My Take on Cryptocurrency

Dear readers, here is my take on cryptocurrency, the most well-known of which is Bitcoin, held in on-line, password- secured accounts. I don’t own any of this, unless one of my retirement funds has invested in and holds a tiny fraction of its portfolio in one cryptocurrency or another, unbeknownst to me. That does NOT mean I am disinterested in the phenomenon, and especially its “mining,” or creation via running endless computations through networks of computers (so-called “data centers”), thereby consuming electric energy that Texas may be scarcely equipped to provide during extremely high demand times (very high or very low temperatures).

If we consider ONLY Bitcoin, the “original” form of cryptocurrency, there are over 19 million now in existence, and only 21 million Bitcoins in total can ever be created via the mining process. This process gets more and more rigorous, as the 21 million limit is approached, so that mining bitcoin gets more costly and slower as the years go by, each bitcoin burning through more power to produce than the last one. Thus, it could be as long as the year 2140 until the last bitcoin is created, and the electric grid would of course need to grow significantly to make that possible.

What will the Texas electricity grid look like in 2140? I have not one clue. What I do know is that there are some really idiosyncratic ways in which the Texas grid is interconnected to Bitcoin manufacturing right now, ways that we are forced to live with, like it or not.

Consider this: China banned Bitcoin mining in 2021 (hmmm. . . what do they know that we don’t?), the same year that Gov. Greg Abbott signed into law his “Master Plan” to attract Bitcoin miners to Texas. Now, Texas is home to the largest Bitcoin Mining site in North America, Riot Platform’s plant in Rockdale, TX, in addition to unknown others scattered all across the state, likely including in Fayette County. Other large Bitcoin mining firms said to have operations in the state include Galaxy Digital, Core Scientific, and Marathon. In two years, the US global share of Bitcoin mining rose from 3.4% in 2020 to 38% in 2022, a good deal of it in Texas [more recent data not available].

Recent Legislative hearings in Austin revealed electricity demand projections in only six years somewhat less than double what they are today, growing from 85 Gigiwatts now to 150 GW in 2030. These numbers, of course, are always speculative, and especially so now because bitcoin miners are not sharing their power consumption data with anyone, both due to its “proprietary nature,” and also because their contracts with energy providers have all sorts of private special arrangements, including ones that allow the firms to purchase and draw down energy from the grid at cheap prices, and then sell it back at the highest possible prices later, thus making NOT producing Bitcoins at times more profitable than producing them!

This is essentially another form of “energy arbitrage,” a term that got its previous major popularity in the Enron collapse in 2001, an event of which economists are still debating the overall negative economic effects. S&P Global, a financial news reporting website, reported in December that Riot Platforms, Inc., during the third quarter of 2023, showed revenue of $50 million in “power curtailments” payments (credits for NOT using power it could have used from the grid), more than it made from Bitcoin mining during the same time period. Does this make sense? I’d get it that a power company would contract with them to give them cheaper power if their supply could just be turned off when demand was extremely high, but to sell them cheaper power when they want it, AND to pay them millions of dollars for consuming none?

Just what is the redeeming social value of Bitcoin in the first place? Inflation hedge? I’d use gold: it’s got a proven track record, and prices are far less volatile than Bitcoin. An untraceable currency? Yep: this also makes life easier for crooks and scammers. For ease of foreign remittance? Maybe an argument there, but does that make the extra load on our electric grid worth it?

Be careful where you put your money, dear readers. A wallet of greenbacks might well be safer, more energy-efficient, environmentally friendly, and you can’t lose it if you forget your password!