The latest lame attempt from Greenpeace and Change the Code, backed by shitcoin billionaire Chris Larsen of Ripple, to climate shame Bitcoin away from Proof of Work (and decentralised commodity status), to Proof of Stake (and centralised security status), through VonWong’s SkullOfSatoshi artwork… You can smell the desperation!
Introduction
This post will be a discussion of electricity generation and national grids in Britain and the World today, national and international energy mixes, and the increasing divergence between the cheap and reliable electricity generation of the East, and the expensive and unreliable electricity generation of the West, and will hopefully be an eye opener into the world of modern energy and electricity, which we are completely dependent upon today…
This post will also concentrate on Bitcoin and energy, and the game theory of global Geopolitics, citing early examples of the value of Bitcoin mining for energy companies, national grids, and even national governments… As Bitcoin is an electronic ledger and currency system that also requires Proof of Work and energy intensive generation, then it should also be clear that as Bitcoin grows so does its symbiosis with the world’s energy networks and by extension National Governments, and will become for the world in the next decade a matter of National Security, and a geopolitical weapon to be utilised by competing Nation States for securing future prosperity for their country, and populations…
This is an extremely important topic to cover and post to write, because we are completely addicted to electricity in the modern world, after spending the last generation essentially digitising what was previously an analogue age, today’s world economy and economic growth relies upon e-mails, mobile banking, and the internet to fuel the informational and financial global system… When you take a second to think about how critical electricity is to your life, in refrigeration, heating, lighting, telecommunication, then it becomes clearer that everybody should be interested and have a vested interest in understanding electricity and the modern miracle of electrical grids, which is currently under threat from deluded politicians and civil servants in the West… If National grids faulter, and electricity shortages create blackouts or prices that people cannot afford to pay or depend upon anymore, then our economy will have to return to the pre-electrical era, back to paper, coal and wood, candles, with a colossal crash in agricultural and industrial productivity and population, as we return to a labour based economy…
Electricity Generation
Fuel > boiler > steam > turbine > generator > transformer > grid (Source)
Electricty is not a primary energy source, rather it is a by-product of primary energy sources such as gas and coal, and every method of electricty generation today is dependent upon fossil fuel and carbon generation, including so-called renewable technology…
Reliable electricity is generated by burning a primary energy source to heat up water that powers a turbine… The energy sources can be burning coal, burning gas, burning wood (biomass) or through nuclear methods, which likewise create heat to boil water to power turbines…
Unreliable electricity can also be generated by the weather, as is extensively used over the world today, with wind power, solar power, and hydro power being the three most popular…
A mix of energy generation methods is an important element of diversification, and by extension National Security…
EROEI (Energy Returned On Energy Invested)
Energy Returned On Energy Invested
Material Consumption Per Energy Source
As goes Disraeli, there are lies, damn lies, and statistics, and so the above two charts that I have sourced from this renewable sceptic blog can be dismissed by renewables cheerleaders as fake news and a mis-representation if not outright fabrication of reality, it makes intuitive sense to me that reliable and predictable energy generation from fossil fuel sources over a 50-60 year lifespan, will provide far higher EROEI’s than unreliable and unpredictable energy generation from fossil fuel sources (because yes, renewable technology also derives from fossil fuel sources) over a 20 year lifespan…
Current generation (excluding next gen) nuclear technology has by far the best EROEI at 75, and with a Material Consumption Number of 930…
Hydropower is second best with an EROEI of 49 without storage, and 35 including storage, but with an eye watering Material Consumption Number of 14068..
Coal is third with an EROEI of 30, and a Material Consumption Number of 1185…
Fourth is gas with an EROEI of 28, and the lowest MCN of 572…
Fifth is concentrated solar panels with an EROEI of 19 without storage, and 9 with storage…
Sixth is wind with a EROEI of 16 without storage, and 3.9 with storage, and a high MCN of 10260…
Seventh and last, and with a staggering MCN of 16447 to produce an EROEI of 3.9 without storage, and 1.6 with storage, is Photovoltaic Solar…
Power Categories
While nuclear and coal provide reliable sources of electricity with the highest EROEI’s, they are inflexible and take time to power up and down as intermittent use would decrease reliability and increase maintenance costs, which means they tend to be perpetually creating electricity, and as such constitute baseload power to the grid… Also with an expected lifecycle of 50-60 years, it has a low cost of capital (Material Consumption Number) and with feasibility of future re-development and retro-fitting possibilities within existing (brownfield) sites…
Gas also provides reliable eletricity with a high EROEI, and far more flexible than either nuclear or coal and be powered up and down rapidly, they can operate as base load, intermediate load or peak load electricity generation, and also have 50-60 year lifecycles, low costs of capital, and retro-fitting potential…
Of the unreliable sources, Hydro provides a high EROEI for a high MCN and up-front capital costs with a very long life cycle (outside of mantenance) and potential for redevelopment, while Wind and Solar provide low EROEI’s for staggeringly high Material Consumption Numbers, with a 15-20 year lifespan and low current recycling rates for spent turbines and solar panels…
It is therefore one of the great successes of the “green” and “renewable” lobby, of lobbyists, subsidy hogs and lamestream media apologists, in presenting catastrophicly low EROEI’s and high MCN’s as “carbon zero” and low polluting energy generation by simply hiding the colossal up front costs in producing hydro, wind and solar technology, while over-emphasising and even demonising the all too visible up front costs if relatively low MCN’S of nuclear, coal and gas, while hiding their long life cycles, recyclability and high EROEI’s… Alas, Politicians and Civil Servants over the West have become slaves to such narratives and misinformation, which increases the costs and decreases the reliability of grid electricity for Western energy consumers…
The Energy Mix – The Pollution Trade-Off
From the above, it should be clear that there is a pollution trade-off between electricity generation…
Nuclear
Nuclear technology is an extremely clean form of electricity generation, not withstanding the historical cases of environmental disasters such as Chernobyl in the Eighties, and the problems of the removal and safe storage of toxic waste such as plutonium with a generational half-life, and therefore long term cost… While this does apply to early generation nuclear technologies, there is context to be discussed here… Nuclear energy generation in the West is heavily tied to, and is actually a by-product of Western Government development of nuclear weapons for war, and thus concentrated in Uranium, however there are other far safer and cost effective methods of creating nuclear power using materials such as Thorium, as was experimented by the US government during the Sixties, and popularised in the last decade by Kirk Sorensen with LFTR (Liquid Fluoride Thorium Reactor), where nuclear fuel is mixed with molten salt and largely negating the extensive cooling and waste disposal costs of 2nd and 3rd gen nuclear tech… There is also a gathering pace in the decentralisation of nuclear power by deployment of SMR’s (Small Modular Reactors) as the UK and Europe have to react to energy crises and energy wars, just in the last week is the reporting of an US company signing deals in Europe and the UK for 20MW plants, and according to The European Nuclear Energy Agency, which monitors nuclear issues, currently lists twenty one promising nuclear technologies on its SMR dashboard…
How Small Modular Reactors work
The global future of nuclear is bright with numerous possibilities and Next Gen tech, possibly catapulting EROEI into the hundreds, it cannot and is not being ignored by Eastern Nations, and it should not and will not be ignored by Western Nations either, as they suffer with energy crises and public discontent, will eclipse mainstream media demonising hysteria and the deep pockets of the renewable energy lobby, that is competing with nuclear for state energy subsidies…
Coal
Coal is a tried and tested source with a 200 year industrial energy pedigree, the foundation of the Industrial Revolution that broke out first in Britain during the late Eighteenth Century, and exported to the rest of the world in the 19th and 20th Centuries, is relatively cheap to mine and to burn, with the obvious trade-off of local air pollution and environmental destruction wherever it is mined and burned… The Industrial Revolution and the smog of British industrial cities, especially London, was synonymous…
With the authoritarian lurch leftwards of the post-WWII British government and Clement Atlee’s Nationalisation of the British Coal Industry from 1946, coal became a major component of the British electricity mix in the Sixties and Seventies, and a political weapon between labour unions and mostly Conservative governments, with Three Day Weeks (1974) and culminating with the miner’s strikes of 1984-85 against colliery closures, Thatcher’s breaking of the labour unions, and the privatisation of Britain’s coal industry from which it has never recovered…
The last decade of The Death of Coal is under the Tories watch… (Source)
As with most other energy generating resources, the burning of coal has become cleaner over time, and while it has currently been abandoned as an energy resource by Britain and most of the West, it has been the foundation of the developing world’s energy grids, especially China’s ascent to the world’s factory over the last three decades, as a cost effective and reliable method of energy generation… China and smog also became synonymous during this period…
The future of coal may look bleak currently, but I argue these morphing energy crises will lead to its resurgence in the West, present in the ground in most of the West and can be exploited and converted into cheap electricity, strengthening national security and energy independence, with much of its infrastructure still in tact in the West, if mothballed for now, and thus can be recycled or repurposed into new coal power stations, providing a critical baseload supply of electricity to Western national grids…
Gas
Gas like electricity requires a transmission network of ships and pipelines… Britain’s gas power stations and mains gas consumers plug into this network, and there are 32 gas powered stations in the UK today (source)…
Gas has the advantage of being a cheap and reliable energy generation method that burns a lot cleaner than coal, and is relatively abundant and cost effective to source onshore and offshore, with the trade off of being logistically much harder to transport over great distances than coal or uranium, due to its gas form rather than solid fuel…
This adds the requirement of infrastructure works, and the two most popular current methods of transporting gas is via pipelines, such as is present in much of the US, Europe, the Middle East, and Asia, or by being compressed into liquid form such as LNG and transported over the sea to deliver to onshore LNG hubs that also exist in much of the world, but at a far higher cost than pipeline gas…
Britain has no shortages of gas in the North Sea, and similar to coal can be extracted domestically which boosts National Security and Energy Independence, however the British Government’s hostility towards gas alongside coal on “climate” grounds, in nonsensical windfall taxes and decreasing permits to extract North Sea oil and gas, makes this gas difficult and thus costly to extract, increasing gas costs for electricity generation that is borne by the British population, and has forced Britain into importing gas from Europe, Russia (pre Ukraine) and the US…
Just a taste of the complexity of the European gas transport network (source)…
Gas while currently declining as a Western electricity source alongside coal, both losing market share to renewables, will also likely see a resurgence in the wake of the renewable energy crisis, and with power stations and transmission infrastructure already built, will provide Western politicians with a cheap source of electricity generation, and some respite from economic crisis and upcoming public discontent…
Hydropower
Simplified diagram of hydropower plant… There are hundreds of hydropower stations in the UK, ranging from tiny to huge, and few with pumped storage that recycles the water for re-use…
Hydropower gives ample and nearly free electricity generation once built, at the trade-off of having often colossal up front building costs, environmental destruction and high carbon footprints… Hydro is also geography specific, and requires sources of water in rivers or lakes, with or without attendant dams, and therefore often away from the dense population centres where electricity demand is most concentrated, and without an economically justifiable case for grid connection, hydro can suffer from the “stranded electricity” problem, as seen in China’s Sichuan Province hydropower splurge since 2000…
Hydro can be plain vanilla or with pumped storage, with the water stored and recycled to power further cycles, mimicking a battery thus making hydro far more reliable (and profitable) for an electricity grid, in that it can be used as a back-up system of rapid release peak load power… For an example, there is Dinorwig Power Station in North Wales which can produce up to 9.1 GW over a few hours (and at peak grid demand and most profitable time), which protects the grid during peak usage, the water can then be pumped back up from bottom to top lake at off peak times (and prices), the spread between electricity prices received and spent can be captured, while also providing millions of people between North Wales and the North of England with electricity at the time when it’s most needed….
The biggest man made cavern in Europe was excavated between two lakes, to create Dinorwic Power Station (Source)…
Wind
Wind power generation in the UK (Source)…
Wind can also be plain vanilla or stored, and while providing a half decent EROEI of 16 without storage, it collapses to less than 4 including storage, which is catastrophic and ruinous from a cost perspective, but has been embraced by Western Governments as critical to their energy policy… They are also a second derivative fossil fuel energy source for converting clean wind into “clean” electricity, but have originated with diesel guzzling excavators and lorries, coal and gas furnaces and smelting plants, and the carbon generation industries of cement for concrete, aluminium, copper, rare earth magnets and everything else, and then fabricated in electricity powered factories (most likely in China), and then transported by diesel powered ships or lorries to their final on or offshore destination for installation… There is zero chance that renewable technology could even be produced absent of fossil fuels, so wind turbines can never be used to produce more wind turbines due to the monumental environmental destruction just in sourcing the materials to do it, which the West has outsourced to the East in the last two decades anyway… Would it not have been more economically prudent of the West to burn coal in its own country to generate electricity at an EROEI of 30, rather than import coal burning concrete and metal turbines from their biggest geopolitical rivals for an EROEI of 4?
What is the carbon footprint of a metric tonne of neodynium iron boron rare earth magnets (Source)?
There is also the main drawback to wind power of intermittency, in that it is not predictable and therefore reliable without storage, i.e batteries and further invisible but eye watering second derivative products of fossil fuels, which also collapses the EROEI of wind down to useless… The unreliability of wind power also has second hand effects upon electricity grids, with over-production at times of high wind leading to electrical overload on national grids creating disruption and even blackouts, while when the wind is not blowing the contribution to the grid is zero, which can also lead to grid disruptions and even blackouts… Thus the higher wind energy becomes a part of national electricity grids, the more expensive and unreliable the electricity becomes over time, driving energy crises and shortages, which will also contribute to its eventual demise…
Solar
Concentrated Solar Panels provide a respectable EROEI of 19 without storage, with storage dropping to a measly 9, while individual Solar PV has an EROEI of 3.9 without storage, and 1.6 with storage, and with Material Consumption Numbers off the charts, solar panels are also second derivative fossil fuels for mining and refining of polysilicon and metals in tremendous quantities, and with 80% of solar panels manufactured in China, the West has merely exported its carbon generation and environmental destruction to the East, whilst importing the finished product “clean and green” into the West and pretending that this pollution doesn’t exist or hasn’t been generated… Solar also suffers from the same weaknesses as wind in that they are vastly less effective on cloudy days when the sun isn’t shining, and they are useless during the long nights of Winter when grid electricity demand for lighting and heating is at its highest…
I will make it clear here that I fully support the individual pursuit of renewable and storage technology for domestic energy security, indeed the last two years of surging electricity shortages, costs and energy reduction schemes and associated bailouts by panicking governments and media in the wake of the Post Covid energy supply shock, have opened my eyes to the increasing fragility and incompetence of the people supposed to be running our energy grid, that has forced me into contemplating the large up-front costs of solar panels and battery for my own property, that would insulate me to some extent from a faultering governmental grid… The price of energy independence at a conservative estimate of £20,000 for generation and storage, as compared to an annual grid bill of around £2,000, would give a ten year breakeven point, within a lifespan of possibly twenty years… While this is an expensive initial outlay, if grid electricity costs doubled from here, would bring down that breakeven window down to five years, and in the case of blackouts would prove to be priceless for everything that requires electricity… It is likely therefore that energy crises caused by centralised grid renewables, will lead the decentralisation of off grid renewables as more individuals are forced to swallow the up front costs for reliable and cheap energy generation, and with an existing connection to the national grid, we may even see off grid markets contribute surplus electricity toward the stability of on grid electricity!
Coal, gas and nuclear, reliable electricity have been sidelined over the last 25 years by renewable and unreliable electricity, which will lead to energy crises… Expect the next 25 years for this chart to revert, with the renaissance of coal, gas and nuclear (Source)… Note also that the UK’s electricity capacity has fallen over the last two decades, while estimates of an additional one million immigrants a year coming into the UK is driving up demands… People wonder why their electricity costs are going up?!
We are likely at peak wind and solar power for national grids in Western Nations, as the chronically low EROEI’s, low lifecycle, high recycling cost, and intermittency and unreliability of the weather will expose Renewable Technology as a catastrophic mis-allocation of capital, currently translating into soaring electricity costs and economic crisis, to the public, politicians, and media world, in slowly then suddenly turning their backs on second derivative fossil fuel sources, and toward primary fossil sources… Unreliables are really a low interest rate phenomenon, where cheap debt and debt service costs have blown huge bubbles and capital mis-allocation into unproductive and unprofitable technology, that is coming to a crash in a new normal of positive interest rates and cost of capital, increasing debt service costs, and the surging costs of fossil fuels due to the Covid Supply Shock, which is translating into the surging costs of wind turbines and solar panels, reducing EROEI’s even further, and leading to sector bankruptcies, and taxpayer bailouts…
The Electrical (National) Grid
General layout of electricity networks… The transmission grid allows power stations to plug in, and the distribution grid allows consumers to plug out… Voltages and depictions of electrical lines are typical for Germany and other European systems (Source)…
The electrical grid connects power stations and supply, with consumers and demand… Between power station and consumer are electrical sub-stations that step voltage up or down, above or under ground transmission wires and cables, and distribution sub-stations… Electricity grids therefore move the electricity from where it is produced, to where it is needed by the general public and businesses…
National and international grid networks are incredibly complex, and one of the miracles of the 20th Century and the modern world, that is realised or appreciated by hardly anyone, and for the vast majority of the General Public electricity merely comes out of a socket! As a result of virtually 100% up-time for the last two generations, the Western public has become lazy and entitled, forgetting how things actually work, including the electricity they require for lighting and heating, cooking, television, internet, and if driving an electric car, even transport… All our lives are therefore intrinsically linked to and dependent upon electricity today, and I argue it will likely take further years of price increases, business closures, economic destruction, unemployment and poverty, and even blackouts for the Western Public to wake up to how our electricity grid works, and how politics and media manipulation of subsidies and grift heavily influence electricity generation and the costs we pay for electricity… If the General Public don’t wake up, then we are headed back to a pre-industrial era!!!
The electrical grid, like power stations, can be networks that are operated by private companies, public companies owned by the government, or directly owned by the government (nationalised), and is often a combination of all three… This naturally brings politics into the equation, as government laws and taxes can subsidise expensive and unreliable forms of electricity, at the expense of cheap and reliable forms of electricity, leading to electricity shortages, crippling prices, and general social discontent…
The Electrical Grid in Britain
The National Grid of Great Britain (Source)
Working from Nikola Tesla’s three-phase high-voltage distribution, Charles Merz would establish this system in the UK, at his Neptune Bank Power Station near Newcastle upon Tyne in England’s North East, opening in 1901, and by 1912 had developed into the largest integrated power system in Europe… The rest of the country, however, continued to use a patchwork of small supply networks, in a decentralised and disorganised manner…
In 1925, the British government asked Lord Weir, a Glaswegian industrialist, to solve the problem of Britain’s inefficient and fragmented electricity supply industry… Weir consulted Merz, and the result was the Electricity (Supply) Act 1926, recommending a national “gridiron” supply system be created, through the Central Electricity Board… This centralisation and standardisation of the grid would connect more power stations together, sending electricity further distances, contributing to up-time and reliability of electricity supply…
The grid was fully nationalised by the Electricity Act 1947, also creating the British Electricity Authority… In addition Labour would pass the Coal Industry Nationalisation Act of 1946, Transport Act of 1947 nationalising canals, sea and shipping ports, railways, roads, and even buses, the Gas Act of 1948, and the Iron and Steel Act 1949, thus Britain’s infrastructure became completely centrally planned, creating future tugs of war between political parties, labour unions, and competing energy sectors… In 1954 the United Kingdom Atomic Energy Authority was established with the Atomic Energy Authority Act 1954, making the UK one of the first countries to pursue nuclear energy and electricity generation, although concentrated in Uranium as a by-product of its nuclear weapons programs…
This centrally planned energy infrastructure would see strains and tensions during the Sixties and Seventies, and by the the Eighties would be radically altered by Thatcher’s Conservative Government, in the deregulation and “privatisation” of British infrastructure, essentially the devolution of central government control to cartels and government owned or subsidised corporations… Thatcher would crush Britain’s coal industry and onshore labour based energy workforce, shifting toward coal imports and energy dependence, while transitioning electricity generation toward the off-shore and North Sea heavy gas industry…
The onshore Renewables Industry would benefit from the New Labour years with Britain’s increasing foray into unreliable and expensive energy, and under Zero Interest Rate Policy of the post 2008 financial crisis and under the Tories, would explode the extortionate susbsidies paid to rich land owners to accommodate solar and wind farms, up to and until the dying days of David Cameron and the clampdown on on shore wind farms and subsidies, for offshore wind farms and subsidies since 2015…
Brictain’s Energy Mix Today
What did the UK’s electricity generation mix look like in 2022? (Source)
Unreliable and intermittent electricity sources are pushing up to a third of the UK’s supply in 2022: is it any wonder the UK is undergoing a severe energy cost of living crisis, shortages, and rationing?
The World Electricity Grid
Outside the Developed World bubble, there are still over a billion people without reliable access to electricity (Source)
National grids, especially in the West, have become integrated and effectively international grids, allowing countries to buy and sell electricity from each other… On the one hand this adds greater flexibility and opens up bigger markets for a nation’s energy companies, and should in theory lead to even greater grid stability in the short run, while on the other hand easy and cheap imported electricity can undermine domestic production, national security, and breed a dependence upon foreign energy sources in the long run…
The UK’s Electricity connectedness with Ireland and the European Continent (Source)… Reliable French nuclear power is critical to Britain’s energy needs during energy spikes in the evenings, if the wind is not blowing… Do you think being dependent on your 1,000 year old biggest geopolitical rival is wise strategy, when France and the rest of the European continent is suffering with its own energy crises?
There is also the recent geopolitical example in the heart of Europe, as Germany spent the last decade becoming addicted to cheap Russian pipeline gas while dismantling its coal and nuclear sectors, that bestowed upon it cheap electricity generation underpinning its hegemony as Europe’s factory, a competitive edge with other Euro Nations in industry and manufacturing, while running trade surpluses with the rest of the world… Alas, all that came to an end with Putin’s invasion of Ukraine, the suicidal sanctions Germany placed upon its greatest energy exporter, and coupled with “whoever” blew up the NordStream pipelines and the external sabotage of German energy policy, has forced it dependent upon LNG gas imports from North America at four times the prices, while retro-engineering its whole gas infrastructure to LNG terminals that will take years, which also gives you a clue to “whoever” blew up NordStream in the first place… Due to its further over reliance on unreliable electricity of wind and solar for grid supply, Germany is now relying on coal, and reliable baseload electricity, for 33% of its power…
The greatest geopolitical Act of Terror in history is unleashing a historic energy crisis that will cost Germany and the EU trillions, and likely wipe out its trade surpluses derived from cheap Russian gas (Source)…
The Developed World’s electricity generation has shifted over the last two decades from a reliable and cheap energy mix toward an unreliable and expensive energy mix, while the Developing World’s less mature infrastructure grids are still producing cheap and more reliable electricity from gas and coal (with developing Eastern forays into nuclear power), giving the East a lower cost energy arbitrage, that has been exploited by Western Corporations for the offshoring of supply chains and jobs in energy, industry and manufacturing, over to China and the greater East… While this has bestowed upon Western consumers cheap Chinese made goods and products, it has come at the huge societal cost of the hollowing out of Western industrial and manufacturing sectors and expensive made domestic goods and products, while also exporting our carbon footprint and environmental destruction to China and the East, out of sight, while patting ourselves on the back in the West when we import back these goods ready made, and “carbon-free”… However, this three decade long trend of globalisation and cheap foreign goods is now at an end, and giving way to the trend of de-globalisation, inflation, and the return of nationalism and re-shoring of supply chains in energy and industry…
Delving further into the topic of National Security, becoming dependent upon foreign sources of coal, gas, electricity, steel, aluminium, and all of the goods created for our modern demands is a disaster, especially when the trade deficits Western economies have run with Eastern economies have built up the rival economic powers in the BRICS… While the West had the ascendancy and financial power (through sanctions and regime change operations around the world), since the Russia sanctions the East is visibly working to develop alternatives and workarounds to wean themselves off Dollars and Eurodollars, the flipside of this geopolitical coin is that newly re-discovered National Security, Energy and Commodity independence concerns will have to drive the West and its Corporations out of China and the East, reducing or eliminating trade deficits, also known as the on-shoring of Western Corporations and supply chains, most importantly energy, steel, aluminium, semi-conductor chips, etc, etc… This de-globalisation trend of decentralising and fracturing the global monetary system and by extension the global economy, will be highly inflationary for both West and East, as on-shoring all those jobs and industry back to the West will require a return to cheap and reliable energy, bringing National Security and Energy Independence back to public consciousness, that will require the ditching of renewable technology (mostly Made in China today), for a balance of coal, gas and nuclear electricity generation, which can be domestically produced or imported from inside the West…
Grid Demand and Needs
Grid demand by time of day and season (source)
By the nature of electricity generation if it is not used, it will be wasted, and despite all the hype surrounding electrical batteries and the batteryfication of national grids, the amount of rare earth materials needed to be mined and produced and imported from future hostile countries, alongside the monumental environment destruction and carbon footprint of mining the lithium and cobalt of the Earth, would be so ruinous in cost making it little more than a pipe dream…
So in the absence of batteries, we have a mismatch between the supply of electricity that is continuous (excluding renewables), and demands on electricity that is sporadic in nature, with ramp ups in demand between 4am and 8am when people are getting ready for work, and a further ramp up between 4pm and 10pm when people are home after work, and a steep drop off during sleeping hours… While these periodic demand peaks and troughs become predictable over time, this does not alter the fact that electrical grids consisting of 100% up-time power sources such as nuclear and coal, cannot be ramped up and down to match demand, and as such must over-produce electricty and waste to cover the worst case scenario, highlighting the value and flexibility of gas as base load and peak load electricity… It is also at peak demand and load that you’d hope that unreliable and intermittent electricity could help fill the gap, but outside of batteries and storage there is no predictable time when the wind is blowing, and peak demand hours are during the hours of darkness for half the year which makes solar useless half the time… In fact the most effective method of rapid deployment peak load electricity is hydro power with pumped storage, such as the already mentioned Dinorwic Station in North Wales, which can generate up to 9.1 GW in just a few hours during peak demand, and pumping the water back up during the early hours and off peak demand, which makes hydropower extremely valuable within a more diversified energy mix…
This brings us to solutions to mitigate electrical waste, or ways to store electricity without the enormous financial and environmental costs of batteries…
Bitcoin And Energy
The Bitcoin protocol was launched on the 3rd of January 2009 as the project of one man, Satoshi Nakamoto, an online distributed ledger and currency system, based upon a Proof of Work consensus algorithm, with miners expending electricity to power, protect and secure the Bitcoin network, and recompensed in newly issued bitcoins, at 50 every 10 minutes back then…
In the earliest days, Bitcoin mining began on computers and laptops and CPU (Central Processing Unit) mining, then evolved within the first couple years to more electricity intensive GPU (Graphic Processing Unit) mining, and by 2012 had evolved to the far more electricity intensive ASIC (Application Specific Integrated Circuit) mining equipment…
From the Age of ASIC’s onwards, electricity costs became increasingly important to mining Bitcoin, reflected in the centralisation of Bitcoin mining in low cost electrictity countries, especially coal and hydro heavy China, also creating China’s near exclusive ASIC miner manufacturing industry, in Bitmain, MicroBT, Ebang and Canaan, that still dominate Bitcoin ASIC manufacturing today, nearly two years since the China mining ban…
As recent as August 2019, Chinese mining pools were estimated at 80% of global Bitcoin hash rate…
This market monopoly was fractured in May 2021, when the Chinese Communist Party officially banned Bitcoin mining throughout the country, as they struggled with grid strains and increased demands on electricity generation, while also in the process of launching of the e-Yuan and the Chinese government electronic currency that Bitcoin would be likely competing against in the future… Officially today there is no Bitcoin mining in China, although there are various rumours that the industry still exists underground and clandestine, using VPN’s and other methods of disguise…
Bitcoin Mining Market Map today (Source)
Bitcoin Mining Today By Geography
The exodus of mining from China has led to a global migration of Bitcoin hashrate to the United States and its diverse energy mix, coal heavy Khazakhstan and energy creating superstates Russia and Canada (source)…
Bitcoin Mining Today By Source
Bitcoin mining by source, according to Batcoinz research and methodology (source)… Add 23% hydro, to 14% wind, solar 5%, and other renewables at 2.4%, means that 44.4% of Bitcoin mining comes from renewable sources…
Bitcoin does not discriminate in energy sources, and due to its flexibility will latch on to the cheapest sources of electricity, be they reliable or renewable, thriving in coal heavy Khazakhstan, gas and hydro heavy Russia, and renewables rich Western Countries such as the US and Canada… Bitcoin mining is far more distributed by geography today than it was before the China ban, and its energy mix is also distributed by sources within these geographies, wherever it can find the cheapest rates of electricity, whether on or off grid…
Bitcoin Consumption Of World Electricity Today
To be clear here it is difficult to get exact numbers on Bitcoin’s electricity consumption today, because of a myriad of factors which again evokes the saying lies, damn lies and statistics, and so having read around a bit I estimate Bitcoin’s total consumption of the world’s electricity at between 0.1 and 0.5%, with an estimated 50-60% of that coming from renewable sources… So after years of mainstream media hit pieces catastrophising Bitcoin’s electricity usage and environmental destruction, even today with hash rate (and security) at all time highs along with its electricity consumption, Bitcoin consumes a fraction of one percent of global electricity supply usage (and most of that from second derivative fossil fuel renewable sources), that is far less I would estimate than the amount of stranded or wasted electricity being produced in the world today, the same stranded and wasted electricity that is Bitcoin is attracted toward, as we will discuss further later…
Furthermore, if the climate cult can tout the electrification of cars as “zero emissions” technology, then it is only fair that the Bitcoin cult gets to claim the same thing… So Bitcoin, like EV’s, is a fully electrified technology with zero direct emissions, and only differentiates in that it seeks off grid and stranded, and more likely renewable energy such as hydro and wind, over the electric cars that consume near exclusively on grid electricity, and subject to a far higher fossil fuel energy mix…
Second derivative fossil fuel sources: Zero Emissions Technology
Why Bitcoin Operates Like An Electricity Battery
Henry Ford imagines an energy based Proof of Work system to replace the old Proof of Work Gold Standard that was hijacked by bankers and Proof of Stake during WWI… From the New York Tribune, Sunday, December 4th, 1921…
When you mine for bitcoin, you are basically converting your electricity into a digital store of value and currency, that has practically zero storage cost (unlike a conventional battery) for as long as you require, and it can be transferred at virtually zero cost within the hour to another, a highly liquid battery with the trade off of being a very volatile battery currently, with daily price swings that can spook or downright scare risk averse players in the short term, however in the long term it could become a premier store of value for the world’s energy and electrictity industry and grid…
Imagine a future ten years out, where energy companies have an in-house Bitcoin mining unit, while they have to pay up front for the machines and capital cost, they can mine stranded or wasted electricity virtually for free, which also means they all have Bitcoin on their balance sheets, and can settle between companies in bitcoin, that connects the electricity grid through the internet to exploit national and international energy arbitrage, which would standardise and stabilise electricity grids worldwide… It’s an interesting thought experiment…
Early Examples Of Bitcoin Mining For Energy Companies
Hydropower in Sichuan Province, China (2013-2021)
China’s post 2008 construction boom that produced the infamous mis-allocations of capital in Ghost Cities, also found its way into engineering projects, and with hydropower which generates 80% of the electrical power in Sichuang Province today, that were mostly non-pumped storage hydro dams and turbines built on rivers, and largely seasonal due to China’s rainy season running from May to September… During the dry season mining Bitcoin would not be as economically viable, but the overabundance of electricity produced over a 5 month wet season would be a magnet for Bitcoin miners to make the journey every year and back since 2013, in effect monetising what would be otherwise stranded and wasted electricity, into Bitcoin… Until May 2021…
Bratsk Hydroelectric Power Station, Siberia (2018-)
The Bratsk Hydroelectric Power Station is the largest hydroplant in Russia, located in Irkutsk Oblast, on the Angara River, built by the Soviet Union to power an aluminium smelting plant, since redeveloped into a Data Centre, and to mining Bitcoin… Bitriver set up mining operations in 2018 due to the cheap electricity and cold climate which is uniquely suited to overheating bitcoin miners (source)…
Mechanicville Hydroelectric Plant, New York (2021-)
Due to contractual wrangling over electricity prices between Albany Electric Corporation and the National Grid threatening one of America’s oldest power stations with closure, Bitcoin miners swooped in to offer triple the margins of the grid, thus making it far more profitable and sustainable for future operations (source)…
Methane Flaring
Why Bitcoin Mining Is Being Touted as a Solution to Gas Flaring (top source), Publicly Listed Energy Firm Equinor Exploits Gas Flaring in North Dakota to Mine Bitcoin (bottom source)
Rather than being an opportunity for geographical regions or individual power plants, methane flaring is potentially a far bigger deal because it affects the whole oil and gas industry, and the foundation of the industrial world economy… When drilling for wells, oil companies often strike trapped gas formations which makes the disposal of methane a curse for the oil industry, as it cannot often be conveniently stored or transported to gas markets, i.e stranded energy, and it is estimated that the gas flared every year is equivalent to Europe’s total natural gas import from Russia before the sanctions imposed over its invasion of Ukraine… Which brings us to flaring that methane gas into carbon dioxide and creating electricity to mine Bitcoin, as ExxonMobil have piloted alongside Crusoe Energy… Further examples of flaring Bitcoin include Giga, who work with 20 oil and gas companies in the US, Upstream Data has 300 Bitcoin mines operating over the US and Canada, Kirkwood Oil and Gas, and many other smaller players in the oil and gas space…
It should be clear that conversion of stranded and wasted energy into electricity to mine Bitcoin, has tremendous value to energy companies in both the fossil fuel and the renewable energy space, which also includes wind and solar that I have not even mentioned and which contribute near 20% of Bitcoin’s hash power already, and Bitcoin will become even more important in the near to long term future of the energy and electricity grid proper, while currently it is more successfully exploiting stranded and off grid energy, and at the peripheries, as per above examples…
Why Bitcoin Is Attracted To Renewable Energy
Bitcoin is generally attracted towards renewable energy such as hydro and wind, because they are intermittent and unreliable, and therefore inherently more wasteful… Bitcoin’s flexibility can hereby exploit these unreliable electricity sources better, because Bitcoin miners can be easily transported to and from site and turned off and on within a few minutes, with cat like reactions to the extremes of rain, wind and sun… In times of over-production that the grid cannot possibly utilise in demand at that time, can be converted into Bitcoin heavily and at extremely cheap rates, and during times of electricity shortages Bitcoin miners can be turned off so that electricity is conserved for other purposes, reducing strains or blackouts…
In fact there is the case to be made that Bitcoin will become invaluable in the near future for the renewable energy industry in the West, as energy crises and/or blackouts will cripple economic production and growth, and will hopefully open the eyes of the Western Public and especially Western Politicians, for the need to create cheap and reliable sources of electricity for national grids and consumers, which does not include wind and solar… Energy crisies and economic misery will backlash against political lobbies and the grid renewable industry, as the Covid Supply Shock drove up the price of the coal and gas that produce the cement, aluminium, steel, copper, quartz and rare earth metals within these gargantuan off-shore wind turbines and on-shore solar panel fields, which make renewables ever more costly and unprofitable… This will increasingly drive wind turbine and solar panel production from the energy expensive West, towards the energy cheap East (China already produces 80% of solar panels and outcompeting the rest of the world in wind turbine production), becoming a question of National Security at some point, as de-globalisation and re-shoring supply chains becomes the norm… Furthermore, global Central Bank interest rate hikes have already created a banking crisis, which is morphing into the next credit crisis, that means for the next few years banks will have to contract credit and loans to the broader economy, constricting renewable companies and the industry in general, as increasing debt service costs reveal the mis-allocations of capital that flooded into grid renewables during the last 14 years of near zero interest rates… Ultimately, the fate of the renewables industry and billions in subsidies comes down to politics and Politicians, who are manipulated by the “public opinion” that is fabricated by the mainstream media for public consumption, however as electricity costs surge then so does economic destruction, unemployment and public discontent, that will force the media u-turn that steers political discourse away from renewables and towards reliable, cheap and domestic energy sources and electricity generation, coal, gas and nuclear…
The first step of a sanitised national energy policy, is the fast tracking of coal and gas production (deregulation and tax breaks) to stimulate domestic energy extraction and production, fast tracking the construction/retro-fitting of more coal, gas and nuclear power stations, alongside a moratorium on further renewables projects as grid electricity providers… The shift from renewable to reliable cannot happen in a vaccuum or overnight, and may take the next decade to transition, and because this renewable energy is already built and installed on and off shore, for the rest of its 10-20 year lifecycle can intermittently keep producing electricity until dismantled… So for the next decade at least, falling from political favour, the renewables grid industry and companies can depend on Bitcoin to mine stranded and wasted electricity, adding bitcoin on their balance sheets, ride the price of bitcoin into the hundreds of thousands and millions, protect their solvency and profitability, and even making them profitable for renewal and further lifecycles… If, that is, Politicians and politics embrace Bitcoin mining in National jurisdictions, and even embrace Bitcoin as National Security policy…
Bitcoin And National Security
Bitcoin is a ledger and currency system that can be used for peer to peer trade between individuals and energy companies, this also naturally applies to countries… In previous posts I have discussed Bitcoin as a geopolitical weapon that can be used by governments to evade each other in world trade and financial sanctions, and because of its uniform and distributed network operating simultaneously in a world of two hundred colluding and competing Nation States, Bitcoin would divide and conquer governments as regulation would vary from country to country, driving bitcoin adoption in different ways and degrees…
Quoting from my June 2017 post:
“Bitcoin And Banking – Divide And Conquer
I have described how banking and Bitcoin can work but banking is anything but monolithic and there are always factions and tensions, with competing interests in competing nations, in short there is division, and where there is division there is weakness to exploit… If you deal with Bitcoin it is both a threat to your long term future but also a short term opportunity, because Bitcoin gives you a gateway outside currency monopolies (like SWIFT), Bitcoin shatters currency monopolies by giving the banks the gateways to bypass and evade each other, and there is no honour amongst thieves… This allows banks a new level of flexibility and helps decentralize and eventually neutralize banking, it allows individual banks to work with each other directly (Bank A —> Bitcoin —> Bank B) and so allows them to evade and avoid shakedowns from having to use intermediaries and monopolies constructed by Globalist Bankers in their scheme to extract the world, and the more profitable operations and margins become for those banks… And by dividing banking Bitcoin also gets the wealth of those ALL these banks using the protocol, banking only makes Bitcoin stronger and more valuable in market cap and the price of the currency… Bitcoin is the vampire squid that will suck legacy banking dry, it all depends on how banking regulations are applied to work with it or not…
How Bitcoin Affects The Petrodollar – The Eastern Backdoor
If you have followed the geopolitical movements in the East for the last few years then you will have noticed a pronounced move from China, Russia, and Iran amongst others, for bilateral trade in national currencies (Yuan, Ruble, Rial) or by using gold, or for goods and services, and thus cutting out the Petrodollar world reserve currency and reducing its extraction of foreign resources, however if the East at anytime decided to ditch the dollar en masse there would be a near certain world war instigated by the West to protect this global instrument of pillage… For a more peaceful and gradual transition of monetary powers alternative backdoors need to be developed, as we have witnessed with the Shanghai Gold Exchange that allows Russia for example to trade and hold gold in China, and Bitcoin for Eastern trading nations could become invaluable as a backdoor and workaround for the petrodollar… For example say were China and Russia to both regulate Bitcoin, then both their banking systems and national governments could then use Bitcoin as an interbank pipeline between Russia and China, directly cutting out the dollar and SWIFT starving the West of resources while also increasing the resource value of Bitcoin… If you want to utilize Bitcoin then you must hold bitcoin reserves which any bank or central bank who works with Bitcoin can do, however with only 1,800 freshly mined bitcoins per day in liquidity currently and with only a puny $45 billion in market cap in the context of hundreds of billions or even trillions in bilateral trade, the Bitcoin bubble could have a lot further up to travel and I do expect at some point for centralized legacy institutions to start using Bitcoin and holding bitcoin reserves, one more reason I question if Bitcoin is at all in a bubble?“
These words are nearly six years old and becoming more prescient by the day, in the last few weeks there have been moves afoot by the BRICS and the East to circumvent the West’s financial monopoly, for now by use of the Chinese Yuan with its own problems in becoming an alternative global reserve currency to the Dollar, in that it is pegged to the Dollar, has capital controls that inhibit its reach for foreign investors, and runs trade surpluses with the rest of the world, and the opposite of Triffin’s Paradox and the trade deficits inherent in exporting your currency to the rest of the world… It is also China that decided to ban Bitcoin exchanges in 2017 and mining in 2021, making a mockery of my anticipation and expectation that as the world’s Bitcoin mining centre during that time, China was uniquely positioned to adopt and export Bitcoin trade and settlement to the rest of the world, bypassing the West’s financial matrix… Alas, the CCP deemed Bitcoin more of a long term threat than short term opportunity and squandering its first mover advantage, even as we today see Hong Kong (Chinese controlled) start to position itself as an off shore hub for the re-embrace of Bitcoin (source)… Russia, on the other hand, the victim of direct Western sanctions, in freezing of foreign reserves and cut-off from banking networks, is working toward designating Bitcoin as a foreign currency for international trade, and with cheap Russian electricity already home to 10% of Bitcoin’s global hashrate today, Bitcoin mining and the Russian Government may well become more intertwined in the future…
In any case, what is true for Nation States in using Bitcoin as a settlement currency, they can also go one step further by using their electricity grids to mine bitcoins and put on their balance sheets as reserves, in a similar way to how governments and Central Banks have used gold historically, as a sovereign asset outside of any counter-party and immune to debasement and financial sanctions… Indeed Bitcoin is superior to gold in that is does not require geological exploration to discover and extract deposits, it can be mined simply by converting readily available electricity into bitcoins and can be done by any government really on any scale, dependent upon how its regulated by said government and/or central bank, and this in my opinion will become of increasing importance to Nations, small and large, in the near future as a means of escaping the Dollar and Eurodollar shortages that has crippled the world economy, especially peripheral countries since 2007…
Bitcoin Adoption By Nation States
El Salvador became first of the world’s 195 Nation States to make Bitcoin legal tender on the 7th September 2021, and the Central African Republic became the second on 27th April 2022, an audacious move toward the future in a country where 90% currently have no access to the internet, however that could all change now as CAR attracts the ingenuity of the Bitcoin ecosystem to solve its infrastructure problems… There has also been reporting on the Islands of Tonga and Fiji adopting Bitcoin as legal tender to solve their own foreign currency problems, being dependent on their diaspora populations living abroad to send money home, contributing 11.3% of Fiji’s GDP and a mindbending 45.5% of Tonga’s GDP in 2021, these island states are hostages to the Eurodollar, and Western Union and Moneygram that monopolise international remittances and charge extortionate fees on sending money… Adopting Bitcoin as legal tender would practically eliminate all that friction... There is also Panama where Bitcoin has been clearly regulated and while not strictly legal tender, there are no capital gains taxes on Bitcoin investments which puts Bitcoin on an equal footing with the Panamanian Balboa and the US Dollar, the official currencies…
What do these five countries have in common? They are all small countries with large diasporas, and a by-product of their dependence on foreign Western Currencies such as Dollars, Aussie and NZ Dollars, and for the CAR, the French Colonial Franc, which sucks the best and brightest out of their home nations to foreign climes to work to send money back home, at the very peripheries of the global financial system… Indeed it is small and peripheral countries that are most at the mercy of the Eurodollar System, where currency shortages are at their most acute, and by extension banking systems, loans and credit based shortages… Most of these countries populations are unbanked, which inhibits exchange and economic production, and those that are banked are hostages to remittance rackets like Western Union that can charge up to 20% in fees for moving money for some of the poorest people in the world, which also makes Bitcoin and the adoption of an alternative monetary network worth the risk for these countries and their future prospects, by advertising themselves to the global Bitcoin ecosystem as places to come and build, and in the future this will apply especially to mining Bitcoin, as these countries can now create their own currency by the simple conversion of their electricity…
Examples Of Bitcoin Mining By Nation States
Iran
While Iran has peridically clamped down on Bitcoin mining and individuals over the last few years due to electrical shortages, there have been persistent rumours of the Iranian Government sanctioning its State backed electricity grid to mine bitcoins for its own purposes, due to the near complete economic embargo the US led West has placed upon it, oil exports having plummeted 70% over the past decade, leaving the country in a deep recession with soaring unemployment and periods of civil unrest…
Quoting further from this source,
“Converting Oil to Crypto
Bitcoin and other cryptoasset networks run on electricity, and quite a lot of it. Bitcoin miners run power-hungry computers, which process new transactions and add them to the blockchain. In return, the miners are rewarded with bitcoins – both from transaction fees as well as the minting of new bitcoins. The mining process effectively converts energy into cryptocurrency.
Iran has recognised that Bitcoin mining represents an attractive opportunity for a sanctions-hit economy suffering from a shortage of hard cash, but with a surplus of oil and natural gas.
Collaboration with Chinese Businesses
In 2019 Iran officially recognised cryptoasset mining, later establishing a licensing regime that required miners to identify themselves, pay a higher (but still very low) tariff for electricity, and to sell their mined bitcoins to Iran’s central bank. Thousands of unlicensed mining farms have subsequently been identified and shut down – including in mosques, which receive free electricity.
The prospect of cheap power for Bitcoin mining has attracted significant inward investment, particularly from China, a leader in the industry. Several Chinese businesses have been granted mining licenses and have established operations in the country. These companies have described establishing good relationships with “the army in Iran”, and one particularly large facility in the Rafsanjan Special Economic Zone was reportedly built in collaboration with a “military organization”.
How Much Bitcoin Mining Takes Place in Iran?
What is the scale of Iranian Bitcoin mining? Exact figures are very challenging to determine, but Elliptic estimates that Iran-based miners account for approximately 4.5% of all Bitcoin mining [Bitcoin mining in Iran is down to 3.1 today from my above source]. This is based on data collected from miners by the Cambridge Centre for Alternative Finance up to April 2020, and statements from Iran’s state-controlled power generation company in January of this year that up to 600 MW of electricity was being consumed by miners. This level of Bitcoin mining would currently bring in annualised revenues of close to $1 billion.
Bypassing Sanctions – Through Bitcoin Mining
The Iranian state is therefore effectively selling its energy reserves on the global markets, using the Bitcoin mining process to bypass trade embargoes. Iran-based miners are paid directly in Bitcoin, which can then be used to pay for imports – allowing sanctions on payments through Iranian financial institutions to be circumvented.
This has become all but an official policy, with a think tank attached to the Iranian president’s office recently publishing a report highlighting the use of cryptoassets to avoid sanctions.
Many of those making the Bitcoin transactions and paying the fees to Iran-based miners will be located in the United States – the very country spearheading the sanctions. As the US government considers whether to lift some sanctions on Iran in exchange for a return to a nuclear deal, it will need to consider the role that Bitcoin mining plays in enabling Iran to monetise its natural resources and access financial services such as payments.
In the meantime, financial institutions should consider the sanctions risk they are exposed to due to Iranian Bitcoin mining – particularly those that are beginning to offer cryptoasset services. If 4.5% of Bitcoin mining is based in Iran, then there is a 4.5% chance that any Bitcoin transaction will involve the sender paying a transaction fee to a Bitcoin miner in Iran. Financial institutions should also be on the lookout for crypto deposits originating from Iranian miners that are seeking to cash-out their earnings.”
Venezuela
Sanctions hit Venezuela, having previously jailed private Bitcoin miners in a country where electricity is virtually free for the public, turned to converting nationalised electricity into bitcoin for exchange into Dollars and Euros (Source)…
El Salvador
While the Iranian and Venezuelan Governments have been adopting Bitcoin covertly, El Salvadorian President Nayib Bukele has been adopting Bitcoin overtly, driving Bitcoin legalising bills through its Assembly, and giving Bitcoin legal tender status alongside the US Dollar, and El Salvador’s achilles’ heel… Having serially debased its domestic currency the Colon into hyperinflation by 2001, it has been forced into adopting the Dollar as its national currency, and because of the Dollar shortages of the post 2008 financial crisis, has sucked 3.2 million El Salvadorians outside of a country with a domestic population of only 6.5 million, mostly to the US working for Dollars to send home to prop up living standards… These chronic shortages of Dollars have driven economic poverty and gang crime, which lead to the rise of Bukele in the first place, and this Bitcoin Chad has taken an enormous risk to himself and his people in flouting the IMF and the Western financial order, in becoming the first Country to adopt Bitcoin alongside fiat as national currency, in trying to wean El Salvador off its Dollar addiction and US dependence…
While the road to Bitcoin adoption since 7th September 2021 has been bumpy with numerous glitches in the governvent backed Chivo payment system, Bitcoin’s 2022 bear market in currency, and with adoption of a new monetary system bound to take time with the general public who tend to be conservative, especially when it comes to their money, Bukele has positioned El Salvador over the next decade as the first country to nationalise Bitcoin, and take the lead in hyperbitcoinisation… The government as well as the public is adopting Bitcoin, announcing the purchase of its first 400 bitcoins in September 2021, meaning Bitcoin is now on its balance sheet and backing its nation, and with further regular purchases of one bitcoin per day since November 2022, El Salvador is building a Bitcoin Treasury for the future (over 2000 btc by recent reports)…
But Bukele has taken things one step further, with the creation of Bitcoin aka Volcano Bonds in January 2023, leveraging Bitfinex technology to raise $1 Billion from investors to pay down its external dollar debt, while funding Bitcoin City at the base of Conchagua Volcano using geothermal energy to create electricity to mine bitcoins, indeed it is future revenues from its mining infrastructure and cheap energy that is backing the bonds… Leveraging Bitcoin mining by issuing Dollar debt is a risky strategy if Bitcoin does not come to dominate the future, however if it does then Bukele is likely to go down as one of the greatest Statesmen of the 21st Century, and El Salvador becomes one of the richest Nations in the world in the next decade…
The three examples above highlight how Countries and Governments can mine bitcoin in their own country, which breeds energy and currency independence from the shortages and perfidy of Western currencies, as its financial system splutters with its increasing Sanctioning of the Eastern World that started with Iran, has extended to Russia, and in the event of the invasion of Taiwan, will probably be applied to China, forcing these countries into a search for alternatives… The greatest alternative of them all, and future World Reserve Currency is Bitcoin, an apolitical sovereign digital reserve asset that can be stored and transferred digitally 24/7 freely between 195 Nations, who can plug in their national financial systems into it by simply relaxing government laws that inhibit banks from working with Bitcoin Exchanges, furthermore any government can mine Bitcoin directly and create their own currency in their own country by conversion of electricity, that in most countries is already state owned… The ability of Governments to mine a scarce resource with cheap and abundant electricity already in their own hands, may be the killer app for Bitcoin Adoption by Nation State Governments…
The Geopolitics of Bitcoin Mining: Game Theorising The Future
Based on all of the above, it intuitively makes sense to me that Eastern Governments will adopt Bitcoin first, on the grounds of escaping the West’s increasingly unhinged weaponisation of its first mover status in the last two centuries of financial history, that has saddled the Developing World with a dependence on external actors for the lifeblood of their economies in currency and credit, and the fact that the Developing World has a younger energy infrastructure that is still growing and producing cheaper electricity, will give it an energy arbitrage over the West for the forseeable future in mining Bitcoin, if it chooses to take advantage of it… Governments can also adopt Bitcoin for their own purposes only, as the examples of Iran and Venezuela confirm, governments can mine, hodl and plug in ther banking systems at the state level, while cracking down on mining, hodling, and banking at the individual level… In fact this is what I expect most Governments to do at first, is to take advantage of Bitcoin at the international level, all the while strictly regulating the domestic economy’s use of Bitcoin as a medium of exchange, in order to protect their national currencies against hyperbitcoinisation by legal tender status… However, as Bitcoin continues to grow that also increases the balance sheets and sovereign wealth of governments that mine and hodl Bitcoin, will eventually incentivise governments to allow or even encourage bitcoin hodling for the general public, the last domino to fall is the legalisation of Bitcoin as medium of exchange, and legal tender status…
These Are The Largest Bond Markets In The World (Source)
This leaves us with the West, that for now still has financial hegemony over the rest of the World, consisting of currencies and Bond (Debt) Markets, that is the collateral underpinning the global financial system, and enforced through the US Military and its regime change operations… But in exchange for this “exorbitant privilege” the West has been forced to run the trade deficits that has exported its productive economy offshore, and to what is now its biggest Geopolitical Rivals and threats, all the while its Post WWII energy infrastructure is crumbling as its Politicians have blundered into pre-industrial revolution energy in wind and solar, that is now crippling Western economies with high electricity costs, inflation, and economic destruction… Furthermore, if the West already has the financial monopoly then you would expect their supra-national governments in Washington D.C, Brussels, and London, would have the least incentive in adopting Bitcoin as a reserve currency, with expensive energy also putting them at a disadvantage mining Bitcoin against the East’s electricity cost arbitrage…
And yet, over 60% of current Bitcoin hashrate is in the West (including Kazakhstan and Russia, would put it at 90%) meaning over 60% of new currency mined is in the West, most of the developers and the best and brightest working on Bitcoin are in the West, and I would guess that most early adopters and hardcore long term hodlers are in the West, and the intellectual capital that is critical to Bitcoin’s future, is outside of any government… It should also be obvious that since the birth of Bitcoin, it has mostly been ignored by Western governments and not clamped down upon heavily, which has allowed the development and growth of this intellectual capital, at least up until now… We are now seeing Western Governments, and media mouthpieces start to grapple with the threat of Bitcoin, especially if it is adopted by Eastern governments and their geopolitical enemies… It seems that there is increasing US Government hostility against Bitcoin under the Biden Administration, with the recently reported Operation Chokepoint 2.0 attempting to starve Bitcoin exchanges and crypto banks to cut them off from the traditional bank and finance sector, the EU has brought out its MICA regulations to harmonise crypto laws for all its member states (and to mixed reviews), and there is some hype among Venture Capital and crypto companies lately that the UK is positioning itself as a hub for Bitcoin and crypto, of which I’m struggling to see myself…
So at present it seems that the West is increasing its hostility and regulations against its domestic population and financial sectors in adopting Bitcoin, despite its first mover advantage in intellectual capital and the reach of its financial sector over the rest of the world, while the East (including China) are seemingly relaxing their regulations against Bitcoin, while their governments are increasingly considering utilising Bitcoin in order to move away from the West’s financial hegemony… This fracturing of the world economy, will force the West to re-import all those industries and jobs it exported the last three decades, that will be hugely inflationary, collapsing purchasing power of Western currencies as domestic consumers are cut off from cheap Eastern goods, and have to buy domestic goods produced from expensive domestic energy… This will in turn blow out government debt markets, as interest rates would have to soar to match inflation, crippling the debt market, undermining further the collateral base of the global Eurodollar that the near zero interest rates of the last 15 year have already long broken… The problems with the Eurodollar post 2007, that has fueled the currency shortages, economic stagnation, and discontent worldwide, and that is ultimately behind De-globalisation, all comes down to collateral… De-globalisation, while a necessary re-balancing after decades of imbalance, will collapse bond values and will essentially force the West to salvage its foundering financial hegemony by diversifying its collateral base, away from debt and toward non debt based collateral…
The Great Collateral Reset: Fiat Currencies and Bonds > Bitcoin and Gold. Courtesy of Mark Jeftovic at Bombthrower.com
The West’s only real solution to the immense cost of de-globalisation to its economies, will be to return to its historical foundations and roots, and revalue its gold reserves while expanding its role as collateral in underpinning Western financial securities and derivatives, and undermining government bonds and national debt…
Major Western powers are gold rich, the UK is the obvious runt within this golden litter… Europe Has Been Preparing a Global Gold Standard Since the 1970s (Part 1 and 2)
It is therefore logical that Western governments will back their currencies once again with gold, and while this does not mean we are headed back to a classical gold standard, the re-valuation of gold upwards by the dismantling of the present futures market gold rigging mechanism, and the mark to market of the physical gold, to the true scarcity of collateral that appreciates over time, can underpin the balance sheets and solvency of Western governments, and Central Bank backed national currencies…
The same is also true of Bitcoin… As governments in the East adopt Bitcoin hoarding and start Bitcoin mining on the State level, this will force governments in the West to start hoarding and mining Bitcoin, adding a scarce and digital collateral source alongside a scarce and physical collateral source, that governments and national banking systems can plug into, and the foundation for fractional reserve banking and lending on top, for as long as it lasts, before hyperbitcoinisation and the withering of banking and nation state control…
The collateralisation of Bitcoin on the balance sheets of banks has already began, with the Bank for International Settlements, the Central Bank of Central Banks, allowing a 1% allocation into Bitcoin, in June 2022… The door has been opened… If Bitcoin went 10 x from here, it would swell to 10% of balance sheets, and 10 x the potential in loans and lending… (Source)
The Future of Bitcoin in Britain
Britain was at the height of its power around 1850 at the end of the Industrial Revolution, it spent the second half of the Nineteenth Century running trade deficits with, and building up, the economic might of Germany and the US, which would culminate in WWI with Britain’s economic suicide to crush Germany… By the end of WWII and the second even more suicidal smackdown of Germany, the British Empire was bankrupt, Sterling and The Bank of England losing world reserve currency status to the US Dollar at Bretton Woods, and would lose all its colonies between 1945 and 1971… Britain would reinvent itself from the residues of financial hegemony, and the City of London became the main hub of the offshore Eurodollar System, or shadow banking, that came to dwarf the actual Dollar in global trade hitting its peak in 2007, since the financial crisis of 2008 the UK has felt Eurodollar shortages as acutely as everyone else… Then in 2016 came Brexit, and the exit from Europe, which the farcical combination of politicians, civil servants and media lapdogs have fought at every juncture, leaving the UK still running chronic trade deficits with Europe, still subject to many of its nonsensical laws and regulations, and directionless as it seeks to redefine its future within Europe, and the rest of the World…
Britain running the trade deficits with the rest of the world for the last near two centuries, hollowed out its domestic manufacturing and production economy in exchange for financialisation, and London’s export of Sterling (and later Eurodollars) to the rest of the world, to grease the wheels of the modern debt based world, but that monetary system broke 15 years ago, from which Britain has really never recovered… The City has also suffered from the exodus of banks into Europe post Brexit, as its global lustre seems to be fading as fast as the Eurodollar, and with Britain also being by far the world’s most financialised economy (as per above chart), the credit crisis and severe financial crisis we are headed into the next few years is going to severely constrict Britain’s Banking Sector, and by extension economic growth and demand, fueling unemployment and public discontent… Add to this the energy crisis that will surely get worse as renewables become more of the electricity mix, and things start to look very bleak for the future of this island economy… Are there chinks of light anywhere?
As with the West, we look within Britain to its Bitcoin history and thus its Bitcoin future, from the Englishness of Satoshi’s writing, to Adam Back, to the numerous early exchanges and developers that blossomed in Britain and just the intellectual capital that has been built up in all four corners of this island over the last fifteen years, there is no doubt that Britain can become a global hub for Bitcoin adoption and education, as soon as the British Government and The City of London wake up to the opportunities of Bitcoin, rather than its threats... This may sound unlikely at this point as Britain experiences its own Operation Chokepoint and the increasingly strict limits placed by Britain’s High Street Banks on Bitcoin exchanges and as KYC/AML Compliance chokes the sector, however it is ultimately the Government and Parliamentary Laws and regulations that will dictate the financialisation of Bitcoin by The City of London, and so if the Government lightly regulates Bitcoin in this island, and critically drops tax rates, the barriers to rebuilding the British economy with Bitcoin will be lowered, alowing domestic Bitcoin businesses to thrive, and attracting foreign capital and businesses to move operations to a new and friendly global jurisdiction…
The collateral underpinning the Eurodollar is failing, and in light of exploding energy and financial crises will undermine Government Bonds and the solvency of the Global financial system, that will force the shift by West and East, towards sovereign and independent forms of scarce collateral, in gold and Bitcoin… And contrary to European Central Banks and governments that have held on to their over ten thousand tonnes of gold which will provide a solid foundation for the European Banking System, the UK has a comical 310 tonnes, after Gordon Brown notoriously sold 300 tonnes at the generational low under $300 at the turn of the millennium, which means Britain has a far less solid foundation to build upon than over the Channel, and implies a far weaker weaker future exchange rate for Sterling against the Euro and Dollar… However this deficit in gold can be overcome by boosting Bitcoin adoption within Britain, by hodling bitcoins on balance sheets of Treasuries and Banks, and with the rising value of Bitcoin comes rising value of collateral from which to financialise by The City of London, and another re-invention as an international centre for the future banking system…
In terms of the Bitcoin mining industry in Britain, high electricity costs for individuals and businesses means that today less than 1% of Bitcoin hash power resides here, also meaning that Britain is reliant on importing bitcoins from the rest of the world rather than producing them in this country… But on the upside here, the amount of renewable and unreliable energy in Britain also makes it in theory more attractive to Bitcoin mining, as more waste equals potentially more stranded energy and arbitrage opportunities for Bitcoin miners and electricity companies, as long as these electricity prices are low enough to make mining viable… There may also be an opportunity for the British State, in building up its Bitcoin collateral reserves, to siphon off cheap electricity from its energy sector to mine and create bitcoins…
Conclusion
We have reached a very interesting point in time, three years since the Covid lockdowns that blew up the world’s supply chains, morphing from the initial energy crisis into a financial crisis and worldwide recession, further fracturing and de-globalising finance and trade, creating huge inflationary cost pressures, and will undermine government debt loads and the collateral underpinning the post WWII Eurodollar global financial system, that will in turn require new forms of scarce and appreciating neutral collateral, in gold and Bitcoin… The revaluation of gold will be politically induced, by the dismantling of the futures based gold price setting, and possibly back to gold fixing or a more market based pricing system, but cannot be predicted… Bitcoin is somewhat more predictable, having been through three four year halvening cycles in which certain patterns repeat, and is a year away from its fourth halving currently estimated on 27th April 2024, when the block subsidy drops from 6.25 bitcoin every ten minutes (900 per day), to 3.125 bitcoins every ten minutes (450 per day)… Every previous halving (Nov 2012, July 2016, May 2020) and the quantitative tightening of bitcoin emission, has lead to a surge in the Bitcoin price in the eighteen months following, with cycle peaks in December 2013, December 2017, and November 2021, which gives us an estimated cycle peak this time around at year end 2025, or two and a half years away…
In the next two and a half years, we will likely see a lot of things change… The last year has been a bad one for the West in losing the financial trust of the world that has to trade in its currencies, as sanctions on Russia (and freezing of its foreign bank reserves) has made it clear for China and anyone else paying attention, that they could be cut off from the global financial system at any time, and so they have to find ways of escaping before that happens… Russia, China, India, Iran and the East in general are gold rich, both governments and populations, and like Western Central Banks can use gold as collateral for their financial systems and trade settlement outside of Western government bonds and Eurodollar payment networks, which we will likely see accelerate from now on… In the next two years, and Bitcoin’s fourth major bull market in price and value that will take it into the hundreds of thousands in fiat dollars, pounds and euros, will also incentivise the adoption of Bitcoin for governments and banks, in East and West, as reserves and collateral for the Western financial system to underpin their banking and payment systems, while in the East governments will likely use Bitcoin as reserves and collateral, but also as a payment network to by-pass Western Finance… And with creating new bitcoin reserves possible by conversion of electricity, it means that all these governments will eventually be mining bitcoins, taking the hash power, electrical computation, and electricity consumption a lot higher still, governments will start competing with the private sector in Bitcoin mining, and likely a shift of hash rate from West to East, especially if China reverses its mining ban…
Bitcoin will be fifteen years old in six months… From inception and deployment by Satoshi in January 2009, in the whirlwind of the last great financial crisis, Bitcoin had to build its infrastructure from scratch for its first application which was its currency, for speculation and the redistribution of currency from miners as sole issuers into the hands of the public, the very early adopters… Mount Gox was the first major exchange, but since exchange has spread worldwide in both unregulated and over the counter exchanges, and more recently with increasing government regulation and banking compliance, in centralised and regulated exchanges… Indeed the issue schedule of bitcoin was heavily frontloaded with 10,500,000 issued by November 2012, and 15,750,000 issued by July 2016, over 75% of the issuance of Bitcoin was in a time before any real regulation and KYC/AML compliance by national governments, it is between 2016 and May 2020 that KYC/AML regulation started to be applied more rigorously, when another 2,625,000 bitcoins were issued, bring the cumulative total to 18,375,000 and 87.5%… Between 2020 and the next having in April 2024 another 1,312,500 will be issued taking the cumulative total to 19,687,500 and 93.75% of issue, with less than a million and a half left out of Bitcoin’s 21,000,000 maximum cap… It is only since 2020 that governments have really started to become involved in adopting Bitcoin hodling, and mining, and so they are so late to the party already, playing catch up with the private sector that is already fifteen years ahead… It is Bitcoin’s private sector distributed between the world’s 195 Nations States that is therefore the most important marginal determiner of Bitcoin’s future, hodling and mining the vast majority that will ever be in existence, and so governments and banks will have to purchase this future global collateral at today’s extortionate values and prices, and which leaves them increasingly weak and powerless, against the private sector in their own countries…
Governments have two options going forward, back their financial systems with Bitcoin at the state level while attempting to prohibit Bitcoin adoption at the private level, or they can back their financial systems with Bitcoin at the state level while promoting Bitcoin adoption on the private level… El Salvador was the first shot across the bows for the latter, which is spreading to other small peripheral nations for now, but their likely success in the next few years will lead to the adoption of more countries, and working towards the core of the world financial system in the West… In fact the West, in the US/Canada, the UK and the Euro countries have the opportunity to hyperbitcoinise their economies faster than their biggest geopolitical rivals in the East, and thus gain the future advantage in collateral growth, credit and loans, economic growth prospects and adoption of a new and improved accounting system…
The costs of energy may be exploding in fiat currencies, but they have been collapsing in bitcoin for the last decade, and this is the paradigm that needs to be understood, and will be understood in the coming years by the world’s energy, and electricity industries… Bitcoin and deflationary currency incentivises hoarding and hodling, which has been done for the last fifteen years by the private sector, the next decade will see adoption by the public sector, and state owned electricity being expended in securing the distributed ledger that will give government a new lease of life in the short run, while extinguishing its bond markets and debt financing in the long run, and starving the beast… Take this thought experiment to its logical conclusion, when the world’s nation states and electricity generating sectors are all scrambling to mine ever scarcer amounts of bitcoin for their treasury and national security, it is in government’s interest to develop the lowest cost electricity in order to gain advantage, driving the search towards ever higher Energy Returned On Energy Invested, and development of next generation nuclear power…
Geopolitics, National Security and Energy Policy are all set to coalesce around Bitcoin in the near future…
| DD/MM/Year | Average annual UK electricity bill (£) | Average annual UK electricity bill in bitcoin |
| 31/03/2013 | £ 1,000 | 14.29 |
| 31/03/2014 | £ 1,100 | 4.10 |
| 31/03/2015 | £ 1,200 | 7.23 |
| 31/03/2016 | £1,300 | 4.48 |
| 31/03/2017 | £ 1,400 | 1.53 |
| 31/03/2018 | £ 1,500 | 0.30 |
| 31/03/2019 | £ 1,600 | 0.53 |
| 31/03/2020 | £ 1,700 | 0.30 |
| 31/03/2021 | £ 1,800 | 0.04 |
| 31/03/2022 | £ 1,900 | 0.05 |
| 31/03/2023 | £ 2,000 | 0.09 |
Average annual UK electricity bill in fiat currency, with allowance of 10% per annum for electricity cost inflation… Bitcoin price derived from this CoinGecko price chart…
Postscript
Podcast episode for the blog, recorded for the Welsh Money Podcast.
Bitcoin Donations Gratefully Received:
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