Cryptocurrency is decentralized, encrypted, digital money, explains Josh Rhodes, a research associate at the Webber Energy Group at the University of Texas at Austin who has been a consultant for bitcoin mining companies throughout the state. Cryptocurrency is typically created through a process called mining, which involves computers solving ever increasingly complex math problems. Whatever bit of the problem is solved, some of the cryptocurrency is made, Rhodes explains.
This process consumes a lot of energy, about 3.25 kilowatts per miner, Rhodes explains, or roughly the amount a home air conditioner consumes. Current mines in the state are eating up hundreds of megawatts, but expansion plans will push that figure into the thousands soon, Rhodes says. Cryptocurrency transactions also use a lot of energy, with the average financial exchange consuming more than 1,700 kWh of electricity, almost twice the monthly amount used by the average U.S. home.
China, formerly the country with the largest bitcoin mining industry, recently banned cryptocurrency mining and transactions, driving bitcoiners to Texas. "The majority of cryptocurrency mining was happening in China because they have some pretty cheap electricity over there" Rhodes says, adding it was likely banned because the country did not want to cede control of any of its economy. "Because Texas has some of the lowest cost electricity in the world, it looks pretty attractive to bitcoin miners or cryptocurrency miners."
The state also has an abundance of energy. It is a top producer of wind power in the country and has a surplus of cheap solar energy.
"Because of the ability of bitcoin mining to turn on or off instantaneously, if you have a moment where you have a power shortage or a power crisis, whether it's a freeze or some other natural disaster where power generation capacity goes down," Senator Cruz said at the conference. "That creates the capacity to instantaneously shift that energy to put it back on the grid."
Some experts aren't so sure. "There is merit to the idea that more flexible demand makes it easier to balance the ups and downs of supply when wind and solar vary, or when coal and gas and nuclear plants fail," Daniel Cohan, associate professor of environmental engineering at Rice University, told the Dallas Morning News earlier this month. "But just adding brand new demand to the grid isn't helpful, or doesn't fix the shortfalls."
Alex de Vries, founder of the website Digiconomist which analyzes the impacts of cryptocurrencies, similarly opined that the energy required for bitcoin mining could create problems for the state's energy infrastructure when he spoke with the Austin American-Statesman. "This is a massive risk when you look at the Texas grid, which is already quite weak," Vires said. "You can't blame bitcoin miners solely for that but they're definitely going to be contributing."
Though it may be risky, Cruz's goal is possible, Rhodes says, but it's complicated. More demand on the grid could mean less energy to go around for everyone. "However, the more demand that's on the grid should spur more investment in more power plants," Rhodes says. "If this new load added to the system results in us building more power plants... those power plants would be available to serve other loads like peoples homes."
Rhodes also found that the bitcoin miners would need to be willing to reduce their operations when electricity demands rise in the state. Otherwise, it could impact the stability of the grid in a negative way. "If new power plants are not built because of the mines, then market fundamentals would say the price of the electricity would go up," he says.
Some industry experts have expressed environmental concerns because of the the likely higher carbon dioxide output with the use of so much electricity, which is mostly generated by coal. Tesla CEO Elon Musk, who announced his company's move to the state earlier this month, said in May he would no longer accept bitcoin as a form of payment for its vehicles because of the digital currency's environmental impact. He has since walked back on that statement and even had his company invest in bitcoin.
When it comes to reducing environmental impacts, Rhodes says flexibility is key. An increased demand could incentivize new wind and solar, which he adds are some of the cheapest forms of energy to build, to be developed in the state to match new demand and offset carbon emissions.
Texas' system must match supply in demand in real time, which has typically been done by turning up power plants when demand increases, Rhodes explains. "We typically can't ramp things like wind or solar," he says. "The flexibility allows us to still match supply and demand but not have to have so much firm capacity, or the ability to ramp things up and down like our thermal fleet by gas and coal."
When asked if he sees a potential ban happening in the state like China's, Rhodes says he's not sure the state government would have the authority to achieve so and that would instead need to be done at the federal level. Some electrical systems around the country could make it harder for mines to connect to the system and use electricity, he adds. "That's one way that you can functionally, I guess, stop it."
Still, Rhodes sees the popularity of cryptocurrency in the state continuing to grow. "I do think more cryptocurrency, more bitcoin mining, is coming to Texas because there's just a lot of interest in it," he says. "I think there's a lot coming."
(c)2021 the Houston Chronicle. Distributed by Tribune Content Agency, LLC.
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