Is Crypto an Energy Transition Enabler or the Other Way Around?

Crypto currencies have long been a subject of discussion in forums that specialize in technology or in academic circles. Now, they are also a trending topic within the energy industry. We are not going to get into detail on how the crypto world works, which would need more than one article to try to explain this complex matter. Instead, we are going to talk about how blockchain technology, specifically the use of crypto currencies relates to power consumption and, thus, power generation, and if there's a way to make this industry carbon neutral.

A quick dive into the crypto world results in some interesting figures on this market and the energy necessary to power it. Bitcoin, which is the biggest crypto currency in the world both in terms of value and market cap, is recognized by the US, Canada and the EU for legal use and in June 2021, El Salvador became the first (and only) country to recognize Bitcoin as legal tender. Although Bitcoin, like any other crypto asset, is highly volatile, it has peaked to prices above US$65,000 and has a market cap above US$1 trillion. If we compare it with the GDP of various countries, we will see that the Bitcoin market is bigger than Switzerland, Turkey or Sweden, which poses the obvious question: If something is as big as Sweden does it consume the same amount of energy? The answer is, yes. A recent publication by the Harvard Business Review quotes a study from the Cambridge Center for Alternative Finance (CCAF) that concludes that Bitcoin consumes around 110 Terawatt hours per year. That's roughly .55 percent of all the world's energy output for one year, which is basically all of Sweden's yearly energy consumption, and clearly indicates that Bitcoin is an energy intensive asset.

So, now that we know the size of the market and how much energy it needs to power it, the next question we need to answer is, are crypto currencies slowing the energy transition or are they encouraging it? The answer is mixed, and I'll explain why.

First of all, as with any other highly energy-intensive asset, the answer is yes, since it's production by miners requires energy that comes directly from the grid. Statistically, this energy comes mostly from fossil fuels and although there's an interesting percentage of renewable power in the mix, we cannot deny that as long as more energy is put into place for the crypto market then, to a certain extent, crypto will be encouraging the use of fossil fuels. So. basically, yes Crypto is slowing the energy transition due to its energy consumption. On the other hand, blockchain technology has allowed retail investors to invest precisely in energy projects, mostly in renewable energy and thus helping the much-needed energy transition. This assumption is bolstered if we add in the recently created Crypto Climate Accord, a private initiative to transition the industry to net zero by 2025.

The Crypto Climate Accord (CCA) is the boldest action from the industry to help in the race toward the energy transition by not only providing technology for energy transactions – like most of the newest apps made for peer-to-peer renewable energy trade – and funding for these projects but also adding an initiative to encourage a 100 percent renewable crypto world. Now, you might be a denier or a believer of this technology and business model but the fact is that energy consumption will tend to ramp up and one of its drivers will be crypto.

These actions introduce new possibilities for renewable energy companies and what better way for generators to power all this demand than through Distributed Generation (DG). Not only is DG a trend by itself but it is also the best route to prove that the energy needed to mine a coin was indeed produced by a renewable source. If we consider all these factors, we can conclude that DG will be a key ally for the crypto industry and, thus, provide new opportunities to several startups that can provide all that power.

Technology will continue to change our business needs, requiring more energy and, in particular, energy that comes from a renewable source. Markets, investors, and producers will continue to adopt this trend. The next question is, how can Mexico, with its resources, jump into this trend? Is regulation going to help Mexico take advantage and become a major renewable energy-crypto power hub or is it going to become a bystander in the story, rife with missed opportunities? Only time will tell.