Monthly News Letter • July 2022
The Rocky Mountain Mining Institute held its annual conference June 26-28 in Snowmass, CO this year. There were technical presentations about the state of the coal mining industry, search & rescue training, and Bitcoin. You may not have expected Bitcoin to be on the roster of topics at a coal mining conference but there is a compelling case to orange-pill coal miners and coal-pill Bitcoiners. This month’s news letter aims to provide insight into the current state of coal mining in North America and how Bitcoin mining can be leveraged for efficiency gains.
The State of Coal Mining in 2022
The coal industry has been under attack for decades; from the Environmental Protection Agency (EPA) to climate-change activists to competing energy industries. Coal has been portrayed as a dirty source of energy and blamed for destroying the environment. In spite of the attacks, coal has continued to provide the reliable energy that civilized societies depend on. Strangled by regulation, many of North America’s coal mines have been shut down, coal-fired power plants demolished, and critical infrastructure abandoned. Many of the communities that were built around the coal industry are now hollow shells of what they once were; leading to economic stagnation, poverty, and addiction or suicide.
In the United States, coal production has declined 35% since 2015, down to 578 million tons in 2021. Out of 1,179 coal-fired plants, 700 have been shut down with only 479 remaining, according to Global Energy Monitor. Coal accounts for only 40% of US electricity as of 2019, where it accounted for 70% a decade ago. You are watching an industry that built this country get strangled to death. Even if the entire coal industry were deleted from the United States, global CO2 emissions would hardly be moved, liberal estimates say by 4%.
All under the cloak of the “climate crisis”, the EPA came up with a plan to reduce greenhouse gasses. This Clean Power Plan basically says that the EPA can set CO2 emission rate standards that power generating facilities must meet, specifically targeting coal-fired and natural gas power plants. The EPA determines a power plant’s compliance with these standards through a protocol known as the Best System of Emissions Reduction (BSER). BSER outlines three building blocks that power plants are compelled to follow: 1) Run the power plant as efficiently as possible, 2) transition coal-fired plants to natural gas-fired plants, 3) transition coal & natural gas plants to wind and solar energy sources.
This is the kind of thing meant by “strangled by regulation”, coal-fired plants must run near their capacity in order for the heat rate efficiency to remain high. In other words, coal-fired plants are designed to run at capacity otherwise the coal is not burned efficiently thus resulting in less power and more wasted greenhouse gases. This article will circle back to how Bitcoin fixes this. As for the other building blocks, this requires power companies to adopt technology that is foreign to them and wastes the resources already spent on building out the reliable infrastructure.
However, as of June 30, 2022 the Supreme Court decided that the EPA does not have the authority to control what source of energy power companies use. The EPA can require that the power plants run efficiently but not that power plants have to use wind and solar. This was a massive win for the coal industry as now they can focus on their core business.
As far as climate change activists, they have grown more bold in their attempts to garner media attention. For example, an activist smeared cake on the Mona Lisa, arguably the most famous painting in the world. Other activists recently glued their hands to a famous Van Gogh painting. Some activists like David Buckel used self immolation in an attempt to bring attention to hydrocarbon energy sources. Some protests are more overt and involve protesters blocking train tracks, cyber attacks, and even snipers.
As for competition from other industry’s, lobbying is a tactic that industry executives will use to persuade congress to pass laws that build regulatory moats around their business to stamp out competition. They pick a metric that is easy to miss represent like CO2 and then they make that the standard for judging environmental impacts. Then they present the wind and solar industries in such a way that make them appear to be CO2 free. This is easily confused because when you look at a solar panel or a windmill, there is no combustion happening. Although on the surface this makes coal look bad, anyone who looks more than surface deep quickly realizes that CO2 isn’t so straight forward.
First and foremost, CO2 is not a metric that can be used for a fair comparison because coal-fired plants actively produce CO2 from a single source that can be easily monitored. Contrast that with solar panels or wind mills and there is no CO2 being emitted from them, problem solved, right!? Wrong, wind mills are made from materials like steel and fiber glass; glass fibers include carbon, aramid, and basalt and the windmill blades have to be buried in the ground when they are decommissioned because they cannot be recycled. Solar panels are made from crystalline silicon, glass, and steel. All of the materials used in the construction of both wind mills and solar panels have to be extracted from the earth, processed, transported, refined, packaged and shipped to the manufacturing facility. Then the final product has to be packaged and transported as well. Every step in that process has a CO2 impact that is not directly measurable like a stationary coal-fired plant. Not to mention that due to the unreliable nature of wind and solar, batteries are often used to store energy which involves removing 500 tons of earth for a single ton of lithium, then it needs to be washed in sulfuric acid to be made ready for production. Plus all the unreliables still need copper and aluminum to transmit the produced energy. The environmental impacts of unreliables are arguably worse than coal but because the final product is not actively producing CO2, unreliables get a free pass.
But that is assuming CO2 is bad for the environment, which it is not. In fact, CO2 levels were dangerously close to 150 ppm during the end of the last ice age. If CO2 concentration had fallen another 30 ppm, all plant life on earth would have been died off. Today, with CO2 level at roughly 400 ppm, they are still abnormally low on a Paleozoic time scale. There is a great presentation on this topic by Greg Wrightstone, author of Inconvenient Facts, which you can view here.
There is also the ripple effects felt by communities that have had the coal industry ripped out of them. Take for example these maps which show closed & moth-balled coal plants and drug overdoses:
Bitcoin & Coal
You may be wondering where Bitcoin falls into all this, first you have to understand the utility in Bitcoin as a network, it is not just a financial instrument. If you are reading this, you probably have a good grasp on what Bitcoin is, so the beginner level details will be spared here. Suffice it to say that as a global decentralized network, Bitcoin must maintain consensus without a central authority. This is where the Proof of Work (PoW) consensus mechanism comes into play. Millions of computers from all around the world are dedicated to the sha256 hashing algorithm to achieve Bitcoin consensus. These dedicated computers know as Application Specific Integrated Circuits (ASICs) have to consume a lot of power in order to work.
Energy is the only resource that can be consumed in order to prop up Bitcoin’s value proposition, Bitcoin would be worthless without the energy consumed. Any other resource can be externally manipulated and thus if Bitcoin were to rely upon such manipulatable resources then Bitcoin itself would be corrupted. Take gold for example, if a certain amount of gold had to be reserved for each Bitcoin block, then that gold could be physically confiscated or trillions of dollars worth of gold could be discovered debasing the existing supply.
Take a Proof of Stake (Pos) system for example, this is a consensus mechanism used for other decentralized blockchains where a validator node plays the role of adding transactions to the ledger. The validator node must stake, or put up for collateral, some of the blockchain’s native tokens. By doing so, the validator node gets the authority to make the rules and approve/include transactions. If the validator gets caught doing something it should not be doing then there is a risk of the staked tokens being confiscated, this is supposed to incentivize good behavior. What happens in reality though is that a closed-loop system is created where tokens are staked and more tokens are awarded for staking, therefore authority becomes centralized to a few large validator nodes. Additionally, because this closed-loop system has no direct link to the outside world, it becomes trivial to copy/paste the project and continue the chain on a fork without having to expend any significant amount of resources.
PoW on the other hand, requires the one-way transformation of energy into computational power. Computational power is the only way that an acceptable block hash can be found on the Bitcoin network. The brute-force attempts at computing this hash value cannot be counterfeited, it is mathematically impossible to corrupt Bitcoin with forged work. Energy cannot be counterfeited, computational power therefore cannot be counterfeited, and thus the Bitcoin PoW consensus mechanism has a direct link to the real world that cannot be faked or duplicated.
Once you understand that Bitcoin must consume energy and that it will always consume a tremendous amount of energy despite calls to “cHaNgE tHe CoDe” and that this is a feature not a bug; then you can start to understand how Bitcoin mining can be leveraged as a tool where energy is produced. Like coal-fired plants for example, here are three examples of opportunities for coal and Bitcoin to work together:
Net Plant Heat Rate Efficiency
NPHR efficiency is a concept mentioned earlier in this article, the main idea is that coal-fired power plants need to operate near their capacity in order to maintain peak efficiency. This is how coal can be burned the most efficiently, this is also how the EPA requires coal plants to operate as outlined in the Clean Power Plan, Building Block #1. The problem is that the demand on coal-fired power plants has been decreasing over the years, as shown above. As this demand decreases, coal-fired plants have a more difficult time operating at capacity and therefore run less efficiently. This causes a negative feedback loop where the drop in efficiency means a rise in greenhouse gasses; triggering calls from the EPA, climate-change activists, and competing industries to take more action by reducing dependence on coal, reducing demand even more and repeating the cycle.
Coal-fired power plants can break this cycle by utilizing Bitcoin miners. ASICs are the load of last resort, they will always consume all the power you want to give them. Therefore, when demand from the grid decreases, a power plant could spin up the appropriate amount of ASICs to keep the total demand on the power plant near capacity so that it can continue running efficiently during times of low demand.
The vast majority of power generating facilities require a lot of time and resources to ramp up or down their production, they cannot react to grid demands as quickly as those demands can change. ASICs on the other hand, can react instantaneously to whatever changes transpire. As soon as an ASIC receives power it starts hashing and that power can be cut off instantly when demand from the grid comes back. In the mean-time, while the ASICs are using the power that would have otherwise been wasted, that energy is monetized and brought directly to market through Bitcoin. Power companies could choose to keep the bitcoin in their company treasury, they could give it to their employees as a bonus, or they could sell it to market for dollars.
Strategically placed Bitcoin mines upstream at the site of the power plant can reduce inefficiencies even further by eliminating transmission loss. By placing a few shipping containers full of ASICs directly at the power plant’s sub-station, there is no transmission loss which makes the most of the energy consumed there. Additionally, there is less requirement for expensive infrastructure such as bulk transmission lines. This also serves to keep the power plant’s assets more secure as they are on-site at the facility and afforded the same security as the power plant itself.
Capturing Vented & Flared Gas
Coal mines often have to deal with byproducts such as methane gas in their mining operations. Typically, it is not economically feasible to spend the time, energy, and resources on installing the required pipeline infrastructure to bring this gas to market. Nor is it feasible to transport the gas via truck or rail, it is simply not enough of a resource to justify the cost. Mining operations will usually resort to either venting the gas, which has the worst environmental impact; or they will flare it, which is better than venting but still terribly inefficient.
Enter Bitcoin, by capturing this gas on-site and using it to combust in a natural gas generator, the gas is burned much more efficiently and there is no need for expensive pipeline infrastructure. The nuisance gas is converted into useful energy and monetized through a “digital pipeline”. This highlights the importance of Upstream Data’s mission to help distribute hashrate ownership across the globe to decentralize the production of bitcoin and help make the network more robust.
Although recent years have been devastating to the coal industry, there are opportunities to strengthen this reliable energy source that civilized nations have come to depend on by leveraging Bitcoin. The recent Supreme Court decision indicates that leaders recognize the importance of keeping federal regulation out of energy producer’s business. More nations are also coming to realize the importance of coal as they re-start their moth-balled coal-fired plants in response to the natural gas disruptions caused by the Russia/Ukraine conflict. Bitcoin will continue to be leveraged as a tool for energy producers worldwide when they leap-frog modern mega-miners and start running Bitcoin themselves.