Bitcoin, Ethereum, Tether, Binance Coin, Dogecoin…
We have heard a lot of buzz about cryptocurrencies in the last few years. Your curiosity may have led you to gain more information about how they work.
Crypto mining forms the backbone of cryptocurrencies. Not only does it unearth new coins, but it also verifies transactions on the cryptocurrency network, making them trustworthy and reliable.
In the early days, regular desktop computers with standard central processing units (CPUs) were used for cryptocurrency mining. When it was discovered that this process was woefully slow, efforts were on to raise the capacity of the system. However, there is only so much that can be managed with personal computers.
This gave rise to the idea of pooling resources. Nowadays, crypto mining is done using vast mining pools spread across the world. Naturally running all these computer systems round the clock consumes massive amounts of electricity.
If the cryptocurrency unearthed is unable to cover the cost of electricity used for mining it, then the whole activity is not profitable. The electricity generated using fossil fuels tends to be more expensive. This prompted crypto miners to search for cheaper energy options.
Moreover, the environmentalists among the crypto miners found it hard to accept the damage their activity is inflicting on the environment. Though they want to continue crypto mining, they don’t want to do it at the cost of the environment. Many crypto miners shifted their operations to parts of the world where renewable energy sources have a larger share in grid energy. Wouldn’t it be better if you can generate your own clean energy for crypto mining?
All these and more led to the idea of using solar power for crypto mining. Read on to learn more about solar-powered crypto mining.
A short intro on cryptocurrencies and crypto mining
Bitcoin, the world’s first cryptocurrency, was created in 2008 by an unknown person/persons under name Santoshi Nakamoto. In 2009 it was made into open-source software. A bitcoin is one of the cryptocurrency digital assets developed using cryptography for its creation and management.
Bitcoin is a peer-to-peer currency that is designed to operate beyond the controlling authorities of governments and central banks. Though it was originally created as a medium of exchange, it is now more considered a store of value. Bitcoins are offered as a reward for those who mine them.
Bitcoin uses blockchain technology to maintain a secure and decentralized record of transactions. Unlike a database, blockchains organize data in blocks. When a block is filled, closed, and linked to already existing completed blocks, they form a blockchain.
Each block is given a timestamp when added to the chain and this is irreversible. This guarantees the security and trustworthiness of the data without the need for a trusted third party.
What is cryptocurrency mining?
Crypto mining is the process of discovering new coins and entering them into circulation. The mining process involves solving highly complex computational mathematical problems using sophisticated hardware. The first one to find the solution to the problem acquires a block of bitcoins. This process is restarted for the next block of bitcoins.
Cryptocurrency mining is demanding, time-consuming, expensive, and rarely rewarding. But the lure of a chance of gaining a high-value asset like bitcoin acts as the driving force for crypto mining. Most miners have the same attitude as the fortune seekers who went in search of gold in the California Gold Rush. Moreover, if you are technologically savvy to carry out the work, why not make the best use of it?
Whoever designed the cryptocurrency setup used the temptation of mining to legitimize the crypto infrastructure. As more and more people get drawn into this and become part of it, the crypto transactions gain validity and legitimacy. The crypto users share the responsibility of monitoring and maintaining the transactions as authentic and genuine.
The cryptocurrency market reached a global market capitalization of $2.04 trillion in the first week of March 2022, out of which bitcoin alone accounted for $895 billion. That is one amazing journey beginning from nothing 13 years ago.
Crypto mining and energy demand
The major thorn in the flesh for a crypto mining facility is the incredibly high amounts of power needed to mine the coins. Of course, you also need to spend a lot on crypto rigs as well. These are customized PCs designed for crypto mining. They are programmed to look for hash keys.
Crypto mining becomes harder and hence consumes more power as more people join the mining. Moreover, there is only a finite number of coins out there for mining. This is adding to the frenzy and the power demand for a crypto mining farm is going up exponentially. Today, the power consumed by crypto miners is more than the annual power consumption of many nations across the world.
There is no denying the fact that crypto mining is wreaking havoc in the global power generation market. Even without crypto mining, the demand is going up and so are the utility rates.
It is estimated that the power needed to mine a bitcoin can be anywhere between 100,000kWh and 300,00 kWh. And this is for the successful miners. For every successful one, there are so many unsuccessful miners.
All this leads us to the ethics of using grid energy for crypto mining. You may ask, “So, what is the alternative?”
The alternative is generating your own power for crypto mining. And, this is where solar power can come to your aid.
Solar power for crypto mining
Most people engaged in crypto mining take it up as a business opportunity for the revenue it brings them. From this perspective, the cost of electricity plays a major role.
As mentioned earlier, the average power consumption to mine one coin is 200,000 kWh and the average utility rate across the United States is 12 cents per kWh. When you use grid energy to power your crypto mining rig, your expenses will be high. Even if you manage to mine a coin, your profit will be less. In case, you are unsuccessful, your losses will be substantial.
This is where solar power can help you in bringing down the cost of crypto mining and make it a less expensive and more profitable venture. It is estimated that the payback period for the solar installation can be as little as one or two years. This means for the remainder of its lifetime, you can run a crypto mining farm on zero-cost energy.
Solar mining has not yet gained popularity, though, in Iceland, geothermal energy is widely used for the same.
If the use of renewable energy sources for crypto mining becomes more popular, the demand for fossil fuel-generated grid energy will come down and so will be negative effects on the environment.
Crypto mining with low cost or negative-priced grid power
In solar-rich states like California and Texas, variable energy rates are prevalent to manage the excessive uploading of solar energy into the grid through net metering. During the daytime, when solar energy production peaks, the share of grid energy used comes down and at times, more energy gets exported to the grid.
Unfortunately, power plants cannot switch on and off their power generation at will. A baseload needs to be maintained at all times. This is forcing grid operators to bring down the energy rates during this period, at times this can turn negative as well. This is equivalent to paying consumers to use grid energy to avoid power plants shut down.
While in California, negative pricing is a new phenomenon, Texas has been experiencing this for some time now.
Crypto miners can utilize this opportunity to set up their operations in such locations. This is better than getting a solar energy installation to power the crypto mining facility. You are in fact getting paid for using up excess power in the grid, at the same profit from your crypto mining operations.
This crypto business model offers you two revenue streams – one, from the negative pricing of grid energy (2 cents/kWh now with prospects of going up in the future) and two, from the mined crypto coins (in the case of bitcoin, the returns is in the range of 25-50 cents/kWh). As the price of the crypto coin goes up and down, your profits will also fluctuate.
When you take advantage of low-cost and negative-priced grid energy, you are indirectly using solar power for crypto mining.
Crypto mining with an on-grid solar system
An on-grid solar installation makes available both solar energy and grid energy to consumers. When using such an arrangement for crypto mining, the rig uses solar power whenever it is available and draws from the grid when the solar power is falling short.
The expense of energy is less with on-grid solar than completely relying on grid power. In a few years, when the cost of the solar installation is recovered, the remaining part of its lifetime, you get to enjoy free power.
If you are registered as a business, you can claim solar tax benefits which can be adjusted against the tax liability from bitcoin sales. Besides this, if the grid power is available to you at a low cost or negative cost, the profit from mining will be more.
Crypto mining with an off-grid solar system
You can consider this when the location you chose to set up crypto mining operations is far away from the grid. You may choose such a location because of the cheap land and other benefits. You can make use of a satellite internet connection to carry out your mining operations.
An off-grid solar system would need a storage facility like a solar battery to ensure round-the-clock operation. Though this is more investment-heavy, it is easier to set up in some parts of the country that don’t mandate permits to set up such operations.
Revenue for off-grid solar mining tends to be lower than that of an on-grid setup.
Pros and cons of using solar power for crypto mining
Pros
- Fixed energy rates
- Free power after the payback period
- Low maintenance cost
- Minimal damage to the environment
- Uninterrupted power supply
- Freedom from the grid
Cons
- High upfront cost
- Intermittent power production
- Need for commitment to crypto mining to recover costs
- Need sufficient space to set up solar panels
Frequently asked questions
How many panels are needed to run a solar-powered crypto mining rig?
The energy demand for a single mining rig is 450-500 watts. If multiple graphic processing units (GPUs) are run simultaneously, this can go up to 1500 watts.
The number of panels needed depends on the wattage of each panel, the amount of sunlight, and whether you are choosing an on-grid or off-grid solar system. On average, a solar-powered mining rig needs to have 8-20 sq.m of solar panels.
Is solar-powered crypto mining popular in the US?
In places where solar energy is already popular and the grid power is often negative-priced during the daytime, solar-powered crypto mining is showing a tendency to flourish. San Diego, San Jose, and Riverside in California and San Antonio in Texas are looking promising.
What to do with the solar infrastructure if the crypto market collapses overnight?
Though this is an unlikely event in the near future, you need to have a backup plan. You may consider a tie-up with the local utility for exporting the solar energy generated by the system. Another option is to get a power sales contract.
Though there is no guarantee of winning the contract, if received, it can place you in a safe position. As a solar farm owner, you are allowed to use as much power as you want and export the rest to the grid. You can choose how much power to export based on the mining profitability of cryptocurrencies.
A solar-powered crypto mining operation pays for itself in just a couple of years because of the high mining profitability in the crypto market. Once the investment cost of the solar installation is retrieved, the risk factor is no longer there.
One of the vociferous criticisms of crypto mining is the amount of energy it consumes and the consequent damage to the environment including greenhouse gas emissions. This condemnation can be easily mitigated with a solar mining rig.
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