BITCOIN MINING – THE ANSWER MONETIZING STRANDED ENERGY?

Cryptocurrency has been around since 2009, when Bitcoin software was first made available to the public. It continues to be one of the most hotly debated global financial topics.

But could it be the answer to monetizing stranded energy? And provide a technology solution for Africa’s energy infrastructure?     

This is exactly what Marathon Digital Holdings addressed at PAS24. Billed as one of the largest, most energy efficient and most technologically advanced Bitcoin mining companies, Marathon hosted their session at 11:00am on Day Two of the summit.

We caught up with Charlie Schumacher, VP Corporate Communications, and asked a few questions in advance...

We have to ask – what is bitcoin mining?

Bitcoin mining serves two functions.

The first is the processing of Bitcoin transactions and adding Bitcoin transactions to the Bitcoin distributed ledger.  If you think of a stock market, there’s a bunch of people trading shares back and forth every day and there's someone who has to keep track of all of that.  At the end of the day, they settle all the accounts to make sure who owns what shares and that everything is processed correctly. In the Bitcoin world, there is no central authority to do that.  So, the solution was actually to make that process competitive.

It’s a competitive game that miners play, and they all compete to try to process transactions for people as quickly as they can. This process is called Proof-of-Work. Whoever is successful in processing the transactions first and adding a block of transactions to the blockchain, is awarded with Bitcoin. 

And they're awarded in two forms of Bitcoin. One is the fee associated with those transactions. Just like if you swipe your credit card, there's a fee that you or the merchant pays in order to pay the provider for processing the transaction. People also voluntarily pay transaction fees to incentivize miners to try to process their transactions, so miners receive fees from processing transactions.

But miners also receive what's called a block reward. This is an amount of Bitcoin that is completely new. So, this is how new Bitcoin is introduced into the marketplace - which is actually where the term mining comes from. 

If I could sum it up again, miners are competing to try to earn Bitcoin. They do this by competing to process people's transactions on the Bitcoin network.

And do you think people find it scary? (maybe because they don't understand it?)

I think some do, but I think that's just because people are fearful of things that they don't understand.   

If I think about some of the concerns that people might have around Bitcoin mining, there are two that come to mind.

One is that Bitcoin miners are detrimental to the environment. There's some historic truth in that. Back in the early days of Bitcoin mining, from 2018 to 2020-2021, there were some miners who turned on old fossil fuel plants because that was where there was cheap electricity.

And to be fair, Marathon was actually part of that. Our first large facility was a stranded coal plant in Montana that was on a Native American reservation. We helped reenergize that facility, which created a lot of jobs.

But it also meant that we were part of that narrative of a company that had turned on a fossil fuel plant. And that was not who we wanted to be.

So, we ran that Montana site for a little over a year, and then we moved out of it.  We wanted to make a consistent and concerted effort towards renewable energy.

And today, we as a company are 55% sustainably powered.The world has moved on. Our sustainability mix is pretty close to where the industry is as a whole.

So, I think if people are fearful of the environmental narrative of mining, it's mostly because they don't have a sense of how fast the industry changed.  I don't know of any other industry that has gone from its inception to being over 50% sustainably powered as quickly as the Bitcoin mining space has.

It just takes time for people to understand and realize how fast we move. As an industry, it's a very, very fast paced place to work.

The second fear is a concern about the amount of energy that Bitcoin miners use and the fear there, I think, comes from the concern that miners will compete with consumers for energy, which is not the case.

It would not be economical for miners to do that – they can’t pay the same types of electricity rates that consumers can or that business or that average businesses can. And so they don't.

Miners tend to locate at places where there is either stranded energy or where there's no off take for that energy. This is where the energy consumption is a feature and a huge benefit that hasn't quite been realized yet. Bitcoin miners are very good at consuming energy.  They do use a lot of it, but they don't use the same type, and they can't pay what consumers do.

This means they are willing to go anywhere to find cheap access to power. And what that means is that they are a perfect first customer for anyone who is looking to build out new power or energy infrastructure.

For example, if you wanted to build a new solar farm in the United States, which is where I'm based, it can take on average, five years to receive transmission connection.

So even if you're able to go through the capital raising process, and you're able to work through the regulatory process, and the construction projects process and actually get your site up, it may sit there for five years before you have the ability to actually sell to the grid and have a customer. But in the meantime, you could partner with a Bitcoin miner who could be your first customer, locate directly on your site, and help incentivize the build out of your facility.

 And this is where we think mining can be extremely exciting for the continent of Africa.

    
What actually happens in a Bitcoin mining facility?    

 Well, mining isn’t really a great term for what we do, because when you hear the word mining, you tend to think of a coal mine or gold mine or diamond mine.  

But a Bitcoin mining operation is just a data center.  That's all it is, and there are different design styles for them. Each one will look a little different, based on the environment and the source of power and the size and the amount of equipment.

They can vary from looking like warehouses full of computers, to shipping containers full of the same, through to the most technologically advanced sites.

We have one in Abu Dhabi with containers full of immersion fluid that the servers sit in. There’s no noise, no dust issues - just racks of servers immersed in liquid to keep them cool as they're operating.

 
There have been concerns about bitcoin mining's carbon footprint – what would you say to this?

People love to make comparisons and say that Bitcoin mining uses more energy than this city or this country, but it's not really an apples-to-apples comparison. 

 If you’re talking about the energy Bitcoin uses, you're just talking about the input cost, and you can't objectively decide if something is good or bad without considering the output.  

For example, would you say that electric vehicles are bad because they use a lot of energy? Well, no.  You have to put them into context and look at what the alternatives are and the benefits they provide to people.

When it comes to mining, miners do use a lot of energy. But they use less than people think on a global scale.

And the industry itself is becoming much, much more efficient, which basically means we're getting better at processing Bitcoin transactions and securing Bitcoin with less energy.

Or to put it another way, we're becoming more efficient at converting energy into economic value, which is one of the ways that we think about what we do.

The other way to think about it, as I was saying earlier, is that you can incentivize the build out of new energy infrastructure with it.And that’s what’s really exciting about it. 

The world needs more energy, not less. There is a very, very clear correlation between the amount of energy produced or used and human standard of living, which becomes very obvious in places where there are either inconsistent sources of power or not enough power.

If the world needs more energy, ideally what we would be able to do is incentivize the construction of that energy or the build out of it with economically sustainable models, and Bitcoin mining, we believe, is one of the great ways that you can start to do that.

Bitcoin miners are a phenomenal first potential customer for new renewable energy projects or other power infrastructure.

Once the infrastructure is built and you can start supplying it to other people, then you have a choice. The miner can stay there and serve as what's called a base load consumer, using the energy when no one else is using it.

Or if you have so much demand for energy once you've built your project out, then the miner can just leave and go somewhere else.  This is a very flexible solution for what you might want to do with any new energy infrastructure.   

And to go back to specific point on the carbon footprint, I think those critiques come from a valid historical place in some instances, but they are not a reflection of how the industry has evolved or the direction it's headed.

     
How do your advanced technologies support the energy transition?

It’s really what I was saying earlier – the idea that these are data centers that can serve as the first customer or the incentive to build out new power infrastructure. 

But, as well as being location agnostic technologies, that can be deployed anywhere, miners are unique in that, while they ideally have consistent power, they don't have to have it all the time.  

This is in contrast to what an artificial intelligence or a high-performance computing data center would need, such as Amazon Web Services, for example.  

Unlike almost any other data centers out there, miners can actually be turned on and off.

So, as well as being fantastic if you want an early consistent consumer of power, they're also great if you're in a situation where you only need a large amount of power to be consumed at certain times of the day. This is particularly useful for solar, for example.

In a place like Texas, the majority of energy consumption or electricity consumption is from 4:00PM to 10:00 PM, which is not when solar is most productive.

So, what do you do with an asset that's being underutilized when there's no one to actually consume the power? Well, that's when you could turn on your Bitcoin miners to make sure that you, as a solar provider, have a customer. Then later in the day, when other people need your power, you can ramp down the Bitcoin miner and start feeding that energy to other people.

 

Without giving too much away in advance of your session, what are you most looking forward to talking about at PAS24. and what do you think Africa can gain most from?

 There are a lot of things that excite me about Bitcoin mining. One is the ability to reduce emissions. We’ve done this with a pilot project on a landfill, where we've actually reduced methane emissions by using the methane to power our machines. So, we’re looking forward to talking about that.

Plus, there are two things that Bitcoin miners are very, very good at. They're very good at using a lot of energy, and they're very good at producing heat. So, we approach our business by looking at these as benefits or services and starting to ask the question - who could this be valuable for?

I think that's the thing that’s most exciting for us when look forward to meeting people at Powering Africa Summit - we think that we can help incentivize the build out of new energy infrastructure across the continent.

 And that's something that I don't think is really on people's radar. We've had some positive conversations in certain countries in Africa, and there are some Bitcoin miners that operate there, but I don't think people quite understand how much of an opportunity that could be for everyone involved.  

 And then if we're successful in doing that, the second thing I would be excited about is that, if we're up and running, we then have a facility that's producing a lot of heat.  This could be used to heat homes or buildings in countries where it’s needed.

Or in food production - to heat greenhouses, or in aquaculture, such as shrimp farms, for example.  This is a little bit further down the road though. Building out the power infrastructure comes first.

 

Who are you most looking forward to meeting at PAS24?

Anyone who will listen! Whether that's people who actually run companies themselves and are looking to build out new infrastructure, or policymakers who looking for ways that they can help incentivize energy.  

Our industry has had a tendency to speak to itself - it can feel a little like an echo chamber at times. And the people we should really be communicating with are the people that we actually can help.

I'm really excited to meet people for whom this is a new concept, a new idea, and who are looking for ways to build out more energy infrastructure across the continent. 

Anyone who is on the same mission as us and feels they are aligned with us– we would love to talk.

Meet the Marathon Digital Holdings team at Powering Africa Summit 2024.