Bitcoin Mining: Power Games
It's All About Power, Always Has Been
Since December 25, 2022 the Bitcoin network has risen from 238 EH/s to 358 EH/s — that is an increase of 33% in a very short amount of time. I recently published an article with Simply Bitcoin with my pontification over where the rapid rise in power has been coming from. Today, let’s explore just how much power this rise represents. A brief, fun, nerdy exploration.
So, for this exploration we’re going to want to assume the most efficient, less impactful reality. This means we are going to have to assume that the hashrate that has come online is entirely made up of the top of the line, most powerful, newest ASIC miners. Don’t come at me with the “bUt MiKe YoU sHoUlDn’T bE mEaSuRiNg In FiAt As A mAxI” — shut up nerd I’m thinking in reality. Big players will be most likely dealing in a dollars-per-miner return. So that is what we will be basing this thought experiment on. With those considerations, I would suggest that we use the S19 XP Hyd and S19 XP from Bitmain.
S19 XP Hyd. — 250 TH @ 5.2kw
S19 XP — 140 TH @ 3.01kw
So, that 33% increase in the network hashrate (or 120EH):
238EH/s —to— 358EH/s = 120 EH/s increase
For that increase let’s assume the hashrate was deployed completely in either the XP Hyd. or the XP. The math breaks down as such:
1 EH = 10,000 100TH/s miners = 1,000,000 TH
1,000,000 TH / 250TH miners = 4,000 XP Hyd.’s
1,000,000 TH / 140TH miners = 6,000 XPs
4,000 S19 XP Hyd.’s or 6,000 S19 XP’s
that’s…
20.8 MWh or 18.1MWh per EH/s in power-draw.
and taken to account for the rate of increase since Christmas, we get…
(5.2KWh x 4,000) = 20.8 MWh x 120 = 2, 496 MWh, or 2.496 GWh
(3.01KWh x 6,000) = 18.1 MWh x 120 = 2,172 MWh, or 2.172 GWh
How Much Energy Is That?
According to Energy.gov “the typical nuclear reactor produces 1 GW of electricity.” Running off that statistic we would be needing to have had essentially 3 nuclear reactors to have spooled up and operating just to facilitate that expansion.
I don’t know about you guys… but I haven’t read of any new reactors having been completed in the last 4 months. So if that’s not the case, let’s say that the hashrate was deployed by our friends in the Oil & Gas sector; Exxon, Chevron, Shell, and ConocoPhillips.
Natural Gas’ electricity production breaks down as follows:
10 cubic feet per 1 KWh…
That’s…
10,000 cu ft / 1 MWh
and…
10 million cu ft / 1 GWh
According to EIA.gov:
“In 2022, U.S. natural gas consumption averaged a record 88.5 billion cubic feet per day (Bcf/d)—the highest annual natural gas consumption, according to records beginning in 1949. U.S. natural gas consumption last year increased 5% (4.5 Bcf/d) from 2021, the second-fastest year-over-year growth since 2013. Natural gas consumption in the United States set monthly records in 9 of 12 months in 2022, based on our Natural Gas Monthly.”
With the US consuming 88.5 BILLION cubic feet per day of natural gas… the consumption required to yield the 33% increase in Bitcoin network hashrate amounts to 0.03% of the average daily consumption of the entirety of the United States of America.
As referenced in the last writing, Dr Anas mentioned the surprise to the sector of more gas yield than was expected out of New Mexico. Which could have been some of the sourcing sure, but don’t forget that there have been pilot projects being run in the Bakken and Permian basins for a few years running now. But more importantly; consistently increasing their presence and interest in the space.
My point being: we are likely witnessing years worth of pent-up demand being deployed all at once in a relatively short timeframe. Between backlogs on deliveries of ASIC miners, to complications sourcing chips, there has been plenty of reasons for many of these deployment schedules to have been pushed back in the last 3 years. Not to mention with the fears of having adequate access to reliable energy in Europe, that natgas was in greater demand elsewhere, meaning more money for the producers. But now? Europe’s natgas storage reached its objective months ago, and they had a mild winter. Mix that with the bankruptcies and hardship hitting the bitcoin mining space for the past 9-10 months, competition has been limited. If not stunted. Leaving a window of opportunity for larger players that have been waiting on the sidelines, as well as those current players that managed risk properly and have been waiting for the opportunity to expand by gobbling up assets on the cheap cheap.
And this is also just considering from an American-centric-influences approach. Don’t forget, bitcoin mining is global, there’s plenty of other areas that have lots of interest in this space for very real-world applications to assist in efficiency gains in operations. I would recommend that the reader keep an open-ear out for developments in the Middle East and South American arenas.
Think Outside The Box
The big box miners are not where the money is. Sorry Marathon and Riot, but your business plans are likely on the fast-track to irrelevance relatively rapidly. These projects will be able to provide a service to the inner-city grids, but that growth margin will likely be very limited. Bitcoin mining is destined for seeking out the cheapest energy at the source, and that is precisely what is happening, and is precisely what many of us have been ranting about for years now.
Going forward, look to expect bitcoin miners to become specialized in providing support for projects that are spooling up energy generation in new areas (particularly new nuclear reactors, Small Modular Reactors, and in the geographically stressed, untapped locations). Bitcoin doesn’t have to win the hearts and minds of the bankers or the politicians, the energy producers and the grid engineers are the true meal-ticket to adoption and shifting of public opinion.
*The best part? The banking & investing side has been getting a painful lesson in bitcoin’s validity as of late with the Silicon Valley Bank & First Republic Bank fallouts.
Wild times folks! Stick around, stay solvent. And I’ll be sure to celebrate with you on the other side of all of this.