Bitcoin and Green Energy Subsidies

[d5000]

For me, to answer the question if the "green flexible spot price mining" model is viable or not, boils down to the following two variables:

- how high is the percentage of electricity cost in comparison to the total cost of producing a certain BTC quantity? This CoinShares study found out that currently it's between 68 and 71%.
- how is the average difference between the highest and lowest electricity price in a time period? Of course most miners will have no direct access to spot prices, but some seem to do according to the study (they do have to pay delivery cost but this doesn't mean that they can't benefit from price differences), and electricity suppliers do exist in some countries which offer dynamic pricing based on the spot price, as I wrote in the previous post.

Now let's see a simple example: A miner decides to try to mine 50% of the time, in the timeframes where the cheapest spot electricity is available. Let's assume he's successful just for simplicity (he can take for example the spot electricity price of last year as reference and mine every time the price is below the median, or increase even the granularity taking into account the seasons, renewables share growth etc.).

This would be a quite aggressive green mining strategy (he could instead decide to go for 80%, i.e. only turn off his equipment in price spikes), but just let's see how the variables play out in this example.

Mining only in 50% of the time, let's also for simplicity assume this reduces the percentage of electricity cost in relation to total expenses to 34 to 35.5%, i.e. that all other costs stay the same.

The strategy is thus better than the "100% on" strategy if the price he pays is lower than approximately 60% of the average price he would pay with a "fixed price" model with the fixed price close to the average.[1]

Looking at the graph for Spain it may be viable. At the first glance, median price seems to be between €50 and €60, and average price was $54, so both are relatively close. If you decide to mine always when the price is lower than the median, then in the 64 days the graph is covering, in about 20-22 days the price is very low, in some hours totally free (in some countries like Germany even negative prices are possible). So you have 22 "very low cost" days with on average significantly less than 20€/MWh (about 30-40% of the average price), then you need 10 days more to mine 50% of the time, with prices more close to the median.

These price swings will be even more extreme when the wind/solar percentage continues to grow, above all there will be massive zero- or negative-price phases in spring/summer midday hours due to solar energy, and during very windy days. The probability to reach break-even for even this extreme green mining model will then increase. And of course there's also the alternative for the miner to use his own renewable electricity production, e.g. solar panels or wind turbines, which in a long-term project will make mining even more profitable.

All miners trying this strategy will benefit if the difficulty is relatively static like in the case of Bitcoin, because then when they increase production, they don't compete additionally with other miners of their region trying the same strategy.


[1] The math:

1. Fixed price model:

For every $1000 of "production cost", with 68 or 71% share of electricity bill in total cost
680$/710$ electricity
320$/290$ other expenses.
1000$ total cost

2. "Mines 50% of the time to an average price of 60% of the fixed price"

320$/290$ other expenses
204$/213$ electricity (50% of the time with an average price of 60%" -> 30% of model 1)
524$/503$ total cost for 50% of the revenue of model 1.

This is slightly worse as the fixed price model, but close to break even, which would be 500$ total cost.

3. "Mines 50% of the time to an average price of 50% of the fixed price"

320$/290$ other expenses
170$/177$ electricity (50% of the time to 50% the electricity -> 25% of model 1)
490$/467$ total cost for 50% of the revenue of model 1. This is in both cases better than the fixed price model , so here we definitely have broke even.

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[mikeywith]

All miners trying this strategy will benefit if the difficulty is relatively static like in the case of Bitcoin

Except that mining difficulty is never 'relatively static'. In the past 12 months, it increased from 42T to 81T, resulting in an average monthly increase of 3.25T. A 2-3% increase every epoch is now considered the norm. It doesn't matter how large the current hashrate is—investors continually pour money into mining gears and infrastructure. On the 16th of February difficulty adjustment, there was an 8% increase. The hashrate was roughly 500EH at that time.

To put this into perspective, an 8% increase translates to 40Exahash. Assuming the latest generation miners capable of 200Th/s, this equates to 200,000 mining gears. While difficulty isn't a perfect representation of actual hashrate due to variance, even a conservative increase of 4% would mean an addition of 500 million dollars' worth of equipment and 350MW of power in less than 13 days.

As for mining off-on, it simply doesn't work. You're not only competing with difficulty but also with technological advancements. These factors continuously depreciate the value of mining gears, irrespective of the price charts. As a miner, you're facing constant depreciation, especially as halving events approach.

Moreover, mining gears are engineered to function optimally when run at a steady pace. Turning miners off and on causes sudden temperature changes that can negatively impact chip lifespan, solder integrity between the chips and PCB, or chips and heatsinks.

While this may not be convincing to many miners, having worked extensively with mining gears, I can assure you that 90% of failures occur during boot. Miners rarely fail when running steadily. Large mining firms may negotiate shutdowns with the electric companies, but these requests come at a hefty price. For instance, Riot, a single miner, received over $30 million when asked to shut down during a Texas heatwave IIRC.

There are no tricks in mining. Sourcing cheap competitive power is essential. Some large U.S. miners enjoy rates below 3 cents/kWh (Not even sure how they do it), you can't compete with these folks by having a 20% discount on your expensive power bill for 3 hours while the sun is burning hot.

[ranochigo]

Just to add on mikeywith's point, I didn't consider ASICs failure rates. But yes, that is why farms run those continuously 24/7 and why some considered mining GPUs to be reliable.

-snip-

Thanks, appreciate the detailed breakdown and the substantiation.

The wholesale market that they refer to is most likely only applicable if they are a heavy user of electricity, which means that they are sustained over long periods of time with a fairly long contract. It is not possible for miners of any smaller scale or those that require energy on demand to enjoy these prices or access to the market. The prices will trickle down, but it won't be as substantial as it seems after you account for VAT and the various overheads and taxes associated with the energy consumption.

I consider solar and wind power as a low efficiency  (say 8 to 10 hours a day, at the maximum... A light breeze or shady day won't cut it) + high environmental impact renewable energy. They are only able to operate when it is extremely sunny and windy while serving as a wildlife killer on the other, besides occupying a huge area of space. I'm more curious about how the spot prices actually change; the actual market can be more volatile than it seems (instantaneous drops and peaks) and I'm unsure if they are reflective of the actual market or are they simply aggregated.

If there is a huge drop in the electricity pricing, then you would expect for the prices to be fairly high and sticky downwards for various reasons. Even if the drop is high, you are experiencing high electricity fees for most of the time and it would negate any benefits. You can only mine when the weather is favorable, just like a farmer.

For starters, the study assumes that the miners are using relatively newer and more efficient ASICs. These are fairly expensive and thus we have to purchase a less efficient ASIC for cheap to take advantage of the cheap electricity. Running efficient ASICs periodically is a waste and shouldn't be in the books at all. Hence, your revenue would probably be around 80% of the ASICs mentioned in the study and occupying more space in your warehouse.

I had some interactions with large scale miners in a few seminars so far. From my understanding, setting up the ASICs is usually a pain in the ass, and they don't want to touch it unless they have to. I suspect that the calculations doesn't include the exorbitant manhours spent in setting up the farm and debugging any errors as well as the need for a team of on-site technicians to supervise and debug the machines for any errors during the startup cycles. These are probably tiny costs that adds up and doesn't compete with miners who enjoy consistently low rates from coal farms (China, in the past) and large scale miners who are able to maximize their output with the most efficient equipment.

As for the calculations, I think a more accurate calculation would be to consider the depreciation of equipment, electricity costs, and suitable overheads with regards to labour, land space, tax and miscellaneous costs (internet, regulatory compliance, etc). I'll do a quick calculation on this when I have the time later, but I don't think the results would be very good.

[d5000]

Except that mining difficulty is never 'relatively static'. In the past 12 months, it increased from 42T to 81T,

That's not the point. The point is that small hashrate increases due to a region mining with more hashrate during some timeframes (of less than 2 weeks, mostly of less than a week or even than a day) do not result in the rewards being cut down like it occurs with some altcoins. That was the whole point of my post actually

As for mining off-on, it simply doesn't work. You're not only competing with difficulty but also with technological advancements. These factors continuously depreciate the value of mining gears, irrespective of the price charts.[..]Turning miners off and on causes sudden temperature changes that can negatively impact chip lifespan.

Depreciation and failure rates simply are another variables which have to be taken into account, and may lower the average price to break-even, but I don't think by much (perhaps 1 percentage point as a maximum).

As for the calculations, I think a more accurate calculation would be to consider the depreciation of equipment, electricity costs, and suitable overheads with regards to labour, land space, tax and miscellaneous costs (internet, regulatory compliance, etc). I'll do a quick calculation on this when I have the time later, but I don't think the results would be very good.

That's all included in the 29-32% (and in the 50% off model, 58-64%, because you have to pay them also when your mining equipment is idle) costs according to the CoinShares study which "are not electricity".

For starters, the study assumes that the miners are using relatively newer and more efficient ASICs. These are fairly expensive and thus we have to purchase a less efficient ASIC for cheap to take advantage of the cheap electricity. Running efficient ASICs periodically is a waste and shouldn't be in the books at all. Hence, your revenue would probably be around 80% of the ASICs mentioned in the study and occupying more space in your warehouse.

Then your costs for hardware renewal are lower.

I want to add that I did the 50%/50% model due to simplicity. I suppose that an "70-80% on" model would be actually even better, i.e. to try to only avoid the major price spikes which arise when the renewable electricity percentage is low.

I don't comment your views about wind energy as a "wildlife killer" etc. Please read current research on that, and compare it to the damage caused by buildings, transport, etc.

[Easteregg69]

Can we do more on the development side to subsidize miners running on green energy? How could this be implemented from a technical standpoint?

I would say the noise level keeps the not so good miners from making profit on it.

Set aside some money for wind turbines. Electricity.

[mikeywith]

Depreciation and failure rates simply are another variables which have to be taken into account, and may lower the average price to break-even, but I don't think by much (perhaps 1 percentage point as a maximum).

Miners' depreciation is directly related to the amount of BTC it can mine, and since difficulty is an ever increasing function, minings gears lose value every single day, in 2023 alone difficulty grew by more than 90%, that means every single depreciated by more than 90% throughout 2023.

Still, this isn't counting the failure rate that would drastically increase when you do those periodical running rounds.

ROI in respect to BTC is the most crucial aspect of case studying a mining investment, while turning your gears off at certain times lowers your power bill, it lowers your income as well, in other words, ignroing everything I mentioned, if highest electrify price at your place is not low enough for you to generate net income, then this model won't work, if the highest price is still good enough, then why shutdown?

Not saying your math is wrong, it is correct for someone to compete against themselves with no other external variables, but given that this isn't the case, you simply can't compete if you are forced to shut down for periods of time because the power bill exceeds your production capacity, unless there an abnormal case where the cost for 1/3 day is 20 cents/kWh vs  2 cents for 2/3 of the day.

The better model which has been tested for years in China, is seasonal mining, where miners ship their gears to the otherside of the country for 5 months to get close to free power, then go back to the region that has the cheapest electricty rate.

As for the all the numbers in the study you posted, they could be off by anything from small to huge, just like with all these similar studies, they contain a lot of guesswork, you just look at their methodology and you will understand why, using a small sample of avaible data and reflecting that on the entire network is simply inaccurate.

[ranochigo]

That's all included in the 29-32% (and in the 50% off model, 58-64%, because you have to pay them also when your mining equipment is idle) costs according to the CoinShares study which "are not electricity".

Assuming a similar business model, sure. However, the business model posed here is vastly different. Instead of ensuring 100% uptime, you are assuming less than 50% uptime, mining with cheaper and less efficient equipment (more on this later), etc. In terms of sustainable returns, I don't think this model works.

Then your costs for hardware renewal are lower.

I'd go out and say that this actually depends. As said, continuous loads on chip is actually better than varying and sporadic loads on them throughout the seasons. It's likely going to increase your failure rates, and it definitely has to be used ASICs, new ASICs are very expensive and likely wouldn't be suitable where electricity is not a concern.

I want to add that I did the 50%/50% model due to simplicity. I suppose that an "70-80% on" model would be actually even better, i.e. to try to only avoid the major price spikes which arise when the renewable electricity percentage is low.

Ditto on that. I think that using proportions can be rather misleading because it doesn't capture the essence of the study and the results are often non-transferrable. Besides, I've haven't heard of anyone who actively practices this for a large scale mining operations, so I'm sure that feasibility study has been conducted on this. Do correct my train of thoughts but I thought of the following points from the top of my head:

1. The proportion can be quite skewed because of ASIC efficiency. There was quite a few jumps across different generation of ASICs, S17 to S19 was 20% improvement IIRC, with a larger hashrate density. That can affect the revenue and the running costs for running S17 over S19. Depending on how you get your hands on the ASICs, you can possibly negate this if you're lucky though S17 would probably have low scrap value after. S19 is roughly 2-3X more expensive than S17 for now, so it would depend quite a bit on the case by case basis.

2. The difficulty changes every 2 weeks, assuming continuous increment. Let's say there are seasonal miners, but because the large farms are so profitable with the economy of scale, you would likely not make a dent in the hashrate at all. Hashrate would increase continually regardless of weather conditions, climate or whatever. You would probably have to ensure that you are able to mine at a profit before the difficult gets too high.

3. The electricity rates were assumed to be higher than most. I've heard of some miners enjoying incredibly good rates on their electricity, think 0.03c/kwh for their operations. A 50% off would equate 0.015c/kwh, and probably that would be for quite a short period of time and higher for the rest. I would find it hard to believe that 0.02c/kwh electricity would be feasible with this form of business model, after taxes and other overhead costs. If the low electricity prices are not sustainable for long periods of time and there is absolutely no guarantees whatsoever, then it isn't favorable for miners.

4. The methodology of the study isn't accurate. Using SEC filings as a point of reference of the data won't exactly yield the most accurate results, which can sway it quite a bit. I'm not sure if it takes into account the various sunk costs as well, balance sheet usually group these under assets and not expenses.

I don't comment your views about wind energy as a "wildlife killer" etc. Please read current research on that, and compare it to the damage caused by buildings, transport, etc.

I wasn't intending to compare it, but yes they are all wildlife killers, certain renewable energy are also culpable. For migratory birds, buildings are quite a PITA too. Buildings and transports are quite irreplaceable though, but I think more than be done there as well. It would be better if we could reduce our reliance on fossil fuels and instead invest in better infrastructure to fulfill the energy needs of the general population. Instead, some governments are justifying them by building more renewable energy farms, without focusing on electrical grid infrastructure. Bummer but that is for another topic.

[mikeywith]

4. The methodology of the study isn't accurate. Using SEC filings as a point of reference of the data won't exactly yield the most accurate results, which can sway it quite a bit. I'm not sure if it takes into account the various sunk costs as well, balance sheet usually group these under assets and not expenses.

There can be no study that is remotely accurate when it comes to mining, these numbers floating around on google and elsewhere are only good for a research paper to graduate  from your IT college or so, it serves no real-world purpose beyond that, nobody knows where and how the hashrare is being generated, it is all guesswork, they take a few miners and ask them what machines do they use? How much they pay for power? Then take that 10-20% minotiry and assume everyone uses the same gears, pay the same power bill, have the same CapEx and OpEx, same debt, same techs, whereby in reality every single miner is different.

So when someone says, it costs x to mine Bitcoin, or the total power consumption for mining BTC is x, all they do is speculate, some do educated guessing which may represnt some part of the truth, the rest are just bullshiting.

[thecodebear]

Can we do more on the development side to subsidize miners running on green energy? How could this be implemented from a technical standpoint?

If governments decide do subsidize renewable energies, or make investments in developing its technology to make it cheap, ok!

But miners or bitcoin community cant do much about it.

Bitcoin costs lots of energy because it is required to secure the network.

Bitcoin miners can take advantage of hydropower, solar, or wind installations that have under-utilized and / or intemittent power grids.

They already do use those sources of energy. Hydropower is one of the cheapest energy available, and there are many miners near hydro plant.

https://news.bitcoin.com/how-big-hydro-power-partners-with-bitcoin-miners-to-prevent-energy-waste/

The bolded part is not technically true. It's the misconception people have who try to say Bitcoin "wastes" energy.

Bitcoin uses lots of energy not because it is required, but because it is economically viable. Bitcoin mining only reaches any level of energy use because the economics of mining at the given time ensure that the economic output from the mining is even greater than the economic input of the energy + mining infrastructure.

The more energy used, the more secure the network is of course. But its a subtle, though very important point, to make about Bitcoin not requiring all that energy. All that energy is only used because even more economic output is created from that energy use.

Too many people think Bitcoin wastes energy, so its important to use precise language when talking about mining and point out that mining always outputs more value than is input into it, so that even disregarding the security it provides Bitcoin (which of course is super important and good), it still is an economically beneficial activity.

[d5000]

I've haven't heard of anyone who actively practices this for a large scale mining operations, so I'm sure that feasibility study has been conducted on this.

Yes, it seems to be still a niche phenomenon, I've searched for large-scale examples; maybe the Aspen Creek installations which uses solar energy could be an example but I've not found that much info on them (particularly, if they use the on-off model or use solar energy only to complement grid energy).

2. The difficulty changes every 2 weeks, assuming continuous increment. Let's say there are seasonal miners, but because the large farms are so profitable with the economy of scale, you would likely not make a dent in the hashrate at all.

The original question I was trying to answer is independent of the size of the installation. So basically, my own "thought process" is: if the on-off green mining model has advantages over the traditional 24/7 model, then also large farms would eventually practice it, and thus they coud really "make a dent" in the hashrate. If this dent doesn't reduce income because difficulty is not adjusted inmediately like in some altcoins, then this could be an additional incentive. I don't think it's a big one, but it could matter if marginal profits are low.

Hashrate would increase continually regardless of weather conditions, climate or whatever. You would probably have to ensure that you are able to mine at a profit before the difficult gets too high.

AFAIK this is not really important because all what counts for difficulty (in the Bitcoin network) is your average hashrate. If you have X Gh/s with a 50/50 mining model, you would increase the difficulty as much as a miner with 24/7 model of X/2 Gh/s. Thus I would leave this aspect completely out of the discussion.

3. The electricity rates were assumed to be higher than most. I've heard of some miners enjoying incredibly good rates on their electricity, think 0.03c/kwh for their operations. A 50% off would equate 0.015c/kwh, and probably that would be for quite a short period of time and higher for the rest.

I think you mean 3 c/kWh and not 0.03, at least that's the cost I've read to be quite common. Nevertheless that's a valid point. However, with zero or negative wholesale energy prices becoming increasingly common the model should eventually become feasible, even if we talk about the future (but not too distant, I expect this to be very common in some countries for 2026-27 already)

A variant of the "use wholesale prices" model is basically quite similar to the flare gas model: solar/wind farm operators would provide you very beneficial terms (near-zero prices) to use the regionally available surplus electricity from their installations directly instead of shutting their installation down in times of excess electricity production. I've read about this model as a concept many times (as early as 2013 or 2014) and it pops up often in the "is Bitcoin environmentally friendly" discussion (see #4 in BitcoinCleanup), but unfortunately I can't say if it's already practiced at scale.

Then there's the third model variant which is already practiced at a small scale (and maybe at larger scales by the Aspen installation I mentioned above): The usage of an own energy supply, such as wind turbines or a solar panel park. It is more viable in the long term if the mining company can afford the capital cost, but has exactly the same consequences for our discussion, as it's also a form of on-off mining.

Not saying your math is wrong, it is correct for someone to compete against themselves with no other external variables, but given that this isn't the case, you simply can't compete if you are forced to shut down for periods of time because the power bill exceeds your production capacity, unless there an abnormal case where the cost for 1/3 day is 20 cents/kWh vs  2 cents for 2/3 of the day.

Exactly these "abnormal cases" is what the Spain data I displayed earlier in the discussion suggest is already happening, although not every day of course. In addition to the variant of the model where you mine directly with your own renewable energy farms (see answer to @ranochigo).

But yeah, I think we can discuss this a year more or so what we need would be some more data, particularly about how failure rates really impact (and how they change in an on-off model) and the "intermediary" costs. I'll continue to search for real-world examples.

[ranochigo]

Bitcoin uses lots of energy not because it is required, but because it is economically viable. Bitcoin mining only reaches any level of energy use because the economics of mining at the given time ensure that the economic output from the mining is even greater than the economic input of the energy + mining infrastructure.

The more energy used, the more secure the network is of course. But its a subtle, though very important point, to make about Bitcoin not requiring all that energy. All that energy is only used because even more economic output is created from that energy use.

Too many people think Bitcoin wastes energy, so its important to use precise language when talking about mining and point out that mining always outputs more value than is input into it, so that even disregarding the security it provides Bitcoin (which of course is super important and good), it still is an economically beneficial activity.

I think a benefit to the society and a benefit to the economy can be quite conflicting at the same time. Generally, a lot of human activities are associated with global warming and its an unfortunate side-effect, and thus efforts are there to get people to reduce their carbon footprint. It doesn't matter whether the economic output is high; the pursuit of economic growth is rather frivolous and we've demonstrate from time to time again that using it to justify carbon emissions is not the way to go.

Bitcoin actually wastes energy because in the grand scheme of things, Bitcoin doesn't have a good marginal utility; the benefit to cost for each person is far lower than other popular payment methods (ie. lower marginal utility than most). I can see this argument getting defeated if Bitcoin goes mainstream and our usage increases. I would admit that Bitcoin is a "waste" in the grand scheme of things.

The original question I was trying to answer is independent of the size of the installation. So basically, my own "thought process" is: if the on-off green mining model has advantages over the traditional 24/7 model, then also large farms would eventually practice it, and thus they coud really "make a dent" in the hashrate. If this dent doesn't reduce income because difficulty is not adjusted inmediately like in some altcoins, then this could be an additional incentive. I don't think it's a big one, but it could matter if marginal profits are low.

I get where you are coming from.  It could possibly happen if these exists all across the globe and that the weather conditions are sustainable plus predictable over a period of time. If it is neither, then it wouldn't be attractive enough for an investment since the volatility is too high for such a costly investment; MOP for most Bitmain miners at a discount is around 500 (perhaps smaller but I have yet to chance upon it). Any higher and your cost per device could be 1.5 to 2x of the discounted price.

Predictable and cheap electricity could possibly happen, but I doubt that it would be competitive enough to rival the bigger players and go mainstream. Most energy markets are only cheap periodically and

AFAIK this is not really important because all what counts for difficulty (in the Bitcoin network) is your average hashrate. If you have X Gh/s with a 50/50 mining model, you would increase the difficulty as much as a miner with 24/7 model of X/2 Gh/s. Thus I would leave this aspect completely out of the discussion.

I understand, so we would be taking the assumption of predictable and frequent cheap electricity (50% of the time). Then the ROI per ASIC would be twice as long. Hence, your profits would probably be coming in after you have hit the ROI which may or may not result in higher overall profits thereafter due to the difficulty increase.

I think you mean 3 c/kWh and not 0.03, at least that's the cost I've read to be quite common. Nevertheless that's a valid point. However, with zero or negative wholesale energy prices becoming increasingly common the model should eventually become feasible, even if we talk about the future (but not too distant, I expect this to be very common in some countries for 2026-27 already)

That is correct. From a macro perspective, we would probably have to consider the world's energy requirements. I don't think we are reaching a surplus of energy for a longer term in the future, though I certainly hope that we do. The energy requirements are projected to rise in the foreseeable future. Another area that we have been struggling with is actually energy storage. The reason why negative pricing happens is that certain places doesn't have enough energy storage facilities, and thus it acts as a signal to stop the production of energy to get rid of the surplus. I hope that we are able to go around the whole issue on energy storage, that is a reason for the fluctuation that you see on the energy market and this would cushion and hopefully provide for a sustainable price.

A variant of the "use wholesale prices" model is basically quite similar to the flare gas model: solar/wind farm operators would provide you very beneficial terms (near-zero prices) to use the regionally available surplus electricity from their installations directly instead of shutting their installation down in times of excess electricity production. I've read about this model as a concept many times (as early as 2013 or 2014) and it pops up often in the "is Bitcoin environmentally friendly" discussion (see #4 in BitcoinCleanup), but unfortunately I can't say if it's already practiced at scale.

I think then the issue is whether it occurs frequently enough, or if there are no future plans to develop the grid infrastructure to supply the rest of the region with electricity. I don't have enough data on how feasible this is but I think that is the general direction that they want to adopt; Bitcoin mining is quite volatile in terms of the revenue and using miners to offload electricity is usually seen as a quick and easy method to offload them without the need for extensive infrastructure dev. This would work if it's already an existing facility and the region is generally already in energy surplus, but then you would probably have access to generally cheaper electricity to run 24/7.

Then there's the third model variant which is already practiced at a small scale (and maybe at larger scales by the Aspen installation I mentioned above): The usage of an own energy supply, such as wind turbines or a solar panel park. It is more viable in the long term if the mining company can afford the capital cost, but has exactly the same consequences for our discussion, as it's also a form of on-off mining.

Yeah, I can see it working if it get cheap enough and Bitcoin mining is more profitable when compared to selling it to the grid.

[Familian]

From a developing standpoint the only solution to energy consumption (regardless of it being "immense" or not as it is claimed) is to find an alternative mining algorithm that doesn't consume the same amount of energy but at the same time keeps the principles of Bitcoin such as decentralization intact.

So far the attempts made in the past with alternative algorithms (such as Proof of Stake) are introducing serious flaws into the system by changing the algorithm.

Still on the developers stand point,
I’ve come to understand that mining of Bitcoin have had a shift as per level of sophistication. From a time when all that was needed was just a device, a desktop was okay for the task and now, they’ve got sophisticated devices designed for the sole purpose of coming up with these calculations for block reward and confirmation of transactions.

This is largely due to the design by Satoshi Nakamoto as per difficulty level and block reward after the halving. With the fact that, these devices are the ones using up these energy, wouldn’t it make more sense for the company behind these devices design it in such a way that, it’s able to use less energy or perhaps have some backup energy source to switch to remotely, creating a time out for conventional energy source like the fossil fuel.

Maybe the developers haven't thought about making such level of sophisticated devices for less energy consumption with yet same (or improved)  performance and results. But my strong guess is that they might have nursed the idea before you conceived it to mind but as a business are giving it time to make substantial profits from the design of the current devices, and probably in no distant years to come they would decide to make such designs available to address the problem of energy consumption to a considerable measure.

[d5000]

Just saw the thread "Lowest Bitcoin mining cost" about Riot and other miners participating in "demand response" programs and it's more or less one of the variants of the model I described above, if what philipma1957 writes is correct (and as he is - or was until recently - a miner himself he should know). If I understood right they get an electricity cost of 2 cent/kWh or less with this model.

Basically they "burn excess electricity" of the Texas grid about three quarters of the year and shut down completely in summer. I don't know how fine-tuned the model is, i.e. if they have to regulate the hashrate up and down according to daily/hourly availability of energy, but it seems at least in times of shortage they have to shut down to profit from these agreements. Here the ERCOT demand response programs are described, and this seems to indicate that it's definitely an on-off model:

ERCOT programs are further divided into 10-minute or 30-minute demand response events.

In this Texas Tribune article the model is described a bit further. Here it seems that they only "really" shut down in summer during a heat wave, but the potential of Bitcoin miners to turn off their equipment is explicitly mentioned:

“Bitcoin miners can use excess power overnight and on days where demand is normal, and they can turn off on very hot or very cold days when power is scarce and electricity prices are high,” Bratcher said in an email.

This would be more an 80% or 90% uptime and not the 50% one I analyzed before so the impact on hashrate should be limited, but the general model is the same one I wanted to highlight during this discussion.

@mikeywith has described the shutdown above in the discussion. The 30 million they received were however not their "cost" to shutdown but the cost they prevented for the ERCOT electricity grid.

[ranochigo]

-snip-

That's interesting but the are a few flaws with what Texas is doing. They do use excess energy, but they won't necessary only use excess "green" energy. Though Texas is one of the bigger renewable energy producers in the US, it doesn't actually mean that they are fully carbon neutral; power plants that operates on non-renewables still very much alive and in operation. Power plants that aren't being used are depreciating assets and is a burden to the local economy.

Now, the whole issue about why miners still setup their plants in Texas has to do less with how good their electricity infrastructure is (hint: not very), nor how good the weather is. Texas is actively providing tax breaks for miners to come and setup plants and thereby making it more attractive for them despite the extremely hot weather.

I had a brief look about the entire programme, and this system seems to function by making Riot an effective shareholder of the electricity. Riot has an agreement to purchase the electricity at a heavily discounted pricing, and with a clause that requires them to stop the operations to prevent excessive strain on the grid. Now, this means that essentially Riot is gambling that the general public should require more electricity during hotter, or colder months and thereby allowing them to sell them at a premium to recoup the profit. I'm a bit unclear about your last sentence, but the 30 million that they received can be seen as a subsidy for them, that is paid for by Texans during those months.

The average prices that they are paying as a part of the contract is 3.5c/kwh, but they are given subsidies under the two schemes. The losses that RIOT has racked up has gone through the roof in the past few fiscal years, and the primary reason why their balance sheet looks better right now is because of the existence of this scheme.

I think this scheme would be far from effective if the electricity bills doesn't surge from $30/MWH to $210/MWH during the periods of high electricity usage. This inefficiency also means that the state is not ready nor good enough to handle the surge in the electricity for those periods and thereby paying companies to shut down.

From a business perspective, I think that this argument is sound because it is wise to be able to exploit both the profitability of mining and the volatility in the electricity prices over that period of time. However, there seems to be a systemic problem if the state has to pay miners (by asking the general population to pay more) to tune down on mining during periods of high demands. It would be quite a big problem if this becomes a commonplace in mining in the future, which might very well be happening with the whole issue about climate change. Exploitation of the locals for corporate profit is unacceptable.

Through my research, I found the following, Riot's corporate presentation which provides the data and the insights into how they operate (https://d1io3yog0oux5.cloudfront.net/_2875cfb5a284d3132d8e7475f28f695f/riotblockchain/db/447/4261/pdf/Riot+Corporate+Presentation+9.6.23.pdf) as well as a critique of the Texas's scheme (https://earthjustice.org/feature/cryptocurrency-mining-texas). For the last link, I've done some preliminary fact-checking and understanding, but DYOR for the links as well.

[d5000]

I'm a bit unclear about your last sentence, but the 30 million that they received can be seen as a subsidy for them, that is paid for by Texans during those months.

It can be seen as a subsidy, or a part of the business model. However, my point was that Texas (or the energy provider), running this demand response programme, is saving higher infrastructure/fuel etc. costs (to stabilize frequency in times of high demand, or having to take out other productive industries).

This is a phenomenon in all countries with high amount of wind or solar energy. It does make sense to improve grid connectivity and add storage capacities, but there is a limit. I'm following the situation in Europe (in South America the issue is still not acute, even if the wind/solar energy sector here also grows at a good pace) and the problem is if regions are not well connected to receive cheap electricity from other regions, then they must hold backup reserves for shortages with low wind/solar production, mostly gas-powered plants which are very expensive to operate. It makes sense to prefer demand response programs instead of having to fire up these plants (or worse: to have to build additional plants).

So I'm not as negative like you seem to be about these programmes. While I agree that an energy provider obviously should garantize infrastructure and power to be always enough for "normal" electricity consumers (and if ERCOT fails there then's ... not good), dynamic/flexible energy usage (e.g. due to the usage of smart metering) for bigger consumers gives advantages in terms of overall costs, and also in terms of CO2 emissions. So I don't see "[e]xploitation of the locals for corporate profit" in this case.

I read the earthjustice article, but this seems just the usual anti-Bitcoin FUD in the vein of cleanupbitcoin. The article doesn't waste a single sentence in what could be the reasons for the demand response programme. The Texas Tribune article I linked earlier was a bit better in this regard. I don't doubt there may be still inefficiencies, perhaps the incentives for miners are too high and should be adjusted down a bit. But the general mechanism seems positive -- and also in general, "green" -- to me.

[ranochigo]

However, my point was that Texas (or the energy provider), running this demand response programme, is saving higher infrastructure/fuel etc. costs (to stabilize frequency in times of high demand, or having to take out other productive industries).

This is okay, if the case is that the rest of the population doesn't have to fork out extra for electricity in the few months. I don't have any problem with them trying to save costs, but it is obvious that the grid cannot support both the miners and the local population. This is at best, a pro-business move and definitely not prioritizing the local community. As seen in the graph depicted in RIOT's company presentation, Texans are in effect paying for Riot to not use their electricity. I fail to see how this would be fair for the locals, and given that the effect of the unreliable grid has never been solved despite Texas's 2021 blackout, and even up to now.

This is a phenomenon in all countries with high amount of wind or solar energy. It does make sense to improve grid connectivity and add storage capacities, but there is a limit. I'm following the situation in Europe (in South America the issue is still not acute, even if the wind/solar energy sector here also grows at a good pace) and the problem is if regions are not well connected to receive cheap electricity from other regions, then they must hold backup reserves for shortages with low wind/solar production, mostly gas-powered plants which are very expensive to operate. It makes sense to prefer demand response programs instead of having to fire up these plants (or worse: to have to build additional plants).

I'm not exactly sure about the situation in other countries, but perhaps I’ll do some research on it. Regardless, I'll focus on Texas since we are on the topic. The situation in Texas is quite unique, because they refuse to follow the national grid's standards and thereby inducing extremely unreliable power plants, and frequent blowouts. In addition, this also ensures that the other states cannot feed extra power into their grid and thereby having an extremely unreliable grid at the expense of a lower operating cost.

To my knowledge, the situation of having extremely volatile grid, huge subsidies (they pay 5 times less than normal households   ) for heavy industrial users and an unstable grid seems to be localized to Texas. I'm not too sure if renewable is the problem, Texas should in theory have the highest amount of solar energy in July, and I'm sure that the price wouldn't spike by a factor of 5 if the solar energy should be peaking.

So I'm not as negative like you seem to be about these programmes. While I agree that an energy provider obviously should garantize infrastructure and power to be always enough for "normal" electricity consumers (and if ERCOT fails there then's ... not good), dynamic/flexible energy usage (e.g. due to the usage of smart metering) for bigger consumers gives advantages in terms of overall costs, and also in terms of CO2 emissions. So I don't see "[e]xploitation of the locals for corporate profit" in this case.

I'm not really taking an issue to it, or being negative for the sake of it. I think that there should be a clear line drawn between taking the position of pro-business and ensuring the welfare of your community. Is the community benefiting proportionally from having Riot over here? A good question to answer would be: Is Riot in Texas because of cheap electricity, good climate, fair prices, or is it something else? Do the combined usage of all 27 Bitcoin mines in Texas and the general population fall within the 44% of the renewable energy production? The corporate presentation tells a very interesting story.

A few articles out there: https://time.com/6590155/bitcoin-mining-noise-texas/, and even the Texas Tribune article criticizes them!

I read the earthjustice article, but this seems just the usual anti-Bitcoin FUD in the vein of cleanupbitcoin. The article doesn't waste a single sentence in what could be the reasons for the demand response programme. The Texas Tribune article I linked earlier was a bit better in this regard. I don't doubt there may be still inefficiencies, perhaps the incentives for miners are too high and should be adjusted down a bit. But the general mechanism seems positive -- and also in general, "green" -- to me.

I'd like to focus and discuss more about this, specifically relating to Texas. I found that the data were well substantiated and that the information relating to Texas was objectively presented with. Relating to the demand response programme, I found that the site actually mentioned what ERCOT does and what works and what doesn't. Compared to Texas Tribune, I found that the links to the different sources were more diversed and substantiated, for eg. NYT, which includes filing to the SEC, stating the obvious business opportunities by exploiting the business opportunities on the fluctuating electricity prices. Do let me know if there are any inaccuracies or outrageous claims that are false.

For one, I certainly hope that most of the governments out there are not like this. This sets a bad precedent; miners are there to mine 24/7, and to take advantage of price spikes for locals to pay them to stop mining.

I find that too much of the argument seems to surround the need for Bitcoin miners to make money, for them to operate in areas that are otherwise not ideal (Texas weather is extremely hot ). I'm more concerned about the welfare of the people: https://www.wired.com/story/bitcoin-mining-texas-energy-grid/, which in the face of climate change should be our priority. Unfortunately, we can't get a bigger picture if both Riot and The Blockchain Council are willing to sue and challenge EIA from being transparent and accountable for their energy usage. Arguments are essentially moot, but I'd be more than willing to change my viewpoint if they are transparent about it in the face of criticism.

FWIW, I respect the business aspect of things. I didn’t dispute that it is a great business opportunity. I’m not a big fan of the way that this business opportunity is being presented. It doesn’t sit well with me and its a hill that I’m willing to die on.

I think that the general Bitcoin community seems to be quite myopic and dismissive of the various impact of Bitcoin mining. No doubt, Bitcoin mining has its benefits, and we have discussed it many times; revialitizing local economy, making use of energy surplus, so on and so forth. These are great, but I hope that we can also acknowledge the other side of the story, which is the impact on the locals and the environment.

[d5000]

I've looked into the Riot presentation and it still doesn't convince me that the model is "bad" for Texas or the local population. Above all: it's not the case that Riot gets "paid" to "not use electricity". They get a discount on the energy they use, because they prepare to be flexible and shut down when it would be much more expensive for the ERCOT system to buy (or have to build) additional capacity. If they weren't such a big consumer their discount would be much smaller. They will never pay less than they get, so they're always a net payer for ERCOT.

What could be argued of course is that ERCOT still uses "only" 50-60% renewables (including nuclear) according to the Riot sheet (~59% is estimated for the end of 2024, as they write, but for 2023 it was still ~40%). But coal, the most problematic fossil fuel, is down from ~25% to 14% between 2018 and 2023 (see this article - they also mention the high cost of backup power which is the main reason for demand response programmes). It's just the strategy with demand response programs what allows Texas to add massively more renewables capacity, above all the more "unstable" wind and solar farms, which are presently the cheapest source of electricity (only exception are old coal plants and some very favourable hydro installations). And in exchange they can progressively shut down coal and in the near future (still not, as it seems according to 2023 numbers) also gas plants.

If you want to move towards a high proportion (eventually 100%) of renewables and don't have massive access to a more steady source like hydro (e.g. Norway, Austria, Brazil) or geothermal (e.g. Iceland, El Salvador), then you will benefit from big consumers who will pay for the "excess" electricity in windy/sunny times with low demand, even if this means giving them big discounts. Texas has also nuclear plants which would be expensive to shut down but are almost emission-free and also are probably an important electricity source for miners, although their importance seems to be decreasing.

By the way I absolutely agree with you with the following sentence:

I think that the general Bitcoin community seems to be quite myopic and dismissive of the various impact of Bitcoin mining. No doubt, Bitcoin mining has its benefits, and we have discussed it many times; revialitizing local economy, making use of energy surplus, so on and so forth. These are great, but I hope that we can also acknowledge the other side of the story, which is the impact on the locals and the environment.

So I absolutely advocate for a massive increase of the "green" mining percentage, BTC has to move near 100% renewables in the next years or it would not only damage the climate really (a BTC at 500K-1M USD could be moving e.g. towards 1% of global electricity consumption, and if a substantial portion of it is fossil-based then it will have significant emissions) but also could get a big regulatory backlash. But my impression is that the model used in Texas, with flexible mining engaged in demand-response programs is exactly what's needed for that.

And yes, as I wrote before, it may be that the Texas model needs some fine-tuning, and that the energy providers could allow themselves to offer a bit less dramatic discount for demand-response and invest a bit more in the grid, and extend the demand-response programs to the "normal population" (which is something quite difficult to do because of the cost of installing smart metering in households, but is increasingly popular in other regions like Scandinavia or Germany). I don't dispute the numbers used in the earthjustice article, however imo they are framed in a way to make look crypto mining way worse than it is, and what I wrote above (the reason for these big demand-response discount - they only mention "stabilizing the grid") is completely omitted.

[Pmalek]

Bitcoin miners aren't opting for dirty sources of energy because they hate the planet and want to help in its destruction. It's very simple: they are using the cheapest energy they possibly can to make money and make as much as they can. Unfortunately, that's fossil fuels. It it was wind, hydropower, or electricity from solar panels and there was enough of it for bitcoin mining and other community needs, they would use that.