Mine Bitcoin, Save the World

Also, a new made up word I invented...

What gets me motivated to write this newsletter every week is you, the reader. I get excited about sharing my thoughts on the rapid technological change that’s on the precipice. I love getting to put on my detective hat and attempt to remove my own biases about what I want to happen and get to the root of what’s most likely to happen then sharing it with you. 

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Have you ever heard the words “Innovation Pollination” before? 

Well, I hope not because I just made it up. 

Innovation pollination is the process where new technologies in one area of the economy catalyzes growth in a completely separate area. The innovation travels like a bee from flower to flower seeding the next generation of opportunity and growth. 

From the outside perspective, it’s difficult to forecast what flowers current innovation will pollinate. But, pollination is an inevitable and wonderful process that creates new, unexpected paradigms. 

One such pollination that’s incredibly interesting is how the confluence of Bitcoin mining and renewable energy can help the new sources of energy proliferate across the world.  

I’m sure many of us have thought how come we haven’t ditched fossil fuels, yet? We know they pollute the Earth, we know they create geopolitical tensions, we know all these things that make it seem like the natural conclusion is to ditch fossil fuels and switch to all renewables. 

But, renewables have been slow to get adopted and we still (in America) use gas and coal as our dominant sources of energy. That’s even as the Levelized Cost of Energy (how much it costs to generate the power dividend by how much power it will generate over its lifetime) for solar and wind has fallen 90% and 71%, respectively, over the last decade. 

The unsubsidized costs of solar and wind energy are now 3-4 cents / kWh and 2-5 cents / kWh, respectively.

Compare that to the average cost for coal or nat gas at 5-7 cents / kWh, and I become even more confused why we don’t run the entire world on renewables. Ok, so renewables are cheaper AND better for the planet…

So why hasn’t it happened yet?

Simple… the sun doesn’t always shine when we need it and the wind doesn’t blow on our schedule. This creates an energy management and storage problem that we do not face with fossil fuels.

Human’s have a very predictable energy use (at least for now…)

We have a peak early in the morning, a lull from about nine to four in the afternoon, and a higher peak in the evening with the second lull starting around six to seven in the evening. 

With burning coal or gas managing these curves is easy. We burn more in the morning, less in the afternoon, more in the evening, and then little at night. But with renewables this curve becomes a bigger issue, an issue that, actually when looked at through the lens of Bitcoin mining, becomes a solution.

If the sun doesn’t shine or the wind doesn’t blow exactly during the times we need it, renewables create power when it cannot be used. The power companies either need to store the energy in a battery or find somewhere else to send it. If they can’t do either, the power goes to waste.  

There are other issues preventing widespread adoption of renewables but energy management is the biggest hurdle faced right now. Battery technology is incredibly important but is not quite cheap enough to make solar and wind ubiquitous. And, our energy grids are not yet big enough to allow more capacity of electricity to run through the lines (yes, our grids literally cannot accept more energy and it’s called “grid congestion”). 

We have a technology issue that’s preventing the global rollout of a needed technology solution! What renewables need is somewhere to “put” their excess energy that the grid can’t absorb. 

Intro, Bitcoin! I just read a short and sweet paper outlining how Bitcoin mining presents a great opportunity to “bridge the gap” that prevents widespread adoption of renewables. 

Bitcoin mining uses lots of energy, and miners do not need that energy to come at specific times or in specific quantities. It’s a great example of how one technology's problems can be another technology's solution. 

Miners can be the immediate buyers of solar and wind power when the grid does not need the power (off-peak hours) or the grid cannot transmit any more electricity. The power companies then funnel off this power to Bitcoin miners which use the power for a high-margin activity. 

This is an example of the virtuous cycle of technology innovation. One completely separate innovation (Bitcoin) can be exactly what’s needed by another completely separate technology (renewables) to achieve escape velocity. The use and profit of this energy that would’ve been wasted now becomes a high-margin activity for renewables.  

Higher profits for renewables leads to more demand for solar and wind farms. More demand for solar and wind farms drives down costs. Lower costs create more opportunity for innovation. More innovation creates more disruption to legacy systems. 

What’s most exciting about all of this is that it’s happening at an incredible rate across the entire world of technology right now. From technologies that interact with the tiniest particles all the way to how we’re launching rockets to space.

Innovation pollination is at the ground floor seeding the virtuous cycle.