How Bitcoin became Digital Energy
Definition of energy is the capacity for doing work. It may exist in potential, kinetic, thermal, electrical, chemical, nuclear, or other forms.
Money is the medium of exchange which is used to transfer this energy from person to person via payments. In this blog we’re going to refer to this energy as “economic energy”.
In the traditional economy, money is issued by an central authority with very minimal energy being used to generate. Therefore, the value of this money is developed through the value of the goods (which is defined by price) it can purchase or said another way, price (economic energy) is a function of supply and demand.
Because money is economic energy, we can apply the Law of Conservation of Energy, which states that “energy cannot be generated or destroyed; it can only be converted.”
The energy of each unit diminishes when the total supply of a commodity grows. Therefore, when new money is generated (which is loosely measured by inflation) the value of the pre-existing money loses it’s purchasing power. It is a zero-sum game when it comes to energy.
Energy contained in Bitcoin does not degrade owing to inflation, as it would in dollars. Because there can only ever be 21 million bitcoins, holding one bitcoin entitles you to 1/21 millionth of the entire potential Bitcoin supply for the rest of your life.
Bitcoin Mining, PoW and transforming energy transmission
Using PoW, Bitcoin miners convert electrical energy into economic energy.
Bitcoin mining is the process of using CPU software to conduct computational work in order to expedite Bitcoin transactions and safeguard the Bitcoin network. Miners are compensated with bitcoins for their efforts.
Bitcoin mining is important because it is a geographically independent process that can transform electricity into a scarce asset. Energy can now be gathered and transformed into bitcoins utilizing mining equipment.
For example, consider a waterfall or a volcano in the midst of nowhere. There is no one nearby, no cities, and so on. It is a natural resource that might be used to generate electricity via a hydroelectric power plant. But what’s the point? There’s no one around. You can’t send it via cables to distant cities because it’s inefficient, and you can’t keep it without some loss. However, you might use that power to mine BTC and then move it wherever you choose. Buying anything that you want. Even access to energy in close proximity to a metropolis. You’ve successfully developed a mechanism for power transmission.
This example has actually been enacted in the country of El Salvador. This is a government backed initiative where in Berlin, 112 kilometers south of the capital city of San Salvador, contains a geothermal plant that was established in 1999. The facility is made up of 16 2,000 to 3,000-foot-deep shafts through which steam flows and powers three turbines.
The energy produced by these turbines may reach 107 megawatts, however only five are used for Bitcoin operation and mining. The remaining energy is utilized to power the country’s grid.
Renewable energy & Bitcoin
Bitcoin mining is a worldwide, open, and competitive business. Everyone, everywhere has an equal chance to compete in transforming their energy resources into bitcoins.
Because of Bitcoin’s automated difficulty adjustment, when more mining power (aka hash power) competes, the mining process self-adjusts to become more difficult, resulting in fewer bitcoins rewarded per unit of hash power.
This function, over time, will result in only the most cost-effective miners being economical. As more mining power competes, mining bitcoins gets more difficult, reducing the revenue of all miners equally. Therefore, in the long run, the cheapest and lowest variable-cost energy sources will be economically viable for mining.
Renewable energy sources provide energy at a rate dictated by natural supply rather than human demand. Therefore, energy is wasted unless it corresponds with equivalent demand or a storage solution. This energy supply from renewable sources can be used for Bitcoin mining due to it’s unique flexibility.
For example in Texas, where contracts between Bitcoin miners and electrical utility companies specify how mining should be turned on and off to guarantee grid stability.
Bitcoin mining equipment may be turned off during high electricity demand hours, restoring greater energy capacity to the grid. As demand falls, miners can reactivate, restoring grid stability as energy supply and demand are balanced.
As a result, Bitcoin enables the addition of more renewable energy capacity to grids while also giving flexibility and efficiency possibilities on the grid’s demand.
