Executive Summary
- Bitcoin is global money powered by electrical energy.
- Bitcoin uses electrical energy in the form of computation, ~150 TWh per year globally, to add and verify blocks of transactions on a distributed global financial network.
- Bitcoin data centers as large, flexible loads support power generation assets struggling with congestion, curtailment, and negative pricing.
- Bitcoin is a better form of money, opening up new avenues of financial innovation.
- Bitcoin is creating unprecedented purchasing power for energy consumers.
Why should I care?
Similar to the internet in 1999, where the first 250 million users were considered mere hobbyists, bitcoin adoption is set to disrupt traditional finance while ushering in an abundant and sustainable energy future. Since its creation in 2009, The Bitcoin Network has quietly grown into one of the world’s leading financial systems:
- The number of global bitcoin users is approximately 250 million, with 86% living in developing countries.1
- Total power capacity securing the financial network has grown to about 20 GW, significant from a network security standpoint but still less than 0.3% of total global power capacity.2
- The total market capitalization of $500B+ is comparable to a top 100 global bank in terms of total assets, and makes it the 18th largest currency in the world.
- Well known traditional financial institutions are providing a variety of financial services for individuals and institutions.
- Major energy companies are making direct investments in bitcoin data centers, with many more to come.
- A growing ecosystem of infrastructure service providers make it practical, secure, and inexpensive to transact in bitcoin.
Energy innovators are blazing the trail for the electric grid to become more sustainable by investing in an abundance of low cost renewable energy. This bold vision will leverage tools such as energy storage, demand response, and dispatchable generation for reliability. Savvy industry leaders are also learning that bitcoin is an indispensable part of this future. Understanding bitcoin is one of the best ways that you, as a leader, can be part of the bedrock of our sustainable energy future.
Why Bitcoin?
Bitcoin, the most advanced form of money ever created, combines the speed and scale of the dollar with the strength and stability of gold by powering a digital financial network with the lowest cost energy globally. In order to understand why energy is needed to make bitcoin a technologically superior form of money as compared to dollars, gold, or other digital money, we must first understand how money works. The primary functions of money work together like a three legged stool:
- Store of value - the asset retains purchasing power into the future
- Medium of exchange - the asset can be used to purchase goods and services to avoid the limitations of barter
- Unit of account - the asset provides a standard measurement of the market value of goods and services
Bitcoin as a store of value
We are experiencing the very early days of global bitcoin adoption, and its ability to store value over time has been aptly demonstrated. The basis of bitcoin’s value, as with any market good, is the balance between supply and demand. When demand increases and supply stays the same, value increases. Demand for bitcoin tends to grow as more users learn how to earn, custody, and spend their bitcoin. Supply of bitcoin, on the other hand, is strictly limited to a maximum of 21 million, and the supply schedule of newly minted bitcoin, via the process of mining, was programmed at creation in 2009. This fixed total supply, and the schedule with which it is created, is a key monetary characteristic and value proposition.
“Bitcoin mining works by adding blocks of transaction records to Bitcoin's public ledger of past transactions (the blockchain) for a reward of newly minted bitcoin (the block subsidy) and transaction fees (also paid in bitcoin). In order to perform this function, individual miners dedicate specialized computation (called hashrate) toward the proof-of-work algorithm (i.e. they expend energy) in a global competition for the mining reward.” Energy Backed Money, Satoshi Energy, 2020 3
Representing 0.1% of global electrical energy consumption, bitcoin data centers secure the bitcoin ecosystem with about 150 TWh per year of the total 25,000 TWh produced.4, 5 As a large industrial user of electricity, bitcoin data centers have the ability to utilize existing non-economic and intermittent renewable generation, thus monetizing otherwise stranded energy. As a flexible user of electricity, they can shut off within seconds of a request by the grid operators, adding much needed stability and demand reduction to the system at critical times. In contrast, since 1971, when the gold standard supporting the global U.S. Dollar system was abandoned in earnest, an accelerating torrent of unsecured money printing has led to an astonishing decline in purchasing power exceeding 80%, and most other fiat currencies have fared even worse.
Bitcoin as a medium of exchange
A medium of exchange is anything used to purchase goods and services while avoiding the limitations of barter. The fundamental limitation of barter is that in order to trade with someone, they must possess something that you want. If you are selling apples and your neighbor only sells shoes, you may not need shoes. Instead, your neighbor could give you some bitcoin for the apples you produced which you can then use to buy something else you need at a later time - making bitcoin the medium of exchange. What makes bitcoin unique as a medium of exchange is that it enables fast and final cash settlement over any communication channel, such as the internet. With bitcoin, money can be sent anywhere in the world at any time of day, any day of the week, and any day of the year with only a few lines of code. Traditional banking is fundamentally incapable of providing the same level of speed, visibility, settlement assurance, and availability. The modern foreign currency markets, for example, have essentially uninvented this feature of money, as you have to barter for a local currency before you can actually purchase a good. In the case of power markets, bitcoin provides an opportunity to drastically improve the financial supply chain by enabling payment for energy at the very moment it is produced.
Bitcoin as a unit of account
Ultimately, as bitcoin adoption grows, its global stability, consistency, and ubiquity will enable it to be a very useful unit of account. No foreign exchange conversions required, and no adjustments for rampant inflation through time. Today, the cost of a Base Model Ford F150 is about 1.25 bitcoin, a United flight from Houston to New York about 0.1 bitcoin, and an avocado about 0.000034 bitcoin. Each bitcoin is divisible into 100 million satoshis, named after the pseudonymous creator and our namesake here at Satoshi Energy, so divisibility is not an issue. Within minutes, you can send someone anywhere in the world any amount, from 1 satoshi to billions of satoshis in minutes, with as many or as few treasury controls as you would like to employ. Additionally, one key design element of bitcoin is that it is extremely costly to create, but very cheap and easy to use and verify as authentic. Any internet-enabled computing device with 10-yr old technology can download and run the free, open-source software needed to do so. No need for any middle men, banks, technology platforms, or costly, outdated infrastructure. Just a quick download of the bitcoin history, i.e. blockchain, and anyone can see it with their own eyes.
Bringing it all together
Ten years ago, the average Texas residential power bill was $112.50, or 8.6 bitcoin for one month’s power, or 800 million satoshis. Five years ago, that power bill climbed to $132.40, but decreased to 0.019 bitcoin per month, or 1.9 million satoshis. The average power bill in 2023 has been $238, or 0.008 bitcoin per month, or 800 thousand satoshis. When we check back another 5 years from now, will the same power bill be more like 100,000 satoshis? And how about 5 years after that? In any event, bitcoin’s store of value is creating unprecedented purchasing power for energy consumers! Furthermore, as rational economic actors seek a reliable way to transact and accurately measure prices, the medium of exchange and unit of account use cases are taking hold in economies around the world.
Why Now?
There was a time when electrical energy was feared. Today we all keep about 20 watt hours in our pockets in the form of phone batteries. In the not too distant future, using money that changes supply based on political whims will seem as silly as running a modern business on horses and paper. Fortunately, energy executives are beginning to acknowledge the quickly compounding risks of our current money system and choose a path toward better money. They are actively pursuing opportunities to sell energy to the global bitcoin data center market while learning about the speed and security that bitcoin based transactions enable. In the future, bitcoin will enable instantaneous value transfer across the entire electric grid to power new life changing forms of human innovation. Our mission at Satoshi Energy is to enable every electric power company to use bitcoin to build this abundant, sustainable energy future.
Thank you,
Satoshi Energy
sales@satoshienergy.com
Sources:
- https://blog.coinshares.com/2023-global-bitcoin-ownership-overview-322d6fc7e85a
- https://ccaf.io/cbeci/index
- https://research.satoshienergy.com/special-report-energy-backed-money/
- https://ccaf.io/cbnsi/cbeci
- https://www.statista.com/statistics/280704/world-power-consumption/