FPC Blog


Paving the Way for Progress: Bitcoin Mining’s Role in Energy and Economic Development

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Today we stand at a fork in the road, facing a decision that will profoundly shape the future economic stability of the United States. Each path before us leads to a vastly different destination, and the key policy decisions surrounding Bitcoin mining will determine the route we take. 

On one path, there’s the potential to embrace an innovative technology that could rejuvenate our energy sector, making it more robust and efficient, while adding substantial economic value to the country. The other path represents the risk of missing a once-in-ten-lifetimes opportunity, leading to stagnation, an outdated energy grid, and economic waste. 

In the midst of this critical juncture, the role of the Financial Policy Council (“FPC”) becomes paramount, for it was established to confront exactly the type of challenges we now face. The wisdom and expertise the FPC brings will be vital in guiding the nation down the right path, determining our economic future for generations to come. This post will get you up to speed on the current landscape, and illuminate some surprising solutions so you have the information you need to help take positive action. 

Current state of the policy war: 

Bitcoin mining’s rapid maturation and growth have spurred calls for regulation and policy within this emerging industry. Our responsibility now is to develop intelligent policies that recognize the comprehensive benefits and impacts of bitcoin mining while ensuring protection for the industry, communities, and the environment. 

Recently, several attempts at anti-bitcoin mining legislation1 (such as Texas Senate Bill 1751) have been defeated or are nearing defeat in the U.S. Had they succeeded, (like recently passed New York State Bill A7389C2) these measures would have adversely affected bitcoin miners, casting doubt over future investment in infrastructure and potentially driving companies to expand into offshore markets. 

The political push for regulation is heavily influenced by special interest and environmental groups such as Earth Justice3 and CleanUpBitcoin4. Upon deep examination, it’s apparent that the groups lack a comprehensive understanding of the positive impact bitcoin mining can bring to our world. What is evident is the need for more education directed towards politicians about the value of this industry to their states and the country as a whole. 

The importance of political education was made apparent during the recent debt-ceiling negotiations in Washington, D.C., the Biden Administration’s proposal for a 30% tax on electricity used in Bitcoin mining was put on hold. This occurred as the U.S. House of Representatives passed the Fiscal Responsibility Act on May 31st, a bill likely to pass  the Senate due to the Democratic majority. Notably, the administration deferred any discussions of this proposed tax, indicating it won’t be raised during the current term, though it could be re-evaluated if President Biden secures a second term. If left without critical education from the FPC, an unfavorable re-evaluation could be disastrous for our national economy. 

The solution climate activists are missing. 

Yes, bitcoin mining consumes energy, but there are two huge misconceptions. Firstly, bitcoin mining is typically framed to sound like it consumes a huge portion of the world’s power, the truth is, Bitcoin mining accounts for an extremely small amount of global consumption and is comparable to the usage of festival lighting. Secondly, the energy usage consumed provides real economic value in exchange for that energy consumption. 

Let’s dig into these two points a little: 

To start, let’s look at energy consumption. According to The World Counts published statistics, total global annual energy consumption is roughly ~161,111 TWh.

According to Statista Bitcoin mining is consuming around ~100 TWh globally6 which is around ~0.0621% of the total energy consumption globally. 

The information regarding Bitcoin’s energy consumption may be surprising, especially if you have encountered anti-mining activist websites claiming that Bitcoin’s energy use will consume the world’s resources. However, by examining the historical energy usage data associated with Bitcoin mining, it becomes clear that the facts are substantiated, and the data itself is indisputable. 

Secondly, Bitcoin’s energy consumption serves a critical function in fortifying the network against attacks, thus contributing to its overall security. Contrary to false perceptions of “energy wastage”, Bitcoin energy consumption is directed towards a tangible purpose that delivers real economic value to an expansive global network of users. 

When juxtaposed with the energy demands of traditional banking industries, as well as gold’s mining, transportation, and custody energy consumption, it becomes evident that Bitcoin offers value to a worldwide network while operating on less than half the energy footprint.7 This efficiency highlights Bitcoin’s role as a valuable and sustainable technological advancement in the global financial landscape. 

Is Bitcoin energy usage a net positive for U.S. and global society? 

As with most debates over bitcoin, the topic of mining and the environment had been hashed out and settled over a decade ago. As Satoshi himself put it in 2010: ‘The utility of the exchanges made possible by Bitcoin will far exceed the cost of electricity used. Therefore, not having Bitcoin would be the net waste.'”

But many bitcoin critics don’t think financial freedom is good. Any amount of energy we use on bitcoin is therefore bad. But it does not sound great to say you don’t think people should be able to save their wealth or freely transact. So they will disingenuously point to bitcoin’s energy expenditures as a problem in itself.” – ANDREA O’SULLIVAN8 

The Financial Policy Council (“FPC”) champions the principle of financial freedom and is ideally positioned to provide counsel on policies that endorse the rights of individuals to utilize, custody, and mine Bitcoin. Such alignment emphasizes the FPC’s commitment to fostering personal autonomy within the technological and financial domains, supporting innovations like Bitcoin that empower individual choice and control. 

What innovations can Bitcoin mining bring to the U.S.? 

  • Electrical Grid Load Equilibrium 
    • One remarkable way Bitcoin mining can positively influence the U.S. electrical grid is through its flexibility in managing large loads of power.10 For those who haven’t heard of this technical term: Load balancing on a power grid can be likened to carefully managing the flow of water through a series of connected pipes. 
    • Imagine the power grid as a network of pipes, and electricity is the water flowing through them. Different areas (like houses, schools, factories) need different amounts of water at various times of the day. 
    • Load balancing is like having a smart control system that makes sure the right amount of water reaches each place when needed. If too much water goes to one area, it might overflow (causing a power surge), and if too little goes somewhere else, it might not be enough (causing a power shortage). Bitcoin Mining can be likened to a strategic use solution of a water overflow scenario. Instead of allowing the excess water to be wasted through runoff, this surplus can be channeled into value-creating activities. The metaphor illustrates how Bitcoin Mining harnesses otherwise wasted resources, turning them into something productive and valuable. 
    • To recap, the job of load balancing is to keep everything running smoothly, making sure that the flow of electricity (water) is just right for each place on the grid, and Bitcoin Mining is useful here. Load Balancing ensures that everyone gets the power they need without wasting energy or causing problems. It’s like a smart plumbing system for electricity. 
    • A salient advantage of Bitcoin mining for the US electrical grid is its unprecedented responsiveness. In dire straits, should the grid demand large Bitcoin miners to halt operations, they can comply almost instantaneously. This adaptability is rare in the commercial world. Envision it as a massive water reservoir that can instantly convert overflow water to money. This is in stark contrast to today, where we’re just letting excess energy go to waste. However, when the water is getting too low, the miners can quickly shut off to keep a stable flow of water coming to the grid. Ultimately this results in less wasted power, and a much stronger power grid that keeps the lights on in homes across America. 
  • Augmenting the Allure of Green Energy Ventures 
    • Bitcoin mining presents a compelling solution to enhance the financial attractiveness of renewable energy projects. Picture a vast wind farm, akin to an orchard that produces fruit only at specific times. During a windy midnight with low power demand – a situation reminiscent of an orchard with no buyers for its fruit – the owner might be forced to give away or even dispose of the excess power at a loss. This uncertainty often deters potential investors, and here’s where Bitcoin mining becomes an attractive proposition. 
    • By forming a strategic partnership with a Bitcoin mining operation, the scenario transforms. In those wind-rich but demand-poor hours, the ‘excess fruits’ (or electricity) can be directed to on-site Bitcoin mining. Not only does this negate losses, but it can also generate revenue through Bitcoin’s yields, similar to turning unsold fruits into profitable jam. When coupled with thoughtful tax incentives, such collaborations can make renewable energy projects not just viable but highly enticing for investors. The integration of Bitcoin mining, thus, stands as an innovative and persuasive strategy for advancing green energy initiatives. 
  • Paving the Way for Phased Energy Infrastructure Development
    • A transformative advantage of Bitcoin mining lies in its potential to reshape the timeline of new energy infrastructure projects. When conceptualizing any significant energy venture, the development often occurs in stages or phases. Traditionally, there’s a waiting game, where the entire project must reach completion and establish grid connectivity before it can begin generating revenue from its produced energy. This can pose financial constraints and extend the return on investment timeline. 
    • However, with the integration of Bitcoin mining, this conventional approach experiences a seismic shift. As each phase of the energy project becomes operational, instead of standing idle waiting for the eventual grid connection, it can immediately begin supplying energy to on-site Bitcoin miners. Picture it as constructing a multi-storied building, where instead of waiting for the entire structure to be finished, each floor starts generating rental income as soon as it’s completed. This early monetization can considerably enhance the financial dynamics of these projects, providing immediate cash flow and making previously marginal projects more economically attractive. 
    • Furthermore, as the energy project grows and matures, a dedicated portion of its output can continuously be channeled to Bitcoin mining operations at favorable rates, with the surplus being reserved for eventual distribution to the grid. This not only ensures steady revenue generation but also offers flexibility, as the energy supply for Bitcoin mining can be redirected to the main grid on-demand. 
    • Over time, as more energy projects adopt this phased development approach paired with Bitcoin mining, a robust network of adaptable “peaker units” emerges. These units, while underpinning the cryptocurrency industry, simultaneously act as stabilizers, enhancing the grid’s resilience and overall health during high-demand periods. This innovative model promises a future where project feasibility and grid reliability go hand in hand, creating a win-win situation for all parties. 
    • These three approaches offer a glimpse into how Bitcoin mining can be a versatile and innovative tool in optimizing energy consumption and investment strategies, contributing to a more sustainable and economically viable energy landscape. 
    • Before we move on, I’d like to pause and ask you the reader: “How do you envision the role of Bitcoin mining in the future of energy grid balancing?” We’d love to hear your ideas and comments. 

Adapt and thrive or stagnate and wither. 

The potential gains from embracing a pro-Bitcoin policy strategy in the U.S. are substantial. However, it is essential to consider the implications of failing to adapt to this transformative technology. The consequences of not aligning with the technological advancements offered by Bitcoin may lead to missed opportunities and challenges in the rapidly evolving global financial landscape. Whether people agree or not, the fact is that BTC as an asset class has grown more rapidly than anything else in history. At its current trajectory it will be essential to the national security of every nation to secure their stake in this asset class or risk becoming uncompetitive and facing damaging economic consequences. The U.S. built its wealth on innovation, and if it fails to keep that policy it will fade like every nation in history who has stopped innovating.

The U.S. must not fall behind and allow an army of miners to form in non allied countries or worse to the BRIC consortium. The U.S. must compete on this battlefield on shore, and within allied countries. To fail to do these things will put the U.S. at a strategic disadvantage and weaken it. 

What are current key policy issues? 

  1. The Arkansas Data Center Act of 2023 serves as an excellent initiation for governing Bitcoin Miners, mirroring Montana’s “Right to Mine” bill.9 These legislations aim to safeguard digital asset miners from excessive taxes and fees, equating them to other state data centers. Similar bills should form the foundation for future legislation in other states. 
  2. Incentives like Texas’s load balancing create mutual benefits for operators and the State during electricity crises. Bitcoin Mining, capable of halting operations within minutes, provides significant relief during grid stress.10 Financial incentives for Mining companies to pause operations offer a unique control tool for grid operators. Such incentives should be widely advocated and implemented across all States. 
  3. The focus of discussions around Bitcoin Mining should also encompass the development of substantial tax incentives, specifically for miners with low or carbon-neutral outputs. Rather than impetuously targeting the industry, these incentives should strategically guide miners towards environmental efficiency, compelling the adaptation of the next generation of mining companies. Federal and State enactment is needed to direct current and future projects towards the desired future outcome. The implementation or replication of these policies will convey to investors the U.S.’s support for the Bitcoin mining industry, enabling both individual and institutional investment. Such support is vital for securing a portion of this decentralized network for the future of the U.S. and its allies. 

Closing 

For Bitcoin and its associated infrastructure to truly thrive, intelligent policy that encourages institutional investment is essential. While many CEOs and top investors own Bitcoin personally, legal and financial thresholds must be met for institutional investment, focusing on risk mitigation. 

Clear and intelligent policies championed by the FPC will enable institutions to invest in Bitcoin, with potential requirements like allied-country mining, a transparent ownership track record, and an emphasis on low-carbon or carbon-neutral mining operations. Incentives for such responsible mining could create future premiums. 

The U.S. and its allies must promptly align policies with Bitcoin Mining’s positive impacts, and engage with anti-bitcoin advocacy groups. The Financial Policy Council (FPC) has a clear role to play in fostering a conducive environment for innovation and prosperity in the Bitcoin mining industry, guided by principles of free enterprise and wealth development.

In conclusion, the future of Bitcoin mining hangs in the balance, with potential regulatory threats and policy challenges poised to stymie its growth. However, by adopting Bitcoin-friendly policies, recognizing the potential of Bitcoin mining for grid load balancing, and promoting its use in institutional investment, we can pave the way for a more sustainable and profitable future.

P.S. I personally joined the FPC because I believe this group of people, together can make a real difference. Through thoughtful action, we at the FPC can bring about more financial freedom while improving our energy grids. If you’d like to get involved please reach out to me, let’s make positive change happen. 

If you enjoyed this post please share it on social media to help spread the message. 

Sources:

1. https://decrypt.co/143214/death-of-anti-mining-bill-means-texas-miners-can-keep-raking-energy-credits 

2. https://www.nysenate.gov/legislation/bills/2021/A7389 

3. https://earthjustice.org/feature/cryptocurrency-mining-environmental-impacts 

4. https://cleanupbitcoin.com/ 

5. https://www.theworldcounts.com/challenges/climate-change/energy/global-energy-consumption 

6. https://www.statista.com/statistics/881472/worldwide-bitcoin-energy-consumption/ 

7. https://cointelegraph.com/news/banking-system-consumes-two-times-more-energy-than-bitcoin-research 

8. https://reason.com/2022/01/25/authoritarian-governments-ban-bitcoin-mining-the-u-s-shouldnt-join-them/ 

9. https://cryptonews.net/news/mining/20843677/ 

10. https://blockworks.co/news/bitcoin-mining-mitigate-power-shortages-texas 

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