin mining in their struggling local economy. One resident called cryptocurrencies “techno-wizard shit.”
A few months into 2022, New York state partially suspended so-called proof-of-work mining, citing environmental impacts. Before that, Plattsburgh, New York, became the first municipality in the country to ban the practice after what former Mayor Colin Reed in the MIT Technology Review called a “cryptocurrency mining arms race.” Mr. Reed is a professor of economics and wrote a book called “The Bitcoin Dilemma” about the economic and environmental costs of this activity.
Another thing Ben Hertz-Shargel mentioned in our interview is that New York is an exception. Many states are keen on this business. This is a tracker that looks at the amount of energy consumed by a particular Bitcoin mining company in Texas that is experiencing explosive growth.