Bitcoin is a decentralized digital currency that was invented by someone using the alias “Satoshi Nakamoto” in a paper called “Bitcoin: A Peer-to-Peer Electronic Cash system”.
Unlike other currencies, the amount of Bitcoins is capped at 21 million, and this limit will be reached around 2040. If you haven’t noticed, Bitcoin has entered the mainstream and been on a tear the last few months.
New bitcoins are created via an energy intensive computer process called “mining”. Miners are basically providing a record keeping service that keeps the system consistent, complete, and unchangeable by repeatedly verifying and collecting new transactions broadcast through the network. The miner who successfully verifies the latest group of transactions (called a block) by solving a math puzzle is rewarded with Bitcoins.
When Bitcoin first came out, it was possible to successfully mine new coins using your personal computer. Today, the probability of someone using their personal computer to successfully mine new coins is very small. Most miners group themselves together into pools with massive computational power, and then split the reward.
However, with massive computational power comes massive energy consumption. A single Bitcoin transaction could power the typical U.S. household for roughly five days – remember it takes the entire Bitcoin network to solve a math puzzle that is required to verify a new group of transactions. Right now, the Bitcoin network uses more electricity than countries like Iceland.
With the advances in renewable energy, Bitcoin miners of all sizes can legitimately take advantage of negative electricity pricing in renewable energy rich regions to reduce the cost of their mining operation.
In some US States, such as California, utility companies are paying businesses to absorb excess grid electricity during an overcapacity scenario. This scenario occurs when the grid is receiving too much power, and may have to shut down some power plants in order to balance the electricity production with the demand.
With the adoption of renewable technology such as solar power, overcapacity scenarios are occurring more frequently. The is because solar power cannot be scheduled like a fossil fuel power plant – since the sun follows its own schedule. When the sun is out and solar panels are producing electricity, there is less demand for power from the grid.
From the electricity grid operator’s point of view, all they see is a reduction in demand for their power during the middle of the day. As more solar power comes online, the electricity demand curve will start to look like a duck.
In the graph above, the dip in grid electricity demand between 9:00 AM and 6:00 PM is the zone where negative electricity pricing is likely to occur. If Bitcoin miners can obtain and store electricity during the negative pricing scenario, they will be able to use this cheap power for mining purposes later.
Of course, you can also use solar energy directly to power your mining operation. A typical home requires about 20 square meters (215 square feet) of 15% efficient solar panels to power it.
If your Bitcoin mining operation doubled the electricity use of your home, then you can expect that 20 square meters of solar panels to provide enough power to run the computers. The only caveat is that you will need to employ energy storage (since the sun doesn’t shine all day) to provide a smooth flow of electricity to the mining operation.