Can bitcoin encourage renewable energy development?

At Bitcoin Miami there were cheers when El Salvador announced it was making bitcoin legal tender. It was welcome news after Elon Musk’s tweets about bitcoin mining’s excessive energy use, and El Salvador’s president announcing that they planned to use geothermal energy from the country’s volcanoes to power crypto mining enhanced it.

The bitcoin community is not only celebrating a new Central American haven for the leading cryptocurrency, it is also pointing to El Salvador as being a proving ground for ‘green’ bitcoin. Geothermal plants draw their energy from an existing, naturally occurring heat, in this case it is El Salvador’s volcanoes, meaning they have a minimal carbon footprint. 

Michael J. Casey believes there is an even greater opportunity. He said, “I think El Salvador (population 6.4 million), one of the poorest countries in the Western Hemisphere, has an opportunity to make a far more groundbreaking energy play than the buzz generated by linking a volcano to a bitcoin mine.”

What he suggests is that Nayib Bukele’s government should work with miners, local community leaders and foreign investors to strategically fund the expansion of the country’s electricity coverage, specifically via a decentralized network of cheap, clean, cyber-secure, and community-empowering solar or wind-power microgrids.

As Casey says, there is a narrative about bitcoin destroying the planet that needs to be addressed. Miners prefer low-cost green sources of power and for that reason they can be a considerable force in leading the way to a green energy infrastructure, and not just in El Salvador. Casey adds, “If executed properly, El Salvador’s bitcoin project could achieve a host of the United Nations’ Sustainable Development Goals (SDGs).”

Across the world, bitcoin miners are already tapping into existing renewable or stranded energy sources, such as wasted natural gas destined for flaring and underwriting the development of green electricity infrastructures to serve wider communities. 

Furthermore, Harry Sudock, vice president of strategy at mining infrastructure provider GRIID, told Casey his company is seeing relentless demand from wind, hydro and solar developers for bitcoin mining and that co-locating facilities offers revenue guarantees that allow communities to expand renewables to serve local people. Casey says, “In other words, bitcoin mining can serve as that missing piece of risk capital needed to kick-start infrastructure projects, not only to shift the world toward renewable energy but also to foster economic development.”

He suggests finding funding for “community-based green power projects run as regional microgrids.”

Most importantly, he adds, “if bitcoin miners source their power from local, community-based grids, their payments for it – transferred in newly legal tender bitcoin – will go to those communities, providing a steady long-term source of income.”

We must acknowledge that at the moment bitcoin miners do use large amounts of fossil fuel energy, but the moment to change that is right now.

Bitcoin is legal tender…in El Salvador

On 9th June 2021 something quite historic happened: the government of El Salvador voted to recognise bitcoin as legal tender. The bill didn’t pass with a slim majority, it got a supermajority vote in the nation’s legislature, and it was expected that President Nayib Bukele would sign it into law immediately. The next step after that is to discuss it with the International Monetary Fund.

President Bukelele presented the parliament with his vision for the leading cryptocurrency, pitching it as an effort to boost financial inclusion in a country where only 30% of citizens have access to financial services. Furthermore, he said in a Twitter conversation that bitcoin users would not be pressed to use a government-issued wallet for their funds.

The president also said that the new law would mandate “all businesses to accept bitcoin for goods or services,” but added, “the government will act as a backstop for entities that aren’t willing to take on the risk of a volatile cryptocurrency.” He described how this will work: the government will set up a trust at the Development Bank of El Salvador to instantly convert bitcoin to U.S. dollars and this fund will assume merchants’ risk. It will hold about $150 million in dollars, and will keep the fund topped up by selling bitcoin for dollars.

Bukele ssiad: “If there’s an ice cream parlor, he doesn’t really want to take the risk, he has to accept bitcoin because it’s a mandated currency, but he doesn’t want to take the risk of convertibility, so he wants dollars deposited in his banking account, when he sells the ice cream, he can ask the government to exchange his bitcoin to dollars. Of course, he can do that in the markets also, but he can ask the government to do it immediately.”

Bitcoin mining and volcanic energy

Bukele also indicated that the government may promote bitcoin mining, and it looks as if it is ready to make use of its excess geothermal energy for this purpose. Less than 14 hours after getting approval for his bill, Bukele was talking to El Salvador’s geothermal company, LaGeo and directing them to let power-hungry bitcoin miners plug into his country’s volcanic resources. He tweeted “I’ve just instructed the president of @LaGeoSV (our state-owned geothermal electric company), to put up a plan to offer facilities for #Bitcoin mining with very cheap, 100% clean, 100% renewable, 0 emissions energy from our volcanoes.” The 39-year-old leader then added, “This is going to evolve fast!”

He did admit that he hadn’t really thought about an efficient use for all his volcanic energy before now, but since he had a lightbulb moment, he’s ready to tap into the country’s hundreds of megawatts of untapped geothermal potential as well as a network of underutilized power plants. It’s a well-spotted opportunity and the speed at which Bukele has moved with respect to bitcoin as legal tender and the use of excess energy for mining underscores the levels of power this young president has.

Residency only costs 3 Bitcoin

And there was other good news for anyone looking for a new country of residence: President Bukelele announced that he is creating a new law that will allow any individual who invests three BTC into El Salvador’s economy to have permanent residency. With bitcoin today at $36,841, that means residency would only cost around $110,000. It could be time to investigate the benefits of being an El Salvador resident.

Last night Bukele tweeted, “Every day is going to be a new idea.” As they say: watch this space, and the rest of Latin America.

Banking uses more energy than Bitcoin

When super-tweeter, Elon Musk, announced nobody could pay for a Tesla with Bitcoin because of its detrimental effects on the climate, it caused upheaval with a downward trajectory in the crypto market. It probably seemed rather disingenuous of him to many, as he must have been aware of the energy usage in mining Bitcoin when he invested a billion or so in it and said people could buy a Tesla with Bitcoin. He also needs to look at the recent research study by Galaxy Digital shows the leading crypto is not the biggest climate culprit in finance.

Last week Galaxy Digital Mining released a report titled “On Bitcoin’s Energy Consumption: A Quantitative Approach to a Subjective Question.” They also provided open-source access to their research methodology and calculations. Here are some of the figures.

Galaxy’s mining department estimates Bitcoin’s annual electricity consumption to stand at 113.89 TWh. This includes miner demand, miner power consumption, pool power consumption, and node power consumption. It may seem like a lot of energy, but the banking system and the gold mining industry use twice as much as that every year.

A Galaxy bar chart shows that bank branches, ATMs and card networks use a relatively smaller amount of energy, but the banks’ data centres are massive energy consumers. Given Galaxy’s estimations of power usage by banking data centres, bank branches, ATMs, and card network’s data centres, the total annual energy consumption of the banking system is estimated to be 263.72 TWh globally. 

Furthermore, Bitcoin’s energy consumption is easy to track. You can look at it on the Cambridge Bitcoin Electricity Consumption Index for example. Whereas, trying to track the use of energy in gold mining or banking services is really quite difficult, because banking certainly doesn’t report the energy it uses.

The gold industry utilizes roughly 240.61 TWh per year, according to the Galaxy report, based on the World Gold Council’s data in its report, “Gold and climate change: Current and future impacts.” 

Returning to Musk’s statement that he was concerned about the impact of Bitcoin on the environment, which rightly provoked a barrage of fury from the crypto community, perhaps somebody can inform him that whatever bank he uses is doing far more damage. It would be great if he had the courage to tweet that out and set the record straight.

Top tips for keeping your cryptocurrency wallet secure

If you’re a newcomer to the crypto space it’s likely you’re excited about it, but at the same time worried about security because you have heard the stories about people losing fortunes just because they lost the password to their crypto wallet. On top of that, you may have searched for reliable information about keeping your wallet secure, but haven’t found it yet. It’s important that you carefully consider the pros and cons of how you ultimately decide to purchase, store and transact with your crypto. After all, if you lose your crypto it is gone forever!

How people lose their crypto

Here are some of the ways in which people have lost their cryptocurrency holdings:

Loss

• Human error

(e.g., you send your funds to the wrong wallet, you forget your password)

• Natural disaster

(e.g., your house burns down with your crypto wallet(s) stored inside it)

• Hardware malfunction/loss

(e.g., your computer hard drive holding your private keys is corrupted)

Theft

• Remote theft

(e.g., you fall victim to scams, an exchange hack, or a personal hack)

• Physical robbery

(e.g., your backpack or purse is stolen with your private keys in it)

• Government seizure

(e.g., law enforcement demands an exchange to freeze your account)

I hope none of these happen to you.

Types of wallets

A wallet is a computer programme that stores crypto. Depending on whether the wallet is connected to the internet, crypto wallets are classified as: “hot” (online) or “cold” (offline).

Hot wallets

Hot storage wallets exist on an internet-connected desktop, laptop, mobile phone or

web browser. These wallets are popular because they can be easily created and used

immediately. This means some safety is sacrificed and they are vulnerable to cyber attacks.

Cold wallets

Cold storage wallets exist on devices or physical media that are not connected to the

Internet. Often they are like a USB flash drive. They are safer than hot wallets because private keys are generated and stored offline where they can’t be accessed by cybercriminals, but they can be stolen from you through a physical robbery. The downside is that funds in a cold wallet aren’t as available for spending as those in a hot wallet. The most reliable exchanges, such as Kraken, Coinbase and Binance use both hot and cold wallets so that some funds are always available for immediate use (in hot wallets) to facilitate day-to-day transactions, while the majority are stored offline for safekeeping (cold wallets). When storing your crypto, you should take your own personal financial situation and risk tolerance into account when you  are considering which one of the following storage strategies to use.

The small investor

If you have less than $10,000 in crypto, the best advice is to keep things simple and use a reputable exchange to store your crypto. Kraken, Coinbase and Binance are the big names, but your choice may depend on where you live.

The medium investor

With $10,000 – $200,000 in crypto, you should use a hardware wallet and place a backup copy in a safety deposit box.

The large investor

If you have over $200,000 in crypto, it is recommended you need a trusted custodian, multi signature wallet technology and/or full nodes. Consulting with a professional about this is recommended.

How Do Wallets Work?

Crypto wallets function is a similar way to traditional bank accounts, in that both an “account

number” and “password” are required to access the funds held in the wallet. When you

creates a wallet, you generate a unique cryptographic key pair – one public and one private –

which allows you to send or receive crypto. The public key is like your bank account number, and the private key acts in a similar way to your banking password. Here is an example of how a wallet operates for a transaction:

Example of a Bitcoin Transaction

1. Alice owes Bob 0.02 bitcoin

2. Bob sends Alice his public wallet address to receive payment

3. Alice uses her own private key to send 0.02 bitcoin associated with one of her wallets

to Bob’s public wallet address

4. The 0.02 bitcoin sent by Alice is received in Bob’s wallet.

And that’s how easy it is.

A last word of advice

Don’t store your assets in desktop wallets, ‘brain’ wallets (i.e., memorized private key), or web wallets (i.e., private key held on a website) as these wallets offer low security. If you are going to buy a hardware or software wallet, buy it from a reputable authorized retailer and not from second-hand stores, such as eBay.

Finally, every crypto owner must have a plan for their crypto when

they pass away. If no plan is put in place, your crypto assets will die along with you.

It’s essential that every crypto owner includes their crypto asset holdings in

their will and teaches one or more trusted individuals (i.e. family members) how to access

their crypto funds in the case of severe injury or death.