5.3 Bitcoin Mining Theres been some terrific research done on the economics of mining, and I wont cover that here, other than to say that it hasnt been a very good year for miners. One year ago, bitcoin miners operating in Texas could produce bitcoin for between ~$5-10k, and bitcoin traded at $60k. It now costs closer to $15-20k to produce the same bitcoin, and more miners are in distress. (Heres an excellent article from Compass Mining that breaks down the top 10 miners by performance, balance sheet, and overall financial condition if you are interested in specifics. Zack Voell also recaps the monthly carnage. The September update was what happened this month. The October update was not a great month. The November update was a remarkably sh*t month.) But we dont need to talk about the idiosyncrasies of hardware operations or harp on the fact that a capital and energy intensive sector has struggled amidst the 75% bitcoin price decline.

Instead, lets talk about mining, and the regulatory crosshairs in which it now sits. To do that, lets talk about the good facts and bad facts about proof-of-work mining and whether bitcoin can actually help improve the environment. Bad facts: Bitcoin mining produces a lot of e-waste each year, about the same amount as a country the size of the Netherlands. Only about 17% of this sort of waste is recycled today. In environments with acute energy shortages and high costs, bitcoin mining can be seen as driving up marginal energy costs for the average consumer. At the beginning of the year, only 39% of bitcoin mining was renewable. CoinShares estimated that nearly 60% of bitcoin mining power comes from coal and gas. (Im awaiting CoinShares January refresh to see how things have evolved in 2022. This is a fairly manual and tricky data set to compile, and they have the best weve reviewed.) 82 Good (or mitigating) facts:

Bitcoin mining costs are fixed and capped by market forces. Bitcoin does not become marginally more energy intensive if more people use bitcoin. Instead it is a function of bitcoins market cap and energy costs. As mining issuance rates decline over the next 5-10 years, energy consumption and e-waste will be capped by the marginal cost it takes to mine a single bitcoin, and that cost will only face upward pressure if bitcoins entire market cap resurges. (You wouldnt buy more energy than BTC is worth to mine.) Today, mining creates a carbon footprint thats about the same size as tumble dryers and about a third the size of gold mining. Its also significantly less energy intensive than the global banking system or the militaries that secure it. Not exactly a global killer.

And finally, bitcoin miners are the dung beetles of the energy world. Theyll eat energy that no one else wants or can use. The trend towards leveraging wasted and stranded energy sources continues. Bitcoin miners have been increasingly co-locating to capture flared methane, stranded geothermal energy, coal refuse, and even recycled waste tires. Flaring is a particularly valuable segment to highlight, as even the White House Office of Science and Technology wrote about it favorably in their crypto climate report.* Natural gas is a common by-product of crude production. Because oil drilling sites typically reside in remote locations where pipeline and powerline infrastructure is non-existent, excess natural gas is often flared (combusted) away. Methane leaks directly into the atmosphere, causing more than 30 times the greenhouse effect of CO2 over a 100-year period.