- Bitcoin’s use of energy has become a lightning rod amid the growing popularity of ESG investing.
- Ark Invest’s Katy Wood explains why they think this will lead to more renewable and solar energy production.
- Ark analysts also explain why they remain convinced of Bitcoin and Ethereum.
- See more stories on the Insider business page.
Unsurprisingly, bitcoin – one of the best performing assets of the past year – will face the growing trend of environmental, social and governance investing.
Ever since Tesla CEO Elon Musk refused to accept cryptocurrency as payment due to concerns about the massive amount of energy required to mine bitcoin, the digital token’s energy consumption has been a lightning rod for controversy.
The latest calculation of the University of Cambridge’s Bitcoin Electricity Consumption Index suggests that Bitcoin consumes 111.51 terawatt hours per year, which is more than the annual energy consumed by countries such as the Philippines and the Netherlands.
This staggering figure certainly raised some surprise, but it also raises the question of whether Bitcoin deserves to consume that much energy.
“If you believe, like many traditional establishments, that this bitcoin offers no utility other than being used as a Ponzi scheme or money laundering device, then it makes sense why you came to the conclusion that consuming any amount of energy is wasteful.” Yassine Elmanjra, a cryptoasset and blockchain analyst at Ark Invest, said in a webinar on Tuesday.
Elmanjra, who is clearly a proponent of thinking about bitcoin as “a tool to secure sovereignty or avoid monetary repression and capital controls,” took it one step further. He believes that mining bitcoin can not only provide more renewable energy, but also provide a more reliable supply of electricity to the grid.
How Bitcoin Mining Can Increase Renewable Energy Use
Elmanjra said that in order to see how bitcoin mining can increase the spread of renewable and solar energy, it is important to understand how bitcoin uses energy.
He explained that while critics have focused on the high cost of Bitcoin’s energy per transaction, this figure can be misleading because the vast majority of Bitcoin’s energy consumption occurs during the mining process, which is actually used to secure the network and protect it from nefarious activities. …
“As bitcoin’s energy footprint grows rapidly, people sometimes assume that it will eventually take over the entire grid,” he said. “But after the coins have been issued, the energy required to actually verify these transactions is minimal, so just looking at the total energy of bitcoin and then dividing it by the number of transactions doesn’t make sense.”
Meanwhile, as Elmanjra notes, it is very important to distinguish between how much energy the system consumes and how much carbon it actually releases. He points to estimates that say about 40% of bitcoin’s energy consumption comes from renewable energy sources, and 76% of miners use renewable energy to some extent.
“We believe that as renewable energy sources like solar continue to become more efficient, Bitcoin may actually serve as an incentive for miners to create these technologies,” he said. “With bitcoin mining integrated into a solar system, energy providers can arbitrate between electricity prices and bitcoin prices, and then sell surplus solar energy and provide nearly all of their electricity needs without actually diminishing the profitability of the system.”
He outlined in the graph (shown below) how as the solar array system of Bitcoin miners expands, renewable energy consumption for the network could increase.
“So in the absence of bitcoin mining, you can see that renewables can only meet 40% of the network’s needs,” he said. “Including Bitcoin mining, solar power and batteries can meet 99% of the network’s needs.”
Elmanjra said these renewable energy operations have already gained momentum, with the most prominent example being the announced partnership between Square and Blockstream to launch a 100% solar-powered bitcoin mine in the US.
Katie Wood, CEO of Ark Invest intervened: “Half of the solution is understanding the ‘problem’ … I think now we are likely to see solar energy scaling much faster than we would otherwise. without this contradiction. “
The President of El Salvador, Nayim Bukele, responded in part to Wood’s prediction, announcing on Wednesday that his country is exploring the possibility of using volcanic energy to mine Bitcoin. On the same day, the Latin American nation passed a law making bitcoin legal tender.
High conviction in Bitcoin and Ethereum
Despite the recent pullback that cut Bitcoin in half from its $ 64,000 peak, Elmanjra said the Ark team has never been more convinced about crypto than they are today, from a fundamental point of view.
“If you think about it in five years, I think these healthy adjustments are a natural part of this asset class,” he said. “When you look at an opportunity [of this asset class] If over the next five years the price will be between 5 and 10 trillion dollars, then the recent price dynamics does not contradict these long-term prospects. “
Frank Downing, who joined Ark Invest in April to focus on cryptocurrency and the cloud, also shared his take on Ethereum.
Downing, an avid Ethereum miner since the 2017 market cycle, said the growing proliferation of decentralized financial applications and non-fungible tokens powered by the Ethereum network has propelled the cryptocurrency tremendous growth.
For example, he points to metrics on the network showing that the number of active Ethereum users and the total transaction fees paid to miners on the network are reaching all-time highs. “These are really strong signals of the value that Ethereum provides,” he said.
Downing is also impressed with how well the Ethereum ecosystem has withstood the recent spikes in volatility and corrections.
“We’ve seen a lot of liquidations and accounts that may have been using excessive leverage, but the decentralized financial ecosystem actually held up very well,” he said. “The automated market makers did exactly what they were supposed to do and the stablecoins held their peg. It was a really good test and we were impressed that we really passed the test of this cycle. “