The Genius of Bitcoinomics

To mine anything of value, a prospector must first identify the richest seams of raw material.

In the real world, this involves trekking off the beaten path—for, if there were raw material under the beaten path, that path would long since have been diverted around a deeply-dug pit.

Up comes the ore and into coal-guzzling smelters it typically goes—then, out into the atmosphere the waste is vented, or down into groundwater runs the effluent waste.

“Oh, well!” we shrug at the environmental impact. “That’s the price of progress.”

To make the electricity that runs the smelter and just about everything else, it’s coal, oil, or gas that must also come out of the ground and into the furnace—wind and water don’t always cooperate by providing power where it’s needed, when it is needed. Fortunately for miners of all kinds, fossil fuels are easily transportable from wherever they’re found to where they’re needed—and mines are prepared to pay to have it on hand. We’ll return to this portable characteristic in a moment.

Of all the commodities our species has mined, it’s gold that emerged and remained the store of value and basis for money.

Although currency has long since lost that quaint promise “to pay the bearer in gold” to the value stenciled onto each note, generations of Pavlov conditioned ancestors have left us well-trained puppets thinking that the worthless paper in our wallets is worth something.

Then again, what option is there? It’s not like you can walk around with a pocket full of gold sovereigns.

Even if you could, gold is kind of clunky. You’d need a packet of dust to pay for a beverage, several brick-size ingots of bullion to pay for property, and countless denominations of coin for everything in between. You sure couldn’t sling it to online vendors at light speed.

Besides, there’s also the issue of counterfeiting. All that glitters is not gold, remarked the Bard.

So, it’s paper currency we’re stuck with—fiat currency, as its termed in the trade.

You’ve possibly heard the term by fiat, which means ‘by decree.’

Today, every currency in general use is a fiat currency—decreed to have value by a Central Bank. But not all fiat currencies are equal—take the US Dollar vs. the Zimbabwe Dollar. The Zim Dollar repeatedly collapses due to over-printing and diluted value—the US Dollar and all major currencies are on the same set of tracks.

In most cases, the printed paper notes of a fiat currency are only the tip of a monetary system. The vast majority of fiat transactions are card or EFT (Electronic Fund Transfer) bits and bytes flying through the wires between banks.

The upshot is, there’s a massive problem in global finance: crippling national debt and inflation running out of control.

An ounce of gold bought a fine toga and sandals in ancient Rome and a magnificent suite in New York. Its value holds.

A paper dollar worth 100-cents of value in 1913 gets you barely more than 1-cent of value today.

We need digital gold—a solution that holds its value yet moves like email.

To the rescue comes a staggering invention that digitizes electricity and turns it into cyber property.

We call this wonder-asset Bitcoin.

The reason Bitcoin has real value is a whole different topic. For this discussion, let’s accept that Bitcoin is going from the high value of present to outrageous value very shortly.

In this piece, I am exploring the Bitcoinomics—the Bitcoin Economics—of mining Bitcoins.

When mining precious materials, one measures the quality of ore—the ounces-per-ton the earth will yield. However, since Bitcoin is made of electricity equal in quality to all other electricity, what metric makes a Bitcoin mine profitable?

The answer is the price of electricity in kilowatt-hours (kW-h).

The retail electricity price—the price paid by households and businesses worldwide—varies from 12-cents to 40-cents per kW-h. To profitably turn electricity into Bitcoin assets in late 2021, you need to buy your raw material for a fraction of that—for just 2-cents/kW-h.

So where is 2-cent electricity available?

The short answer is—it depends on how that electricity is made.

Remember—fossil fuels are easy to transport, so that they’re generally shipped off to the highest bidder. The message is that nobody is burning extra fuel to create cheap electricity when it can fetch a better price elsewhere.

But there are sources of electricity that cannot be exported. They must be consumed where nature provides them—moving rivers and hydroelectric dams, surging waves or tides, bounteous sunshine and lots of wind, or plenty of geothermal venting. Where nature offers any of these is where the plant to harvest them must be sited.

The good news is that the only actual cost of harvesting renewables is the fixed infrastructure cost and maintenance—hence the availability of really cheap electricity—nature provides the rest at zero-variable cost.

The bad news is that nature doesn’t always cooperate with human wants.

Specifically, all seems fantastic after you’ve identified a power source in some forgotten corner of the earth. One might plan to get the electricity from where it’s made to where it’s needed via power lines. VOILA! Problem solved… right?

The trouble is that the loss of electrical energy over distances that exceed 500km makes the whole enterprise a non-starter.

So if your city, factory, smelter, or mine is further than that distance from your source of cheap renewable electricity, you’re out of luck.

What can you do with all that free power?

Bottle it.

Turn it into money. Turn it into the most valuable asset on earth right now—Bitcoin.

And that’s precisely what’s happening.

Bitcoin mines go to the richest seams of cheap electricity—clean electricity, very often out in the boondocks—precisely where long overdue injections of wealth are needed.

As it stands, those small populations near energy rich resources—jungle villages with nearby rivers, desert communities with ample sunlight, windswept islands—never see the potential tapped because it’s uneconomical to do so merely for their comfort. But suddenly the conversion of that clean energy into cash makes it feasible to make the investment and benefit the people. Surplus energy becomes wealth and stabilises the energy grid into the bargain. Bitcoin is a force for good.

When you buy Bitcoin, you’re not just investing in your better tomorrow; you’re bringing clean power and prosperity, technology, and employment to often forgotten corners of the world. It’s not just a lucrative pursuit—it’s a noble one too.

very interesting - bookmarked (but watch from beginning... talking about mining Bitcion with waste flare gas at refineries... they flare 7 times more gas into the environment (noxious) than Bitcoin mines need to run.