I'm not the person you're replying to, but I do have a source that talks about how BTC mining in Texas helps normalize and "smooth" usage.
Electricity is complicated so this is a broad and major oversimplification, but:
1. It's bad™ for a grid to be producing more electricity than it's using, or vice versa
2. TX has a highly variable grid load, in part due to Very Hot Weather™ compared to much of the rest of the country
3. TX, perhaps unintuitively, is [one of the largest? maybe the largest?] (haven't checked in a while) producers of solar and wind energy, but these sources are highly variable compared to fossil fuels, hydro, nuclear, etc.
4. Importantly, peak production and peak demand in TX are VERY mismatched
5. It's hard™ to store excess energy from times of peak production to use in times of peak demand
6. BTC mining, in the right places at the right times, help smooth the imbalances resulting from point 4, which are bad™ as mentioned in point 1, avoiding the hard™ problem of storage from point 5
The net result of all of this is that the "smoothing" effect of BTC mining (in the right places, at the right times) makes it more economically viable to change the makeup of energy production to favor a larger share of renewables and a smaller share of fossil fuels.
This isn't exactly the same as what the original commenter you're replying to is saying, but it's progress towards decarbonization of the grid nevertheless.
For the people downvoting, could you please share why? If I'm doing a poor job of explaining/communicating anything, I'd appreciate being informed about what part in particular, so I can try to do better.
The problem with your argument and the point of the article is #6
Selling excess energy to bitcoin miners is fine. Having to pay them off when the grid is overloaded because they can’t turn their damn servers off for a week is what smells like the rest of the crypto bullshit.
The reason they are one of the first to turn off is _because_ they can turn their servers off easily. This is why crypto mining is perfect for this application.
Some industrial processes take days or weeks to fully shutdown / startup so quick shutdown isn't practical.
If your business was shutdown for the greater good, would you not expect some compensation?
> Having to pay them off when the grid is overloaded because they can’t turn their damn servers off for a week is what smells like the rest of the crypto bullshit.
There seems to be a misconception here.
The miners are being paid rebates to do precisely that - turning off their servers. They're being given credits to not use electricity at times when demand is high and renewable supply is low.
This is part of what allows the renewable energy to make up a larger share of Texas' energy production in an economical way.
Without the ability to rapidly raise ("Quick, turn the bitcoin miners on!") and lower ("Quick, turn the bitcoin miners off!") energy demand in this manner, there is a lesser need for variable production (solar and wind) and a greater need for "constant" production (oil, gas, nuclear). Note that these types of production can be turned on and off the same way bitcoin miners can, but doing so is much slower and is actually so costly that it's cheaper to decrease the share of energy produced by "constant" production sources, increase the share of energy produced by variable renewables, and simply pay the bitcoin miners to turn their racks and racks of SHA-256 ASICs on and off at precisely the right times and places. It's WAY easier, cheaper, faster, and safer to make adjustments to the "demand" side than it is to make adjustments on the "supply" side.
I know it sounds really counterintuitive and complicated but this really is better for the environment - it leads to less burning of fossil fuels and lower costs for taxpayers than the alternative of not having any bitcoin miners in Texas.
Please give that article I linked a read if you have the time, that goes into much more depth about all of this.
You're getting confused by accounting here. Charging someone regular rates but then making payments for them to shut off during high demand is equivalent to the customer being charged lower rates for excess power.
The utility prefers the former model because it avoids normalizing low rates, avoids running into issues with most-favored-nation terms in contracts, gets them paid upfront while they pay out the correction only when it was actually needed, doesn't run into problems with "what if they don't actually turn off during the high demand but you still charged low rates the last N months", etc.
But what's happening is equivalent to "utility sells spare capacity to bitcoin miners at discounted rates" which is hardly remarkable.
Bitcoin mining has a somewhat unique property among energy demands - it is essentially location agnostic. Bitcoin miners do not care where they are mining, they care only that energy is cheap. This enables their strategic geographic placement ("in the right places" is just as important as "at the right times").
An aluminum recycling plant sounds much more environmental on paper, but does it still sound as good if you put it in the middle of the desert in west TX and needed to ship aluminum cans in on semi trucks?
For high energy processes like aluminum recycling, extraction, I suspect the transportation energy is in the noise.
And if matters only that this "energy consumer" be on the grid, I suspect there are plenty of convenient multimodal transport hubs in the state of Texas where an aluminum recycling plant could go up to save on transport costs.
> And if matters only that this "energy consumer" be on the grid
This is not the case. The actual physical, geographical location matters, because energy transmission over long distances (like from the middle of a desert in far West TX to major population centers like Dallas or Houston many hundreds of miles away) has significant (on the scale of electricity prices) costs.
Don't forget either that when I talk about transportation costs, I'm not simply referring to energy consumption, but also carbon emissions. In the future it may be different, but as of right now, the semi trucks carrying those aluminum cans into a desert in west TX (and carrying the refined aluminum out of a desert in west TX) are spewing (literal) tons of greenhouse gasses, particulate matter pollutants, etc into the atmosphere. This would be a small fraction of the GHG/emissions IF the primary energy consumption device in question (btc miners, aluminum recycling plant) was running primarily on GHG itself, but the entire point here is that's NOT the case - those BTC mining plants are in places with high shares of renewable energy where electricity costs get extremely low during periods of high production and low demand.
The problem with this argument is that whenever a grid burns fossil fuels, the price of electricity is artificially cheap, because nobody is paying the cost to remove carbon from the air.
A grid that simultaneously burns fossil fuels and mines BTC indicates a market failure. The miners are effectively stealing BTC from our children.
Mining is not needed to keep the grid reliable or smooth imbalances. You can achieve this by dispatching or cutting off the marginal generators needed to serve the load in real time (the marginal generators serving the load of these facilities are already quick response generators that don’t benefit from already being on and switching from mining facility to demand bursts elsewhere). They increase demand and necessarily move dispatch up the supply stack, increasing the marginal power price which sets the clearing price for all megawatts in the iso auctions and consequently the power prices for all customers. They also increase congestion by requiring more megawatts to flow increasing the congestion price component of the nodal LMPs (locational power prices).
Here is how prices are set in an iso auction. This is from iso New England. But works the same way in all isos including ERCOT.
It doesn’t matter to me if the mining operations are running or not, but they’re not helping the grid. Citing a crypto company on this is comically biased.
Weird if true. Weird that Texas invested in the power infrastructure for Bitcoin mining rather than for the people that relied on that for their homes.
I think the parent poster is advocating for proof-of-stake as an alternative since it’s generally less power hungry (though not entirely so). Just speculating.
There's another catch as well, PoS allows and encourages control to be centralized by financially incentivizing financial hoarding behavior. Knowing what we know about wealth distribution in FIAT monetary systems, this will eventually result in people's real wealth¹ falling under the control of a single entity, which appears no different than FIAT on the surface, until you remember that said entity does not have even the limited accountability that our central banks do.
¹ even if you take for granted that whatevercoin itself isn't actually "worth" anything, the products of labor (FIAT currency) that working people exchanged for those whatevercoins absolutely are a real form of wealth, in as much as they were originally worth in FIAT form.
Why couldn't you just sell tokens 1 for $1 and have their price pegged to USD? No PoW priming required. If stakers required rewards, you could just redeem 1 token for 99c and use the excess for rewards.
How can anyone and everyone prove that the tokens were actually properly paid for? Prove there were no secret smokey-room collusion deals. Prove there were no unpaid tokens minted. Prove that international government/criminal organizations didn’t blackmail a few extra tokens into existence.
You aren’t actually wrong. Tether operates the way you describe: Based on proof of Trust Me Bro :P You can build derivative products backed by Tether. But, that’s a shaky foundation on which to build a new world financial system. You’d have to hope to spin up products that earn enough trust on their own to detach their valuation from Tether before Tether collapses.
Why is that? In this case it seems to have both helped provide grid stability whilst providing utility as a store/transfer of value. Seems like a win/win to me.
If the crypto miners hadn't existed then Texas may not have had the flexibility required to avoid blackouts. If Texas didn't have this mechanism in place then mining would be less efficient. Isn't this a great solution to excess renewable energy? What is there to curse?
By analogy it must be good if I just start burning gasoline in a pit because my increased demand will cause oil producers to invest in more drilling and refinery capacity. In fact, if we were just burning gasoline in pits in the 70s we wouldn't have had an energy crisis because by burning gasoline in pits we would have created the market conditions necessary for the oil companies to build more domestic wells and refinery capacity. It's perfect, because when we actually _did_ need gasoline for cars we could have just pitched the guys burning gasoline in pits some cash, they would have stopped, and we would have had enough gasoline for everyone.
“Ah!”, the Crypto-Kid exclaimed, “But here’s where you’re wrong! By burning the gasoline they created SmokeCoins, which are a Store Of Value, therefore burning gasoline in a pit is not wasteful at all!”
“But what happens if they don’t burn the gasoline in the first place, don’t the same SmokeCoins just get generated somewhere else then? So what net value is created by burning the gasoline?”
The Crypto-Kid’s peanut brain implodes while considering this thought.
This is an ok analogy if producing more gasoline is something good for us. Which it is not. Conversely extending power generation capacity, especially with means that have highly varying production rates that require ability to quickly vary load is exactly what humanity needs right now, and fast.
The extent to which adding any mining data center is "good", even assuming that Bitcoin is "good" is incredibly abstract. Yes, it may make that one miner more money, but it creates no new net economic value, its only value is making the blockchain more secure. Is it good to make the security of the blockchain dependent on electricity demand?
There are plenty of better ways to increase demand that are more useful than burning it for fungible security. For example you can build datacenters that can shift load by time and location based on the state of the power grid. Google and Facebook already do this. You can build battery plants which address the problem directly. Electric car charging should be incredibly complementary to demand response.
Posing Bitcoin as a solution to generation problems assumes that the biggest problem is finding ways to use energy, which is absolutely not the case. It's a solution in search of a problem.
What bitcoins are good for is funneling money from people who have money and no better ideas what to do with it or incentives to do anything with it, towards people who want to build renewables even though, their output at times already has a negative price in absence of bitcoin mining.
Sure, in totalitarian economy there could be a lot of smarter ways to utilize resources and opportunities, but we don't have such economy for very good reasons, so in our economy, bitcoins are the simplest possible mechanism (technologically, politically and economically) that facilitates this funneling and we are lucky it already exists. The only problem is the cost of new mining hardware, but with Moore's law dying out and fabs overbuilt because of the pandemic shortages I think new, more efficient generations of mining hardware should come out at longer intervals and mining with few years old hardware should be feasible if you are powering it with renewables at peak production times.
Like paying your neighbour to stop playing loud music. They will use the money to buy bigger speakers.
This is worse because they have made it more $ attractive for more miners to come by subsidising operations.
Instead they should pass emergency laws that let them cut power to non essential enterprises like this. Then the crypto community will blacklist Texas and leave it alone.
Give the money to Elon to trial some stabilization tech instead.
I don't understand this analogy. The miner is being compensated for lost production in exchange for grid stability. If mining didn't exist, the same process would occur for the next easiest consumer to shutdown. The only way your analogy works is if you consider industry bad (playing loud music).
I know; my point is that this situation isn't unique to crypto mining: their argument applies to every industry. If crypto didn't exist, another industry would need to be shutdown.
Indeed. Think of it like this. If there is a water shortage they ban hosepipes not tap water. They may ask people to limit showers.
The equivalent here would be picking what industries to forcibly shut down. In that sense with such a system crypto mining might be OK (at least for this argument).
But this compensation is a subsidy to ask more people to come in and use up a scarce resource.
Your last sentence is where you go wrong: compensation is not a subsidy. If the government uses my land to build a highway, I am compensated because I lose something of value. Subsidies are not an exchange but are one-way.
You are mischaracterizing the payments because you hate crypto.
It is a subsidy signal. "Build crypto mining in Texas and your expected earnings are higher than anywhere else!"
I don't hate crypto, I have some nuanced opinions on it. Happy to criticize and defend it, depending on the argument. Once you get to PoS there is a lot less wrong with it environmentally. Unlimited carbon-free energy infra (and silicon production infra too, along with proper recycling!) would also make it less of a problem, but obviously we are not there yet. And I say unlimited because PoW demands that difficulty goes up and up and up to bid up PoW assets.
The program is equivalent to selling the miners spare capacity at reduced prices. There are accounting reasons that the utility prefers to structure it as payments for load shedding.
Try thinking it through in terms of reduced rates for spare capacity. Any criticism that doesn't work under both frameworks is logically unsound.
Your argument would make sense if Texas had a near-term goal to decarbonize its power grid. As long as fossil fuels are burning, there is no spare capacity.
But that aside I don't think your response is a fair one for three reasons:
(1) because solar and wind are the least expensive source of energy the excess power is significantly solar/wind.
(2) But because they're the least reliable maximizing their use requires solutions like a large amount of sheddable load on the grid.
(3) You're imposing your own opinions on the 'right' and 'wrong' sources of power which far from universal outside of internet filter bubbles and are not supported by the law. You may not like that some parties burn fossil fuels for energy but they currently have a right to do so. I agree that good cases can be made for restricting fossil fuel use, but so long as it isn't it's unproductive to pick and choose arbitrary targets that use energy for purposes you don't care about simply because fossil fuels for energy happens to exist. It's doubly so, considering 1/2 above because responsive loads help increase the share of renewable power.
I agree that the BTC miners are behaving legally, and in some sense they have a moral responsibility to maximize profit within the law, but their existence highlights why the law itself is unethical.
I think lawmakers have an ethical duty to fix the "burning carbon is too cheap" problem, but the odds of that happening in Texas are low. If we had something like a carbon fee and dividend, miners could become a net good for society just by following price signals.
This is such a weird take. The existence of bitcoin mining increases electric demand. There's no inherent reason that without it demand would spike above what it already is without, outside of the price of energy, which it sounds like wasn't really a factor here. (Because the market is clearly being inefficient when a supplier is paying someone not to buy their product.)
> If crypto didn't exist, another industry would need to be shutdown.
This makes literally zero sense. Mining adds extra load that wouldn’t otherwise exist. If crypto didn’t exist, the Texas grid would experience reduced load. This should be obvious: if paying these miners to stop has the desired effect of reducing the load on the grid, miners not existing would surely have a similar effect.
> their argument applies to every industry.
Most other industries provide actual societal value, unlike crypto. And to hear off the rebuttal I already hear coming: no, just because it has a market cap doesn’t mean it’s adding value to society. As a trivial counterexample, Mexican cartels are undoubtedly worth billions but I think it’s pretty inarguable we’d all be better off without them.
Does your argument work at the limits? E.g. if all non-essential industry in Texas didn't exist, would you expect the same amount of investment in energy production and thus an abundance of energy for 'socially valuable' uses? No: if there was no industrial demand there would be no need for huge renewable investments.
Your counter-factual doesn't make sense because you assume that additional demand has no effect on supply and vice-versa. Electricity generation isn't some constant that is unrelated to industrial needs.
> if all non-essential industry in Texas didn't exist, would you expect the same amount of investment in energy production and thus an abundance of energy for 'socially valuable' uses?
If those industries are using that power that Texas has invested in producing, then how is it "abundantly available" for socially valuable uses?
Yes, without things like crypto, we probably would have somewhat less investment in green energy sources. We'd also be burning less coal. Given possible futures with "more fossil fuels and more renewables" versus "fossil fuels coal and fewer renewables", I'll pick the latter every time. The goal isn't more renewables, it's replacing fossil fuel with renewables.
Worse, those renewables being used up by cryptocurrencies are going to be the optimally-located renewables with the lowest installation and maintenance costs for the highest energy output (think: most reliable wind at high speeds, least cloud cover and highest sun angle). As we do continue to transition further away from fossil fuels, every additional installation is going to be in locations marginally less competitive than the ones that came before. This means that transitioning the non-crypto loads will take longer and be less cost-effective than if crypto magically disappeared overnight.
> if paying these miners to stop has the desired effect of reducing the load on the grid, miners not existing would surely have a similar effect.
In a privatized system, a large, predictable, static load would attract additional infrastructure. Assuming how that's how Texas' system works, if these miners did not exist, the peak capacity would be lower.
It is worse. Maybe it is getting paid to not grow crops because you are upstream and the people can’t take a shower and need to buy evian by the gallons.
And the crop is just canola oil but someone else is paying you to burn it in a fire.
One thing, if they didn’t exist that would be less strain on the grid period.
Granted an industrial use of that same land might use as much power. Now it is a case of well: they are doing something more useful for society.
In addition imagine a spreadsheet for miner profit based on world location. That spreadsheet now might add this new upside in being paid to not run the miners and make more money. This attracts more miners!
If the goal is to protect society and especially local people, having miners AND shitty power supply is not good (choose one or the other)
That's not how markets work. Removing demand tends to reduce investment in supply. Or the opposite: maybe they moved to Texas because there is often excess cheap energy due to renewables.
They are causing the same amount of 'strain' (demand) as any other industry. Their demand will attract investment in supply the same as any other industry. The advantage is that their demand can be shed quickly, which is useful for the grid operators, and helps 'protect society.'
Yes, and the marginal benefit to society of those kilowatts is the concern here in emergency situations.
The grid is also not a normal free market operating under normal free market principles. Regulated monopolies are a different beast with different constraints. Given the challenge of supplying during peak loads, attempting to prioritize use cases strikes me as a reasonable endeavor in principle.
But is Texas unlike most other US states? There is a governing body Ercot with two different transmission maintainers but the generation is indeed a relatively free market with free market pricing.
> One thing, if they didn’t exist that would be less strain on the grid period.
No, there would be a corresponding reduction in generation capacity and the strain on the grid would be identical.
> This attracts more miners!
Good. The miner's usage pays to build more generation capacity (acres of solar, etc), but then when there is an imbalance (production down and/or demand up) the miners turn off so the extra capacity they paid to be built is available for others.
The miner load is the ideal type of load -- totally flat, very predicable. This encourages investment in supply. And the cherry on top is that it is super easy to turn off (if you pay them). There is basically no other energy consumer like this.
The miner load has other unique and favorable attributes, but those are the ones that are relevant in this situation.
> There is basically no other energy consumer like this.
Pumped water storage, aluminum production, gravel or other crushed rock product manufacturing, municipal base load, etc. all come to mind.
Paying consumers to reduce their load does not incentivize supply investment. In real terms, it essentially does the exact opposite: it takes dollars that would go into plants and infrastructure and turns them into paychecks for people who are stressing the grid. In other words: it effectively rewards those who can consistently torture the grid with the money that would be used to improve it.
On one hand there is a customer who is always willing to buy electricity you can generate in extremely predictable volumes and they will stop when you ask them to. A grid operator should be able to figure out a way to ensure that they always have a profitable arrangement on net with this customer. TFA doesn't have a single data point that the deal is a loser for ERCOT or other rate payers - just knee jerk reactions based on the underlying assumption that something must be wrong. It is perfectly plausible that ERCOT, Riot and other rate payers are all benefiting from the agreement and perhaps there's only an argument about how to distribute that benefit fairly. Given ERCOT's public responsibilities to transparency and the clicks a reporter could generate if they could materially show that either ERCOT or the other rate payers were losing with this deal (to evil crypto of all things) I am inclined to say the whole thing is a nothingburger.
On the other hand we have proposals to increase the upfront costs, consume more valuable land (real estate prices too low for anyone's taste?), and utilize it in environmentally unfriendly ways (who wants to live next to a rock crusher operation or an aluminum factory). Relying on Bitcoin miners as a flexible consumer is extremely compelling.
> Paying consumers to reduce their load does not incentivize supply investment.
Of course not. The thing that incentivizes supply is the load. Preferably a nice flat load. Oh, like miners.
Also, "aluminum production"? Really? You can just turn off an aluminum factory? What about the workers? What about all of the hot things that will cool down?
Yes, in a situation where this was easy to track (eg smart meters), it would definitely make sense to compensate people to disconnect from the grid temporarily for stability sake. This would incentivize people to build more solar panels and personal battery storage.
The difference is that this is very complex and would have a minor effect (compared to shutting down a single large industrial consumer).
It is easy for ERCOT to to track. They know I used 4.2 kWh in the last hour. They send me energy usage in 15min increments once per day.
Its uncomplex and effective enough that I even have emails where this was done elsewhere and BGE was telling me:
"Congratulations, you earned $4.13 for saving 3.3 kWh."
I’m reading that as the frequency of smart meter measurements is 15 mins. Those are rookie numbers for stabilizing the grid. If they could contact you and you could cut the connection in <3 minutes then it might be useful, but only if many consumers were in the same boat.
Compare that with the crypto miners: ERCOT knows how long they take to shutdown and their load, as well as already having commercial arrangements for the shutdown. And with one switch they reduce many multiples of an average homes load.
Well.. Texas doesn't just pay this miner, they pay any enterprise which "strains the grid." It's a market for perverse incentives the way the Cobra Effect is.
> The miner is being compensated for lost production in exchange for grid stability.
The miner is arbitraging the tax payer against their ability to construct new plants, which is how this money could presumably be better spent.
> The only way your analogy works is if you consider industry bad (playing loud music).
His analogy is flawed. There's an absolute limit to sound pressure in this universe. There's probably not an absolute limit to human greed in this universe. So, yes, unconstrained processes without any natural (e.g. non-external) feedback are probably bad.
There is no "strain based pricing" in effect here, though, there is "strain based rationing through buyouts." Since those who can receive the buyouts can also create the strain, it does very well seem to be that this is exactly a perverse incentive.
If, however, the number of "strain incidents per unit of time" were factored into pricing accordingly, I'm sure these enterprises would change their strategy.
The miner has a likely very expensive contract with the grid operator in order to be able to pull this kind of energy. Also likely, they have to announce the amount of energy they will be drawing up front. If the operator can’t/won’t honor the contract, they have to compensate, or they are in breach.
> We’re talking about Bitcoin which is not “crypto” as you probably already know.
This is nothing but cope from bitcoin maxis in the face of the terrible reputation that cryptocurrency now has.
Bitcoin was the first cryptocurrency, it practically defines the term cryptocurrency, it has all the same features as other cryptocurrencies, many of which start life as either code or chain forks of Bitcoin anyway. It has first mover advantage and name recognition, but it absolutely is a cryptocurrency.
Because arbitrarily penalizing businesses during an emergency incentivizes businesses to move to locations which don't do this. Texas tries to be friendly to business and it seems to be working.
As opposed to what? The way we do it now is we deem certain business essential, and by default, everything else isn't. All power companies have a plan to ration and route power in an emergency.
> Riot said on Wednesday that the state's power grid operator paid the company $31.7 million in energy credits in August [...] to cut its energy consumption during a record-breaking heatwave in the state.
Miners help to stabilize the Texan power grid by providing a steady demand for power and get paid in ERNERGY CREDITS during an emergency when power is needed elsewhere. This is a win-win-win no matter how uninformed people are trying to spin this.
Dumb question - how does consuming energy help stabilize the grid? I thought if you used more than capacity, then the grid breaks down - kind of like the circuit breaker at home.
If there is more demand for power energy producers have an incentive to create the capacity to provide more power. Which comes in handy when you need more power, e.g. during a heat wave.
It's hard to start and stop traditional power generators (ng/coal/nuclear), but it is easy to start and stop the bitcoin mining rigs. grid likes to be at capacity, and its easy for the miners to scale up and down to fit the gap.
To avoid brownouts the generation capacity must match or exceed the peak demand.
This is particularly hard when there is a lot of renewables on the grid because their minimum output is very low compared to their average output but the renewables are inexpensive relative to their average output compared to other sources so the utility prefers to build more and more renewables if it can.
To address this, utilities must build generation capacity that sits idle. This has terrible economics. Instead, utilities can take a portion of the money that they would have spent building idle capacity and pay it to users who are able to quickly shut off when demand approaches capacity (or approaches the 'cheap' capacity).
This is equivalent to selling these parties spare capacity at a discounted rate.
So consuming energy but being willing/able to stop on a moments notice stabilizes the grid by (1) making it economical to have worst case capacity capacity closer to the peak demand, and (2) getting out of the way when that capacity is needed.
The key point is that they can immediately turn off on the utilities request. This is easier for bitcoin miners than it is for many industrial scale energy users (though there are other ones who do this too).
Such deals are usually structured the other way around, and have existed long before bitcoin.
The energy consumer gets a cheaper electricity prices year round, on the condition that they are contractually obligated to cut power in emergencies when the energy provider demands it (though, there still can be penalty payments if the demands exceed the maximum in the contract). This allows the provider to always know how much capacity it can shed ahead of time, in exchange for slightly lower revenue.
With this alternative arrangement, Texas is forced to dynamically outbid bitcoin profits and other uses of energy in the middle of an emergency.
I actually have a similar deal on a consumer level for my home. In exchange for lower power prices, the power company is allowed to turn my hot water tank off remotely. Usually doesn't matter unless multiple people have very long showers on very cold days.
> This allows the provider to always know how much capacity it can shed ahead of time, in exchange for slightly lower revenue.
This is exactly what happened here, the difference is just how the payment is structured? Obviously an industrial operation can get a different contract than a home owner, and can provide different benefits for the providers.
Superficially, it's the same. But the semantics change because it's an auction based system.
ERCOT have no idea how much load shedding capacity they have ahead of time. They have to start bidding on the wholesale market and see which bids are accepted.
Which makes it harder to do long-term planning and potentially slower to respond in an emergency.
I'm consistently surprised on certain tech communities including this one's mostly negative view on crypto energy consumption. The positions are typically framed as cryptos transaction cost is wasteful compared to legacy solutions. With crypto though, that cost encompasses the infrastructure AND transaction cost. It's often compared to just the pure transaction cost of say, VISA. What is the HVAC cost to cool and heat every VISA commercial property? What is the energy cost of all their employees commuting to those offices? How efficient is VISA generally as a company, is every manager and IC being cooled and heated and driving to the office actively keeping their transaction cost at a global minimum? Given all that multiplied by every company that is needed to maintain the legacy finance global infrastructure, I'm skeptical that crypto is even worse even if it incorporates wasting energy by design, would like to see any projections/numbers around this if anyone has looked into it with infrastructure energy cost considered in this way.
The issue with your argument is that transaction fees are pretty much the most obvious example of market forces at work. If it were unsustainable for Visa to operate with its low transaction fees, then it wouldn't be in business. If it were possible for a good crypto product to offer lower transaction fees, they would do it.
Literally right now we're looking at the proof. The data/experiment is already here. When you hear people talking about how wasteful crypto is, it's because the data are already in and we're on to the analysis.
How? Their inefficiency is tied to their design of having millions of people being employed keeping it afloat. What does hackernews think about the efficiency of 100k+ people orgs? I don't see much positive sentiment on that. Ultimately transactions still just abide by the laws of physics. If you live in Florida and I live in California, I want to trade my potted plant for your alligator egg, we can both walk and met in the middle, the transaction cost being the amount of calories we need to have the energy to walk 3000 miles. Efficiencies are found in bundling, we jump on a train full of people that want to go to Kansas to make other trades, or send a trading representative in a solar powered plane, but have to pay for solar powered plane crash insurance and escrow fee, etc. etc. So ultimately we are looking at legacy finance with massive baked in inefficiency of people, vs crypto with hard coded inefficiency by design. Is bucket 1 really going to beat bucket 2 if the volumes were similar? My intuition is no but would love to see real data.
Given that bitcoin mining takes more energy than some mid sized countries now, and serves comparatively few people doing comparatively little, I think we can happily draw the conclusion that it's massively wasteful already.
It's designed to be wasteful. PoW is a race to burn as much energy as possible to get an edge on the other guy.
How many bitcoin transactions are for the purchase of goods and services (useful work) compared to the VISA network where that number is somewhere near 100%?
First, Bitcoin transaction fees aren't even paying for the most of the infrastructure and energy costs
It's massively subsidised from block rewards. Coins created out of thin air.
Checking this chart [1], historically, block-rewards are almost always a 90% or larger subsidy, except in cases where there massive congestion is forcing high fees.
As the block reward subsidy is phased out over the next hundred years, the transaction fees will have to go up to compensate.
Second, where do you think Visa is getting the money to run all their datacenter and offices? Visa don't have any alternative source of funding for operating costs, so it all comes from the visa transaction fees that you pay.
> the transaction fees will have to go up to compensate.
Will they? Bitcoin's difficulty can go up and down to adapt to the offered supply of mining.
Currently the fees (no subsidy) Bitcoin mining earns are about $657k/day. This comparable to the total income with subsidy of other cryptocurrencies (and substantially larger than most).
Any argument that Bitcoin couldn't exist on the current level of fee income alone ought to explain the other systems that bring in significantly less e.g. BCH has
$175k/day in subsidy and essentially no fee income because their design makes the rational fee rate approximately zero.
Sure, difficulty can adjust down. But can the security of bitcoin afford the loss of that hashrate?
It really depends on how much value Bitcoin is securing at the time.
Because the amount paid out for mining rewards is also the rough cost for someone to execute a 51% attack. If miners can produce X hashes/sec for an easy profit at $Y, then an attacker should also be able to produce slightly more than X hashes/sec for about the same cost of $Y, or at least in the same order of magnitude.
So, can the attacker make more than $Y profit/day from exploiting double-spends? The security of bitcoin becomes an economic problem.
------------------
On a related tangent, I used to track random shitcoins as a hobby.
And you might be shocked at just how many 51% attacks happened. Many of the shittest shitcoins were secured by no more than a few hundred dollars per day of hashrate. Super-easy for someone to rent that off nicehash. Some of the reorgs I saw were multiple days long, and the attacker would continue attacking the same chain until their victim noticed, or ran out of money.
I saw this done on dozens of shitcoins in the few months I was tracking. Based on that experience, I wouldn't trust any PoW blockchain that didn't have the majority of hardware miners for a given algorithm.
So I would not trust BCH... how long before some medium sized bitcoin miner decided they could get more profit by 51%ing BCH for $175k/day?
You can assume bitcoin is somewhat safe right now, but only because most of the SHA256 miners are already mining bitcoin. It would take a massive upfront investment for someone to create enough SHA256 miners to execute a 51% attack.
But in your suggested scenario where the hashrate of BTC is dropping? Where are those older SHA256 miners going? The second hand market? What if someone buys them all up?
And what if Bitcoin becomes actually successful? Becomes the backbone of the world economy and doing trillions per day in transactions? Someone might decide that upfront cost of creating miners is worth it, especially if they only need $657k of hashrate.
Those are all fair arguments you can make, but none of them make a case that the current subsidy level is necessary.
For a system that is actually in use, the consequences of these attacks you imagine are difficult to reason about. It's not like the system stops existing if some attacker attacks-- the attacker can reverse some of their own transactions near the chain tip. Recipients can adapt to the behavior by requiring more confirmations, restricting who and how they attack, etc.
It's difficult to generalize from what's seen in those "random shitcoins" (to use your phrase) since most of them have little to no economic use, so an attack may have an oversized or undersized impact depending on pure chaos: their value is purely speculative so the narrative around the attack determines the outcome more than anything. Since you've said you tracked these things presumably you're aware that in many cases their value goes up after they're attacked.
> but only because most of the SHA256 miners are already mining bitcoin
That's also not clear to me, there are an awful lot of idle two generation old miners out there at any given time.
> And what if Bitcoin becomes actually successful? Becomes the backbone of the world economy and doing trillions per day in transactions?
The total value of activity on the chain isn't equivalent to the value available to attackers in an attack, especially to the extent that attacking undermines the value of the system as a whole.
In any case, I wasn't (and am not now) trying to take a strong position here-- I would say that there are a lot of unknowns but that I think the position you were taking that the current fee level isn't adequate doesn't really pass a sniff test for me. Perhaps it isn't but if you really strongly believe that there are about 1000 cryptocurrencies that you should be figuring out how to short hard instead of posting on HN. :P
> but none of them make a case that the current subsidy level is necessary.
I wasn't actually arguing that, yes there are a bunch of unknowns. I'm only making the argument that there is a clear formula connecting mining rewards, potential double-spend profits and the cost of attacking a PoW coin. I don't care enough to actually derive the formula and plug numbers in it to answer that question.
> Recipients can adapt to the behavior by requiring more confirmations, restricting who and how they attack
More confirmations don't really work as a solution. The cost to hold a double-spend open is known, so we could try requiring enough confirmations to make such a double-spend unprofitable, but the attacker can execute multiple double-spends in parallel to spread their costs.
For large transactions (relative to the hashrate of that coin), the confirmations can can get quite high, which destroys the usefulness of cryptocurrency for fast and easy transactions.
For one of the "random shitcoins" I was tracking, I found the centralised exchange I suspect the attacker was targeting (presumably trading them to another currency and then withdrawing). The exchange had set really high numbers of confirmations (2-5 days worth of blocks) but the because these coins were so cheap to attack, the attacker had no problem doing reorgs that large.
And then the exchange delisted the coin due to "51% attacks".
> The total value of activity on the chain isn't equivalent to the value available to attackers in an attack, especially to the extent that attacking undermines the value of the system as a whole.
Yes, another thing to go into that formula.
Centralised exchanges and other automated systems interacting with cryptocurrencies really mess things up. They provide a lot of liquidity open to double-spend attacks.
In a world were cryptocurrencies were only used as the peer-to-peer cash in the way a lot of it's early proponents advocated for (and still do), where everyone can manually verify their transactions and establish trust, then your suggestions do work somewhat better.
But in the highly centralised nightmare that cryptocurrencies have become... well it changes numbers going into the formula.
> That's also not clear to me, there are an awful lot of idle two generation old miners out there at any given time.
When hashrate is trending up, I suspect the two generation old miners are slow enough to not worry about.
But the economics might change as block reward subsidies drop, or if the potential profit of double-spends goes up.
> Perhaps it isn't but if you really strongly believe that there are about 1000 cryptocurrencies that you should be figuring out how to short hard instead of posting on HN. :P
I mean, I considered it. Hence the research.
But these were really, really, shit shitcoins, not listed on exchanges with futures markets, so the only real way to profit was to execute the 51% attacks myself, and I didn't want to go down the black hat path.
Yes, I don't understand why this is not the solution.. They don't even have to raise it for everyone (ie. if they don't want everyone else to subsidise the cost to larger consumers).
If your workload is such that it causes grid instability, you should pay at least $X more for the service, where $X is the cost of grid instability.
This way if it's too expensive for big customers to run a workload which exceeds the capability of the grid, they'll go elsewhere. This would incentivise the grid operator to improve stability such that they could better support the big customer's workload.
Having a customer that is always willing to buy energy but can zero out their consumption within seconds of a single phone call is a great asset to grid operators. Outside of Bitcoin the only customers in this class are industrial operations and they usually cannot fully turn off as well as require hours of lead time to halt operations (if they're at a stage of process where that is possible).
Please balance the reflexive crypto hate with an appreciation of the logistical challenges of grid management especially when electrical supply and consumer demand don't naturally match out.
Also note they do not actually 'cash out' pay the companies in $. They get credits they can use for electricity consumption at a more grid convenient time.
Yes, credits but money nonetheless that one would have had to pay if they were not able to manipulate their consumption at a point of great demand.
I share these words from direct experience of being a credit receiver from my utility company for several years which has been a great WFH benefit through awareness of the program. While I am now humbled and fortunate to have a renewables battery backed system in addition to multiple EVs prior to obtaining this renewable system I certainly played this money 'saving' game as well at every turn it was offered. The day before the voluntary shutdown my utility company would use this pre day as the credit baseline for the following shutdown day. I would lower the HVAC much greater than normal and charge all EVs beyond our typical SOC at a kW rate of 11 cents per. On the day of the shutdown I would use nearly no electricity intentionally and be credited at 1.25 USD per kW not used. Participating in this shutdown a few times a month would cover a whole month's bill++.
It is absolutely certain that someone will see this as "cheating" or "not fair" however everyone is equally capable of comprehending the offering as it stands and applying it to their own situation. It just takes time, which most don't want to give proactively, but those same "most" will certainly spend much more time reactively complaining. Mind your time as we all get the exact same interval of its passing however we certainly do not get the same aggregate amount.
The problem is that crypto mining supports a floor on energy prices. If energy prices were allowed to go sufficiently negative, that would support a market for renewables storage and time-of-day arbitrage that would smooth the peaks.
These types of agreements existed long before crypto, there are other demand sources that will put in a floor but are not as easy to turn off during peaks.
The fact that there have not been scalable, reliable storage schemes devised that can be deployed safely at any location ideal to the grid is not bitcoin's fault nor is it Bitcoin's problem to solve.
I think it actually makes much more sense to overproduce energy with renewables and then just use extra for something. Crypto is a bit stupid use case, hydrogen production or something actually useful would be better. Negative prices reduce investments to renewable energy production.
> hydrogen production or something actually useful
Only if anyone buys hydrogen. And technological infrastructure for trading it exists. Even then risks involved in operating hydrogen production facility are way higher than just plopping a box with few miners near your brand new windturbine you are struggling to monetize.
Supporting the floor is what allows to overbuild renewables. Nobody would build another windmill if they couldn't sell their production for profit half of the time.
Storage is blocked by technology and resources. We can't wait for storage to build more renewables.
The article title is worded to attract click-bait. It's not wrong but it conveys the wrong assumptions. The energy company in Texas is an enterprise and they seek profit like everyone here (regardless of the perfect positions everyone here is claiming but probably never being close to attaining in real life).
This relationship probably works for them because at times when there are no customers, crypto could take the load. And the energy company cares more about continuing to sell electricity to make money rather than the opinion of people who are not customers and are not involved in these transactions.
The most questionable part about cryptocurrencies at this point is that the defence arguments keep shifting. First it was to get rid of banks, then it was to workaround autocratic regimes, and now it is about having an elastic electricity demand?
Cryptocurrencies are still a solution in search of a problem. The search has cost billions of dollars and multiple years so far. Maybe it’s time to call it a day?
You're certainly entitled to choose non-crypto solutions to whatever problems you face but saying that crypto isn't solving those problems for other people is just ignoring the facts.
Crypto continues to be a store of wealth and tool of commerce in countries like Turkey and Argentina. High throughput payment networks (lightening, ethereums L2 ecosystem) are delivering low latency and low fee transactions with strong security guarantees. On chain definitely rivals centralized exchanges trading volumes while providing lending / borrow facilities. And in this case of electrical demand there is a happy coincidence between Bitcoin miners and grid operators.
All this without massive public subsides, completely voluntary participation, and no government bailouts.
So it'll probably be a while before everyone decides to call it a day.
Latency and fees are higher than existing mechanisms in most of the world, and at much higher environmental cost.
Also, crypto is an objectively riskier "store of wealth" than traditional measures, and is mostly used as a speculative investment or an arbitrage opportunity.
> Latency and fees are higher than existing mechanisms in most of the world, and at much higher environmental cost.
This statement is simply incorrect. The later 2 scaling ecosystems built on top of Bitcoin and Ethereum offer 1-2 second transaction times for 3-4 cents in fees. The electrical costs are equivalent to sending an email.
> Also, crypto is an objectively riskier "store of wealth" than traditional measures, and is mostly used as a speculative investment or an arbitrage opportunity.
In a country like Argentina where inflation is over 100% the risk of holding crypto seems to be a much better deal than a savings account.
> now it is about having an elastic electricity demand?
Now? I've been saying this for years now. It's a load on demand and a way to monetize any amount of excess energy in distributed manner. One of the potential future of bitcoin is to provide monetization that can let investors overbuild renewables so that they can fully cover regular demand in times where production is just a few percent of full capacity.
> Cryptocurrencies are still a solution in search of a problem.
Cryptos are just a thing that exists. Applications turn up as economy develops in new directions and landscape changes.
So are you saying that Texas, as in "the people of Texas", are better off if someone is purchasing their energy resources to further a generally fraudulent/criminal enterprise than to not have this person consuming energy to begin with?
This is actually completely reasonable and a positive for the energy grid. Large industrial energy users who can switch off when needed make the grid stronger, not weaker.
To illustrate, imagine a grid with 1000MW max demand and 2000MW of production. Let's say the generation is composed of equal parts solar, wind, gas, and nuclear.
You've got 500MW of always on (nuclear), 500MW dispatchable (gas), and 1000MW intermittent.
When the sun is shining and the wind is blowing, where do you put all your extra energy?
Well if you add on another 500MW of bitcoin mining, you can send it there. And if you hit peak demand when you've got no renewables (or the gas/nuclear is offline) you can switch off your extra demand.
The dispatchable industrial user is helping to pay to keep the extra capacity around you only need a few days a year.
Natural gas and coal make up over half of Texas power generation. We're better off ramping them down during low demand rather than keeping them running at max capacity for bitcoin mining of all things. What an environmental nightmare. Your example only works if most of the power comes from green energy sources.
But ERCOT is not running at max fossil fuel generation capacity at all times. [1]
Keeping industrial scale operations running is usually cheaper, safer and more efficient than turning them completely off. This is not like switching off a lightbulb. ERCOT is using these agreements so that they can smoothly ramp down and dial up generation capacity.
No, they are using these agreements because they simply don't have enough capacity regardless and are desperate to find ways to cut power usage. You don't live here do you? Otherwise you'd see the constant emergency alerts from ERCOT begging residents to lower power usage or risk outages.
Grid stability requires that you need to balance production and consumption at all times. Most production can not be turned on or off very quickly. So at times when you overproduce having a large consumer that you can modulate very fast is a nice component. You could use batteries, but those could fill. Traditional industrial demand is also not easily turned up or down. Bitcoin mining will take your power, and can be switched on and of relatively fast.
I think it's reasonable to assume that somebody in the gov knows somebody in the company and they wash their hands this way.
If it wasn't for some internal goodwill I as the gov would want to just shut down their access to energy after a certain treshhold of consumption was reached.
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[ 4.4 ms ] story [ 219 ms ] threadElectricity is complicated so this is a broad and major oversimplification, but:
1. It's bad™ for a grid to be producing more electricity than it's using, or vice versa
2. TX has a highly variable grid load, in part due to Very Hot Weather™ compared to much of the rest of the country
3. TX, perhaps unintuitively, is [one of the largest? maybe the largest?] (haven't checked in a while) producers of solar and wind energy, but these sources are highly variable compared to fossil fuels, hydro, nuclear, etc.
4. Importantly, peak production and peak demand in TX are VERY mismatched
5. It's hard™ to store excess energy from times of peak production to use in times of peak demand
6. BTC mining, in the right places at the right times, help smooth the imbalances resulting from point 4, which are bad™ as mentioned in point 1, avoiding the hard™ problem of storage from point 5
The net result of all of this is that the "smoothing" effect of BTC mining (in the right places, at the right times) makes it more economically viable to change the makeup of energy production to favor a larger share of renewables and a smaller share of fossil fuels.
This isn't exactly the same as what the original commenter you're replying to is saying, but it's progress towards decarbonization of the grid nevertheless.
Source: https://www.coindesk.com/consensus-magazine/2023/07/24/how-t...
For the people downvoting, could you please share why? If I'm doing a poor job of explaining/communicating anything, I'd appreciate being informed about what part in particular, so I can try to do better.
Selling excess energy to bitcoin miners is fine. Having to pay them off when the grid is overloaded because they can’t turn their damn servers off for a week is what smells like the rest of the crypto bullshit.
Some industrial processes take days or weeks to fully shutdown / startup so quick shutdown isn't practical.
If your business was shutdown for the greater good, would you not expect some compensation?
There seems to be a misconception here.
The miners are being paid rebates to do precisely that - turning off their servers. They're being given credits to not use electricity at times when demand is high and renewable supply is low.
This is part of what allows the renewable energy to make up a larger share of Texas' energy production in an economical way.
Without the ability to rapidly raise ("Quick, turn the bitcoin miners on!") and lower ("Quick, turn the bitcoin miners off!") energy demand in this manner, there is a lesser need for variable production (solar and wind) and a greater need for "constant" production (oil, gas, nuclear). Note that these types of production can be turned on and off the same way bitcoin miners can, but doing so is much slower and is actually so costly that it's cheaper to decrease the share of energy produced by "constant" production sources, increase the share of energy produced by variable renewables, and simply pay the bitcoin miners to turn their racks and racks of SHA-256 ASICs on and off at precisely the right times and places. It's WAY easier, cheaper, faster, and safer to make adjustments to the "demand" side than it is to make adjustments on the "supply" side.
I know it sounds really counterintuitive and complicated but this really is better for the environment - it leads to less burning of fossil fuels and lower costs for taxpayers than the alternative of not having any bitcoin miners in Texas.
Please give that article I linked a read if you have the time, that goes into much more depth about all of this.
The utility prefers the former model because it avoids normalizing low rates, avoids running into issues with most-favored-nation terms in contracts, gets them paid upfront while they pay out the correction only when it was actually needed, doesn't run into problems with "what if they don't actually turn off during the high demand but you still charged low rates the last N months", etc.
But what's happening is equivalent to "utility sells spare capacity to bitcoin miners at discounted rates" which is hardly remarkable.
An aluminum recycling plant sounds much more environmental on paper, but does it still sound as good if you put it in the middle of the desert in west TX and needed to ship aluminum cans in on semi trucks?
And if matters only that this "energy consumer" be on the grid, I suspect there are plenty of convenient multimodal transport hubs in the state of Texas where an aluminum recycling plant could go up to save on transport costs.
This is not the case. The actual physical, geographical location matters, because energy transmission over long distances (like from the middle of a desert in far West TX to major population centers like Dallas or Houston many hundreds of miles away) has significant (on the scale of electricity prices) costs.
Don't forget either that when I talk about transportation costs, I'm not simply referring to energy consumption, but also carbon emissions. In the future it may be different, but as of right now, the semi trucks carrying those aluminum cans into a desert in west TX (and carrying the refined aluminum out of a desert in west TX) are spewing (literal) tons of greenhouse gasses, particulate matter pollutants, etc into the atmosphere. This would be a small fraction of the GHG/emissions IF the primary energy consumption device in question (btc miners, aluminum recycling plant) was running primarily on GHG itself, but the entire point here is that's NOT the case - those BTC mining plants are in places with high shares of renewable energy where electricity costs get extremely low during periods of high production and low demand.
A grid that simultaneously burns fossil fuels and mines BTC indicates a market failure. The miners are effectively stealing BTC from our children.
Here is how prices are set in an iso auction. This is from iso New England. But works the same way in all isos including ERCOT.
https://www.iso-ne.com/about/what-we-do/in-depth/how-resourc...
It doesn’t matter to me if the mining operations are running or not, but they’re not helping the grid. Citing a crypto company on this is comically biased.
It was people dying during the extreme heat and cold that overwhelmed the Texas energy grid that stimulated any power infrastructure development?
…nah
It's a bandaid ultimately covering up the root of the problem: Energy generation for zero utility.
Hopefully we’ve proven enough work already to serve as a foundation and from here on we can scaffold up with staking.
¹ even if you take for granted that whatevercoin itself isn't actually "worth" anything, the products of labor (FIAT currency) that working people exchanged for those whatevercoins absolutely are a real form of wealth, in as much as they were originally worth in FIAT form.
You aren’t actually wrong. Tether operates the way you describe: Based on proof of Trust Me Bro :P You can build derivative products backed by Tether. But, that’s a shaky foundation on which to build a new world financial system. You’d have to hope to spin up products that earn enough trust on their own to detach their valuation from Tether before Tether collapses.
If the crypto miners hadn't existed then Texas may not have had the flexibility required to avoid blackouts. If Texas didn't have this mechanism in place then mining would be less efficient. Isn't this a great solution to excess renewable energy? What is there to curse?
“But what happens if they don’t burn the gasoline in the first place, don’t the same SmokeCoins just get generated somewhere else then? So what net value is created by burning the gasoline?”
The Crypto-Kid’s peanut brain implodes while considering this thought.
There are plenty of better ways to increase demand that are more useful than burning it for fungible security. For example you can build datacenters that can shift load by time and location based on the state of the power grid. Google and Facebook already do this. You can build battery plants which address the problem directly. Electric car charging should be incredibly complementary to demand response.
Posing Bitcoin as a solution to generation problems assumes that the biggest problem is finding ways to use energy, which is absolutely not the case. It's a solution in search of a problem.
Sure, in totalitarian economy there could be a lot of smarter ways to utilize resources and opportunities, but we don't have such economy for very good reasons, so in our economy, bitcoins are the simplest possible mechanism (technologically, politically and economically) that facilitates this funneling and we are lucky it already exists. The only problem is the cost of new mining hardware, but with Moore's law dying out and fabs overbuilt because of the pandemic shortages I think new, more efficient generations of mining hardware should come out at longer intervals and mining with few years old hardware should be feasible if you are powering it with renewables at peak production times.
This is worse because they have made it more $ attractive for more miners to come by subsidising operations.
Instead they should pass emergency laws that let them cut power to non essential enterprises like this. Then the crypto community will blacklist Texas and leave it alone.
Give the money to Elon to trial some stabilization tech instead.
Or connect to other grids lol!
This situation is ideal for both parties.
It's very obvious that the person you replied to consider crypto mining inherently bad.
I don't necessarily agree with them, but I believe the absolute majority of HN users hold this view.
The equivalent here would be picking what industries to forcibly shut down. In that sense with such a system crypto mining might be OK (at least for this argument).
But this compensation is a subsidy to ask more people to come in and use up a scarce resource.
You are mischaracterizing the payments because you hate crypto.
I don't hate crypto, I have some nuanced opinions on it. Happy to criticize and defend it, depending on the argument. Once you get to PoS there is a lot less wrong with it environmentally. Unlimited carbon-free energy infra (and silicon production infra too, along with proper recycling!) would also make it less of a problem, but obviously we are not there yet. And I say unlimited because PoW demands that difficulty goes up and up and up to bid up PoW assets.
Try thinking it through in terms of reduced rates for spare capacity. Any criticism that doesn't work under both frameworks is logically unsound.
But that aside I don't think your response is a fair one for three reasons:
(1) because solar and wind are the least expensive source of energy the excess power is significantly solar/wind.
(2) But because they're the least reliable maximizing their use requires solutions like a large amount of sheddable load on the grid.
(3) You're imposing your own opinions on the 'right' and 'wrong' sources of power which far from universal outside of internet filter bubbles and are not supported by the law. You may not like that some parties burn fossil fuels for energy but they currently have a right to do so. I agree that good cases can be made for restricting fossil fuel use, but so long as it isn't it's unproductive to pick and choose arbitrary targets that use energy for purposes you don't care about simply because fossil fuels for energy happens to exist. It's doubly so, considering 1/2 above because responsive loads help increase the share of renewable power.
I think lawmakers have an ethical duty to fix the "burning carbon is too cheap" problem, but the odds of that happening in Texas are low. If we had something like a carbon fee and dividend, miners could become a net good for society just by following price signals.
If they believed crypto mining is inherently bad, it should not be allowed in the first place.
If they believed crypto mining is at least neutral, it should get compensated for being forced to shut down (even temporarily), and it did.
This makes literally zero sense. Mining adds extra load that wouldn’t otherwise exist. If crypto didn’t exist, the Texas grid would experience reduced load. This should be obvious: if paying these miners to stop has the desired effect of reducing the load on the grid, miners not existing would surely have a similar effect.
> their argument applies to every industry.
Most other industries provide actual societal value, unlike crypto. And to hear off the rebuttal I already hear coming: no, just because it has a market cap doesn’t mean it’s adding value to society. As a trivial counterexample, Mexican cartels are undoubtedly worth billions but I think it’s pretty inarguable we’d all be better off without them.
Your counter-factual doesn't make sense because you assume that additional demand has no effect on supply and vice-versa. Electricity generation isn't some constant that is unrelated to industrial needs.
If there isn’t enough supply to satisfy things like residential demand then you loose demand (and therefore re revinue
If those industries are using that power that Texas has invested in producing, then how is it "abundantly available" for socially valuable uses?
Yes, without things like crypto, we probably would have somewhat less investment in green energy sources. We'd also be burning less coal. Given possible futures with "more fossil fuels and more renewables" versus "fossil fuels coal and fewer renewables", I'll pick the latter every time. The goal isn't more renewables, it's replacing fossil fuel with renewables.
Worse, those renewables being used up by cryptocurrencies are going to be the optimally-located renewables with the lowest installation and maintenance costs for the highest energy output (think: most reliable wind at high speeds, least cloud cover and highest sun angle). As we do continue to transition further away from fossil fuels, every additional installation is going to be in locations marginally less competitive than the ones that came before. This means that transitioning the non-crypto loads will take longer and be less cost-effective than if crypto magically disappeared overnight.
In a privatized system, a large, predictable, static load would attract additional infrastructure. Assuming how that's how Texas' system works, if these miners did not exist, the peak capacity would be lower.
And the crop is just canola oil but someone else is paying you to burn it in a fire.
Granted an industrial use of that same land might use as much power. Now it is a case of well: they are doing something more useful for society.
In addition imagine a spreadsheet for miner profit based on world location. That spreadsheet now might add this new upside in being paid to not run the miners and make more money. This attracts more miners!
If the goal is to protect society and especially local people, having miners AND shitty power supply is not good (choose one or the other)
They are causing the same amount of 'strain' (demand) as any other industry. Their demand will attract investment in supply the same as any other industry. The advantage is that their demand can be shed quickly, which is useful for the grid operators, and helps 'protect society.'
The grid is also not a normal free market operating under normal free market principles. Regulated monopolies are a different beast with different constraints. Given the challenge of supplying during peak loads, attempting to prioritize use cases strikes me as a reasonable endeavor in principle.
No, there would be a corresponding reduction in generation capacity and the strain on the grid would be identical.
> This attracts more miners!
Good. The miner's usage pays to build more generation capacity (acres of solar, etc), but then when there is an imbalance (production down and/or demand up) the miners turn off so the extra capacity they paid to be built is available for others.
The miner load has other unique and favorable attributes, but those are the ones that are relevant in this situation.
Is the energy for sale or not?
Pumped water storage, aluminum production, gravel or other crushed rock product manufacturing, municipal base load, etc. all come to mind.
Paying consumers to reduce their load does not incentivize supply investment. In real terms, it essentially does the exact opposite: it takes dollars that would go into plants and infrastructure and turns them into paychecks for people who are stressing the grid. In other words: it effectively rewards those who can consistently torture the grid with the money that would be used to improve it.
On the other hand we have proposals to increase the upfront costs, consume more valuable land (real estate prices too low for anyone's taste?), and utilize it in environmentally unfriendly ways (who wants to live next to a rock crusher operation or an aluminum factory). Relying on Bitcoin miners as a flexible consumer is extremely compelling.
Of course not. The thing that incentivizes supply is the load. Preferably a nice flat load. Oh, like miners.
Also, "aluminum production"? Really? You can just turn off an aluminum factory? What about the workers? What about all of the hot things that will cool down?
Less strain on the grid would be less economic reasons to develop the grid and expand energy production capacity.
The only reason any business ever develops is unsatisfied customer needs.
The difference is that this is very complex and would have a minor effect (compared to shutting down a single large industrial consumer).
"Congratulations, you earned $4.13 for saving 3.3 kWh."
Compare that with the crypto miners: ERCOT knows how long they take to shutdown and their load, as well as already having commercial arrangements for the shutdown. And with one switch they reduce many multiples of an average homes load.
Well.. Texas doesn't just pay this miner, they pay any enterprise which "strains the grid." It's a market for perverse incentives the way the Cobra Effect is.
> The miner is being compensated for lost production in exchange for grid stability.
The miner is arbitraging the tax payer against their ability to construct new plants, which is how this money could presumably be better spent.
> The only way your analogy works is if you consider industry bad (playing loud music).
His analogy is flawed. There's an absolute limit to sound pressure in this universe. There's probably not an absolute limit to human greed in this universe. So, yes, unconstrained processes without any natural (e.g. non-external) feedback are probably bad.
If, however, the number of "strain incidents per unit of time" were factored into pricing accordingly, I'm sure these enterprises would change their strategy.
This is a contract where Bitcoin miner uses energy that would be wasted otherwise. [1]
I see a lot of bad faith here on understanding why Ercot did that. But if you prefer state laws that “makes you safe”, go ahead.
[1] https://www.cnbc.com/2021/12/04/bitcoin-miners-say-theyre-fi...
This is nothing but cope from bitcoin maxis in the face of the terrible reputation that cryptocurrency now has.
Bitcoin was the first cryptocurrency, it practically defines the term cryptocurrency, it has all the same features as other cryptocurrencies, many of which start life as either code or chain forks of Bitcoin anyway. It has first mover advantage and name recognition, but it absolutely is a cryptocurrency.
Miners help to stabilize the Texan power grid by providing a steady demand for power and get paid in ERNERGY CREDITS during an emergency when power is needed elsewhere. This is a win-win-win no matter how uninformed people are trying to spin this.
This is particularly hard when there is a lot of renewables on the grid because their minimum output is very low compared to their average output but the renewables are inexpensive relative to their average output compared to other sources so the utility prefers to build more and more renewables if it can.
To address this, utilities must build generation capacity that sits idle. This has terrible economics. Instead, utilities can take a portion of the money that they would have spent building idle capacity and pay it to users who are able to quickly shut off when demand approaches capacity (or approaches the 'cheap' capacity).
This is equivalent to selling these parties spare capacity at a discounted rate.
So consuming energy but being willing/able to stop on a moments notice stabilizes the grid by (1) making it economical to have worst case capacity capacity closer to the peak demand, and (2) getting out of the way when that capacity is needed.
The key point is that they can immediately turn off on the utilities request. This is easier for bitcoin miners than it is for many industrial scale energy users (though there are other ones who do this too).
The energy consumer gets a cheaper electricity prices year round, on the condition that they are contractually obligated to cut power in emergencies when the energy provider demands it (though, there still can be penalty payments if the demands exceed the maximum in the contract). This allows the provider to always know how much capacity it can shed ahead of time, in exchange for slightly lower revenue.
With this alternative arrangement, Texas is forced to dynamically outbid bitcoin profits and other uses of energy in the middle of an emergency.
I actually have a similar deal on a consumer level for my home. In exchange for lower power prices, the power company is allowed to turn my hot water tank off remotely. Usually doesn't matter unless multiple people have very long showers on very cold days.
This is exactly what happened here, the difference is just how the payment is structured? Obviously an industrial operation can get a different contract than a home owner, and can provide different benefits for the providers.
ERCOT have no idea how much load shedding capacity they have ahead of time. They have to start bidding on the wholesale market and see which bids are accepted.
Which makes it harder to do long-term planning and potentially slower to respond in an emergency.
It also result in headlines like this :)
Literally right now we're looking at the proof. The data/experiment is already here. When you hear people talking about how wasteful crypto is, it's because the data are already in and we're on to the analysis.
The legacy transaction industry, if it does consume more energy, can move to begin to conserve energy because consuming energy is not in its design.
It's designed to be wasteful. PoW is a race to burn as much energy as possible to get an edge on the other guy.
Close to 200,000 people work on or with cryptocurrencies[1]. Visa employs around 27,000[2], some of whom are no doubt being double-counted here.
(But note: this is still a pointless comparison. Even an absurdly wasteful Visa facilitates more value-per-watt-second than cryptocurrencies do.)
[1]: https://blockworks.co/news/190k-people-work-in-crypto
[2]: https://en.wikipedia.org/wiki/Visa_Inc.
It's massively subsidised from block rewards. Coins created out of thin air.
Checking this chart [1], historically, block-rewards are almost always a 90% or larger subsidy, except in cases where there massive congestion is forcing high fees.
As the block reward subsidy is phased out over the next hundred years, the transaction fees will have to go up to compensate.
Second, where do you think Visa is getting the money to run all their datacenter and offices? Visa don't have any alternative source of funding for operating costs, so it all comes from the visa transaction fees that you pay.
[1] https://charts.bitbo.io/fees-percent-of-reward/
Will they? Bitcoin's difficulty can go up and down to adapt to the offered supply of mining.
Currently the fees (no subsidy) Bitcoin mining earns are about $657k/day. This comparable to the total income with subsidy of other cryptocurrencies (and substantially larger than most).
Any argument that Bitcoin couldn't exist on the current level of fee income alone ought to explain the other systems that bring in significantly less e.g. BCH has $175k/day in subsidy and essentially no fee income because their design makes the rational fee rate approximately zero.
It really depends on how much value Bitcoin is securing at the time.
Because the amount paid out for mining rewards is also the rough cost for someone to execute a 51% attack. If miners can produce X hashes/sec for an easy profit at $Y, then an attacker should also be able to produce slightly more than X hashes/sec for about the same cost of $Y, or at least in the same order of magnitude.
So, can the attacker make more than $Y profit/day from exploiting double-spends? The security of bitcoin becomes an economic problem.
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On a related tangent, I used to track random shitcoins as a hobby. And you might be shocked at just how many 51% attacks happened. Many of the shittest shitcoins were secured by no more than a few hundred dollars per day of hashrate. Super-easy for someone to rent that off nicehash. Some of the reorgs I saw were multiple days long, and the attacker would continue attacking the same chain until their victim noticed, or ran out of money.
I saw this done on dozens of shitcoins in the few months I was tracking. Based on that experience, I wouldn't trust any PoW blockchain that didn't have the majority of hardware miners for a given algorithm.
So I would not trust BCH... how long before some medium sized bitcoin miner decided they could get more profit by 51%ing BCH for $175k/day?
You can assume bitcoin is somewhat safe right now, but only because most of the SHA256 miners are already mining bitcoin. It would take a massive upfront investment for someone to create enough SHA256 miners to execute a 51% attack.
But in your suggested scenario where the hashrate of BTC is dropping? Where are those older SHA256 miners going? The second hand market? What if someone buys them all up?
And what if Bitcoin becomes actually successful? Becomes the backbone of the world economy and doing trillions per day in transactions? Someone might decide that upfront cost of creating miners is worth it, especially if they only need $657k of hashrate.
For a system that is actually in use, the consequences of these attacks you imagine are difficult to reason about. It's not like the system stops existing if some attacker attacks-- the attacker can reverse some of their own transactions near the chain tip. Recipients can adapt to the behavior by requiring more confirmations, restricting who and how they attack, etc.
It's difficult to generalize from what's seen in those "random shitcoins" (to use your phrase) since most of them have little to no economic use, so an attack may have an oversized or undersized impact depending on pure chaos: their value is purely speculative so the narrative around the attack determines the outcome more than anything. Since you've said you tracked these things presumably you're aware that in many cases their value goes up after they're attacked.
> but only because most of the SHA256 miners are already mining bitcoin
That's also not clear to me, there are an awful lot of idle two generation old miners out there at any given time.
> And what if Bitcoin becomes actually successful? Becomes the backbone of the world economy and doing trillions per day in transactions?
The total value of activity on the chain isn't equivalent to the value available to attackers in an attack, especially to the extent that attacking undermines the value of the system as a whole.
In any case, I wasn't (and am not now) trying to take a strong position here-- I would say that there are a lot of unknowns but that I think the position you were taking that the current fee level isn't adequate doesn't really pass a sniff test for me. Perhaps it isn't but if you really strongly believe that there are about 1000 cryptocurrencies that you should be figuring out how to short hard instead of posting on HN. :P
I wasn't actually arguing that, yes there are a bunch of unknowns. I'm only making the argument that there is a clear formula connecting mining rewards, potential double-spend profits and the cost of attacking a PoW coin. I don't care enough to actually derive the formula and plug numbers in it to answer that question.
> Recipients can adapt to the behavior by requiring more confirmations, restricting who and how they attack
More confirmations don't really work as a solution. The cost to hold a double-spend open is known, so we could try requiring enough confirmations to make such a double-spend unprofitable, but the attacker can execute multiple double-spends in parallel to spread their costs.
For large transactions (relative to the hashrate of that coin), the confirmations can can get quite high, which destroys the usefulness of cryptocurrency for fast and easy transactions.
For one of the "random shitcoins" I was tracking, I found the centralised exchange I suspect the attacker was targeting (presumably trading them to another currency and then withdrawing). The exchange had set really high numbers of confirmations (2-5 days worth of blocks) but the because these coins were so cheap to attack, the attacker had no problem doing reorgs that large.
And then the exchange delisted the coin due to "51% attacks".
> The total value of activity on the chain isn't equivalent to the value available to attackers in an attack, especially to the extent that attacking undermines the value of the system as a whole.
Yes, another thing to go into that formula.
Centralised exchanges and other automated systems interacting with cryptocurrencies really mess things up. They provide a lot of liquidity open to double-spend attacks.
In a world were cryptocurrencies were only used as the peer-to-peer cash in the way a lot of it's early proponents advocated for (and still do), where everyone can manually verify their transactions and establish trust, then your suggestions do work somewhat better.
But in the highly centralised nightmare that cryptocurrencies have become... well it changes numbers going into the formula.
> That's also not clear to me, there are an awful lot of idle two generation old miners out there at any given time.
When hashrate is trending up, I suspect the two generation old miners are slow enough to not worry about.
But the economics might change as block reward subsidies drop, or if the potential profit of double-spends goes up.
> Perhaps it isn't but if you really strongly believe that there are about 1000 cryptocurrencies that you should be figuring out how to short hard instead of posting on HN. :P
I mean, I considered it. Hence the research.
But these were really, really, shit shitcoins, not listed on exchanges with futures markets, so the only real way to profit was to execute the 51% attacks myself, and I didn't want to go down the black hat path.
Also, I moved onto other hobbies.
It doesn’t have the affordances of credit cards like refunds/chargebacks/AML/KYC/simplicity/speed etc.
If your workload is such that it causes grid instability, you should pay at least $X more for the service, where $X is the cost of grid instability.
This way if it's too expensive for big customers to run a workload which exceeds the capability of the grid, they'll go elsewhere. This would incentivise the grid operator to improve stability such that they could better support the big customer's workload.
https://en.wikipedia.org/wiki/Power_factor
https://www.energy.gov/eere/amo/articles/reducing-power-fact...
https://www.bchydro.com/news/conservation/2019/your-power-fa...
Please balance the reflexive crypto hate with an appreciation of the logistical challenges of grid management especially when electrical supply and consumer demand don't naturally match out.
I share these words from direct experience of being a credit receiver from my utility company for several years which has been a great WFH benefit through awareness of the program. While I am now humbled and fortunate to have a renewables battery backed system in addition to multiple EVs prior to obtaining this renewable system I certainly played this money 'saving' game as well at every turn it was offered. The day before the voluntary shutdown my utility company would use this pre day as the credit baseline for the following shutdown day. I would lower the HVAC much greater than normal and charge all EVs beyond our typical SOC at a kW rate of 11 cents per. On the day of the shutdown I would use nearly no electricity intentionally and be credited at 1.25 USD per kW not used. Participating in this shutdown a few times a month would cover a whole month's bill++.
It is absolutely certain that someone will see this as "cheating" or "not fair" however everyone is equally capable of comprehending the offering as it stands and applying it to their own situation. It just takes time, which most don't want to give proactively, but those same "most" will certainly spend much more time reactively complaining. Mind your time as we all get the exact same interval of its passing however we certainly do not get the same aggregate amount.
Stay Healthy!
The fact that there have not been scalable, reliable storage schemes devised that can be deployed safely at any location ideal to the grid is not bitcoin's fault nor is it Bitcoin's problem to solve.
Only if anyone buys hydrogen. And technological infrastructure for trading it exists. Even then risks involved in operating hydrogen production facility are way higher than just plopping a box with few miners near your brand new windturbine you are struggling to monetize.
Storage is blocked by technology and resources. We can't wait for storage to build more renewables.
This relationship probably works for them because at times when there are no customers, crypto could take the load. And the energy company cares more about continuing to sell electricity to make money rather than the opinion of people who are not customers and are not involved in these transactions.
Cryptocurrencies are still a solution in search of a problem. The search has cost billions of dollars and multiple years so far. Maybe it’s time to call it a day?
Crypto continues to be a store of wealth and tool of commerce in countries like Turkey and Argentina. High throughput payment networks (lightening, ethereums L2 ecosystem) are delivering low latency and low fee transactions with strong security guarantees. On chain definitely rivals centralized exchanges trading volumes while providing lending / borrow facilities. And in this case of electrical demand there is a happy coincidence between Bitcoin miners and grid operators.
All this without massive public subsides, completely voluntary participation, and no government bailouts.
So it'll probably be a while before everyone decides to call it a day.
Also, crypto is an objectively riskier "store of wealth" than traditional measures, and is mostly used as a speculative investment or an arbitrage opportunity.
This statement is simply incorrect. The later 2 scaling ecosystems built on top of Bitcoin and Ethereum offer 1-2 second transaction times for 3-4 cents in fees. The electrical costs are equivalent to sending an email.
https://lightning.network/
https://www.optimism.io/
https://arbitrum.io/
https://ethereum.org/en/layer-2/
> Also, crypto is an objectively riskier "store of wealth" than traditional measures, and is mostly used as a speculative investment or an arbitrage opportunity.
In a country like Argentina where inflation is over 100% the risk of holding crypto seems to be a much better deal than a savings account.
https://www.bloomberg.com/features/2023-argentina-presidenti...
Now? I've been saying this for years now. It's a load on demand and a way to monetize any amount of excess energy in distributed manner. One of the potential future of bitcoin is to provide monetization that can let investors overbuild renewables so that they can fully cover regular demand in times where production is just a few percent of full capacity.
> Cryptocurrencies are still a solution in search of a problem.
Cryptos are just a thing that exists. Applications turn up as economy develops in new directions and landscape changes.
To illustrate, imagine a grid with 1000MW max demand and 2000MW of production. Let's say the generation is composed of equal parts solar, wind, gas, and nuclear.
You've got 500MW of always on (nuclear), 500MW dispatchable (gas), and 1000MW intermittent.
When the sun is shining and the wind is blowing, where do you put all your extra energy?
Well if you add on another 500MW of bitcoin mining, you can send it there. And if you hit peak demand when you've got no renewables (or the gas/nuclear is offline) you can switch off your extra demand.
The dispatchable industrial user is helping to pay to keep the extra capacity around you only need a few days a year.
Keeping industrial scale operations running is usually cheaper, safer and more efficient than turning them completely off. This is not like switching off a lightbulb. ERCOT is using these agreements so that they can smoothly ramp down and dial up generation capacity.
1: https://youtu.be/ElbdWMvI1ZE
If it wasn't for some internal goodwill I as the gov would want to just shut down their access to energy after a certain treshhold of consumption was reached.