Payments firm Square and Ark Invest have published a paper arguing why they believe greater adoption of renewable energy will be encouraged by adding Bitcoin miners to solar and wind installations. We’re surprised they didn’t involve Tesla for reasons stated later.
For years, data has shown how much energy the Bitcoin blockchain network consumes. As investors and enterprises engage with the cryptocurrency, there are increasing ESG concerns about involvement with Bitcoin and the current version of Ethereum. Which in turn could mean investors drop companies associated with Bitcoin.
Bitcoin maximalists like to claim that a significant proportion of the energy consumed by Bitcoin is renewable. However, one flaw in this argument is these figures are self-reported by Bitcoin miners that are fully aware of Bitcoin’s energy hungry stigma. To be blunt, there’s an incentive to either fib or outright lie.
Another flaw is that even where sources are renewable, that energy might be capable of use for more productive purposes, like providing power for something else. That’s precisely what Square and Ark are trying to address.
Square and Ark’s proposal is worth some level of consideration. Ark is a major investor in the crypto sector as well as in Tesla, which has also associated itself with Bitcoin by holding significant amounts on its balance sheet. Hence some on the Twittersphere dismissed any suggestions as self-serving.
However, Square’s activities have been very pro-Bitcoin but also thoughtful. PayPal, Visa and Mastercard may have grabbed more headlines for cryptocurrencies. But if blockchain and cryptocurrencies are going to lower the cost of payments, not just for payment providers but for consumers and merchants, we suspect that Square is one to watch.
The argument made by Square and Ark is that for renewables installations, instead of it just being a solar panel and a battery, a Bitcoin miner should also be added. The idea is to prioritize renewable energy generation for productive uses and only use it for Bitcoin mining at times when it’s not optimal for generating or storing energy. By adding the Bitcoin miner, the argument goes that renewable resources have a better economic payoff, encouraging significantly more renewables investment.
Given that solar and wind are variable sources of energy, and demand for energy is very peaked during the early morning and evening, there’s a need for battery storage. The battery cost makes the whole cost benefit payoff less attractive, which is where the Bitcoin miner comes in.
Various car companies of late have been experimenting with using electric cars for excess household solar energy storage.
Tesla is known for its Powerwall and obviously its cars also have batteries. A somewhat flippant suggestion would be that Tesla could bundle Bitcoin miners. The company used to be the poster child for the cleantech sector, but its Bitcoin activities have triggered some disappointment.
Potential for greenwashing
There are also greenwashing concerns with the Square, Ark proposal. Potentially this sort of thing could attract ESG investing because it encourages renewables. The challenge is that when it comes to Bitcoin, greed is a major factor.
What’s stopping someone from taking ESG funding and then reprogramming an installation to use all the energy for mining Bitcoin? Another flippant suggestion: use blockchain for monitoring. But to prevent tampering, that would require some secure hardware which would increase the installation cost.
There’s an argument supporting the Square, Ark idea that we haven’t seen made. Currently, Bitcoin is in one of its bull phases. In the past, it’s had some pretty major bear markets. Assuming that happens again, the proportion of energy used for productive purposes could end up being 100% during those periods.
On the negative side, if the concept took off, this could dramatically increase the demand for semiconductors, for which there is currently a shortage of supply. And this might displace productive uses for semiconductors.
The author does not own or have any exposure to Bitcoin