As bitcoin and other cryptocurrency values continue to rise, the sheer number of cryptocurrency transactions rises as well. By now, almost 500,000 unique bitcoin transactions are taking place every day, with the number increasing exponentially over the last six months of the year.
So what does cryptocurrency have to do with what is often viewed as a very staid and traditional electric utility business? On the surface, the cryptocurrency and electric businesses could not seem more different. The electric utility business began in the 19th century, while bitcoin is less than a decade old and internet-dependent. But in reality, the operability of bitcoin and other cryptocurrencies relies on massive computing power distributed around the world because of the nature of the technology that makes cryptocurrencies possible. And that computing power requires massive amounts of always-on electric power.
Because there is no central bank for cryptocurrencies, all bitcoin transactions are logged in the “blockchain.” These transactions are publicly available and tracked by all of the computers that “mine” bitcoin so that each transaction is confirmed by the peer network to be spent only by the “address” that owns them, which controls against fraud or double-spending. Each transaction typically takes a few minutes to be verified because it must be broadcast to the computers on the bitcoin network that perform the analysis needed to verify each transaction (which are compiled in pending “blocks” of transactions approximately every 10 minutes). These computers are “mining” bitcoin, and in exchange for the computer power they lend to the bitcoin community, they can earn bitcoin as well in transaction fees. Because the value of bitcoin has been rising precipitously—if subject to heavy fluctuations—the individuals and companies that mine bitcoin can make substantial amounts of money in exchange for the use of their IT systems and—importantly for utilities—the electric energy those systems use. And that energy usage is increasing even more because the more computers that mine bitcoins, the greater the complexity of the algorithms they must solve in order to earn bitcoins in analyzing each blockchain.
As of the end of 2017, bitcoin mining is estimated to consume about 0.16% of the entire electricity used by the planet, with a current estimated annual electricity consumption of 36.32 TWh. In an average day, approximately 99.5 million kWh are used to mine bitcoin. A single transaction consumes 252 kWh of electricity, enough to power eight-and-a-half US homes for an entire day.
The energy demand of bitcoin mining could provide an opportunity for electricity utilities in the US that have been experiencing very modest load growth over the past several years without an expectation that this could change in the future. Bitcoin miners require constant operation with no fluctuations in the availability of electric power that could take down their networks. Utilities, with decades of experience in providing constant and reliable power to sensitive industrial uses, are well-positioned to supply the power needs of bitcoin miners. At the same time, because of the growing environmental concerns about the power needs of bitcoin mining, electric utilities can take the lead in developing and arranging to provide low-carbon or zero-carbon power to bitcoin and other cryptocurrency miners. Ultimately this load demand will continue to grow and needs to be served by utilities in some way. The utilities that can serve these new customers in a suitable and low-carbon manner could see fundamental and long-lasting increases in their overall customer demand, providing substantial financial benefits.
Because widespread bitcoin mining is so new, the legal foundation for significant utility relationships with bitcoin miners will need to be fleshed out. The legal challenges could be significant, and include everything from designing power purchase agreements that meet the energy needs of bitcoin miners, to handling liability from service disruptions, to using distributed power and energy storage solutions to provide continuity of service. Because bitcoin mining is location-agnostic, dependent only on internet communications and computer power, utilities throughout the United States may be in a position to compete for this business. The utility that solves the quality of service and legal concerns created by significant bitcoin mining operations could have a headstart in attracting this business and the base load that comes with it.