Bitcoin and Energy @ Texas A&M

Business

The Economics of Open Source Solar Powered Cryptocurrency Mining

McDonald, Montana, Heibo, Kansas, F. Hafting, Pierce, Joshua M. Pierce/Wikimedia Commons

Hello Bitcoiners!

Last year, I helped launch Texas A&M Blockchain and Energy Research Consortium. This is an interdisciplinary group of business and engineering faculty who seek to understand the intersection of energy and Bitcoin. Our first workshop was last semester, where he brought 50 people from all over Texas together to introduce our research group. The main points are:

Business voltage ride through

We first introduced a tutorial on voltage ride-through issues in the Texas power grid. Power outages may occur throughout Texas. For example, a tree could fall on a power line or a wind turbine at a wind farm could fail. The question is how to respond to such service interruptions.

This is important for Bitcoin mining because industrial miners are large flexible loads (LFL). Industrial Bitcoin mining in Texas is no small potato, and its scale is massive. Publicly traded companies like Riot have up to 1 gigawatt of facilities across Texas. What makes these loads unique is their flexibility. That means you can turn it on or off for just a penny. Historically, this has been a huge advantage for the Texas grid. When demand spikes, the price starts to rise, and Bitcoin miners rationally stop mining when costs rise. This is a “demand response” – a rational change in behavior in response to market prices.

The flip side of the coin is that LFLs, like Bitcoin miners, can amplify voltage interruptions across the power grid. Because of the heavy load, a 600-megawatt outage could have ripple effects. If the interruption is prolonged, miners can choose to temporarily take down their machines, but this also makes the grid unstable as large loads can quickly go offline.

One of the Ph.D. Students in our group performed several experiments on an ASIC S19 that was donated to our lab by the Texas Blockchain Council last year. He discovered that his individual ASICs could “survive” voltage interruptions on their own. But questions still remain about how hundreds of his ASICs can be connected and function. There may be hardware innovations here that help Bitcoin miners survive larger and longer voltage interruptions.

Business Miner vs. Data Center

Other large loads on the power grid, such as data centers and hospitals, have solved this problem by installing backup generators to accurately respond to these voltage interruptions. This makes sense for businesses because end users (Internet consumers and patients) expect uninterrupted service. However, rather than serving Bitcoin users directly, miners serve the Bitcoin network, which operates on a global scale. Even though 17% of the world’s Bitcoin hashrate comes from Texas, an interruption in the Texas miner’s voltage will not significantly change the security of the blockchain.

More specifically, miners today receive the majority of their revenue from block grants issued by the protocol, rather than directly from Bitcoin users. The protocol allocates block subsidies to whoever mines the next block on the global Bitcoin network. If Texas miners temporarily lose power, they will either temporarily stop participating in the global Bitcoin lottery or temporarily stop contributing hashing power to mining pools. Either way, the miner can come back online and resume hashing with little penalty from the market.

One might think that the penalty for voltage interruptions would increase if miners earned more from transaction fees, but this would occur over time as the block subsidy decreases. Still, the protocol only awards block rewards to miners (or mining pools) that successfully block. This “reward for performance” is a feature, not a bug. This ensures that Bitcoin senders only pay transaction fees after miners add blocks to the ledger. A mining lottery ultimately insulates users of the Bitcoin network from the details and vagaries of mining. Voltage interruptions are clearly a miner’s problem, not a user’s problem.

This is the main difference between a miner and a data center or hospital. A power outage could disrupt the surgery and complex AI calculations on his AWS servers. Therefore, the downside costs are much higher. But miners face no such downside, so they have no incentive to pay for expensive backup generators themselves.

Business Policy response

The concern for Texas transmission operator ERCOT is that these flexible loads could amplify the ripple effects of voltage interruptions and impose negative externalities on the rest of the grid. As a result, ERCOT is considering requiring miners to install backup generators. This is a mistake because it would impose onerous regulations that punish miners who act in their rational self-interest, without clearly identifying the costs of negative externalities.

The standard economic solution is to accurately measure that externality and implement it through a price mechanism. This allows miners to internalize any externalities they are imposing. This would at least use prices to induce behavior, rather than imposing an obligation to impose fixed costs. Whatever policy ERCOT chooses, the economic landscape will tilt slightly in favor of off-grid and on-grid mining.

Stay tuned for developments in this new policy agenda.

Dr. Korok Ray is an associate professor at Texas A&M University’s Mays School of Business. He teaches the Bitcoin protocol. He founded the Maze Innovation Research Center and the Southwest Innovation Research Lab. subscribeGo to his Bitcoin newsletter Principles of BTC.substack.com

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Source link: https://www.forbes.com/sites/digital-assets/2024/05/05/bitcoin-and-energy–texas-am/

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