The Breakdown - Is the Narrative Around ESG and Bitcoin Mining Shifting?

Starting point is 00:00:00 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is produced and distributed by CoinDesk. What's going on, guys? It is Friday, February 3rd, and today we are asking whether the narrative around ESG and Bitcoin mining is shifting. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. All right, guys, this is a topic that I am excited about, because as you well know, the environmental impact of Bitcoin mining has long been one of the bully cudgels used by

Starting point is 00:00:51 people who don't like Bitcoin to justify why it shouldn't be allowed to exist. Look at the environmental costs, they say. How could this thing possibly be worth that? Now, of course, there are a million counterarguments to this. There is the free market argument that says this set of actors are willing to pay to use the energy? Who are we to stop them? There is the slippery slope argument of where does it end when we start making value judgments that one use of energy is better than another, what other types of activities might be imperiled. There are the folks who would point to the social and governance upsides of Bitcoin as countervailing other environmental costs. And then there are those who argue that Bitcoin

Starting point is 00:01:27 mining actually has some pretty interesting potential positive impacts on environmental goals for those who are willing to go beyond the cheap headlines and easy assumptions. Still, those sorts of arguments are all too few and far between in mainstream media. In fact, at the moment, driven largely, of course, by the market cycle, a much more popular media trope is the type of critique exemplified by Charlie Munger's sensationalist ill-backed-up piece in the Wall Street Journal this week, why America should ban crypto. The 99-year-old Berkshire Hathaway Vice Chairman wrote in the WSJ, it isn't currency, it's a gambling contract with a nearly 100% edge for the House.

Starting point is 00:02:02 His argument was basically that sometimes cryptos are first sold to a promote, at a negligible cost before being purchased by an unassuming public, allowing the promoter to capture a massive payday. It makes sense that Munger would be describing a phenomenon best associated with ICOs from four years ago, but here we are. Almost half of the article is dedicated to praising the Chinese Communist Party for their 2021 ban on crypto, as well as citing the 100-year ban on issuing common stock in England following the collapse of the South Sea bubble. Despite its lack of detail, analysis, or honest engagement with the issue, this article will probably be given and serious consideration and attention from many corners of the financial world. Indeed, simply

Starting point is 00:02:38 by being given space in the Wall Street Journal, Munger already demonstrates the influence that his status as a Hall of Fame investor carries. Now, I tend to feel pretty strongly that random commentary from the old guardiest of the gerontocracy doesn't really deserve deep engagement here on the show, except insofar as it reflects a wide swath of opinion. And if I really wanted to get uppity with Charlie, I might point out that his reverence for Chinese autocratic models of doing business is highly unbecoming. And if I wanted to be even more petulant, I might call to attention the amount of his fortune that has come from selling sugar water that has been a primary culprit in the obesity epidemic. Or I might offer a financial version of the Pepsi challenge around whether the banks

Starting point is 00:03:16 that he's invested in and owned have facilitated more fraud, criminality, and terrorist financing than the cryptos he hates so much. Luckily for you guys and for Charlie, I'm not that petulant. And of course, I'm only using his silly op-ed as a narrative construction point to draw contrast with what I've seen as a much more significant trend over the past couple weeks. And that is the emergence of a very, very different type of discussion around Bitcoin mining and its potential role in achieving environmental goals. On January 26, Daniel Batten, who has quickly become a leading voice around the intersection of Bitcoin and Environment, tweeted a link to an article about how mining can help with abandoned

Starting point is 00:03:50 gas wells. He added this caption, Truth wins in the end. This year, expect to see more articles highlighting and quantifying the environmental benefits of Bitcoin mining. And indeed, that was the case all throughout this week. Take, for example, a piece published in Axios. The influential company published a look into an initiative being promoted by Dennis Porter and his new advocacy organization, the Satoshi Action Fund.

Starting point is 00:04:13 Porter has recently made the shift away from being Twitter Newsbreaker to take Bitcoin advocacy into the halls of power around the nation. Since June last year, the Satoshi Action Fund has run seminars on Bitcoin for state lawmakers across the country before taking his presentation at the halls of Congress last week. He presented for around 40 staffers and 10 congressional officers. One of the causes that Porter is calling attention to is orphan gas wells. In the U.S., there are more than 81,000 abandoned gas wells with no owners of record. There are federal funds available to seal those wells, but the manpower required to track down

Starting point is 00:04:45 and close off the wells is lacking. Porter proposes that Bitcoin miners could be incentivized by policy to step in, use the last of the gas available in the well to mine Bitcoin, and then seal the wells and move on. The EPA estimates that abandoned oil and gas wells account for about 8.7% of the methane released in the U.S. Because methane is 25 times more potent than carbon dioxide as a greenhouse gas, mitigation of methane release can go much farther than most other climate change mitigations. While the current federal funding is available, research shows that it will not be sufficient to pay for closing off all the wells. Bitcoin miners, with the added incentive of using the abandoned gas,

Starting point is 00:05:22 could significantly speed up the process of capping these wells. The current federal plan is part of the Inflation Reduction Act, and will allocate additional funds to state budget to pay for well capping. The issue is currently being shouldered by state governments. Louisiana, for example, allocates $4 million per year to closing abandoned wells, but has only managed to cap 40 wells, leaving another $4,500 still uncapped. In Oklahoma, the problem is even worse, with over 16,000 documented open wells. In an article in Real Clear Energy published last August, Porter suggested that a market could be open for Bitcoin miners to bid on wells identified, to have a usable mix of gas to power portable mining rigs.

Starting point is 00:05:58 Porter claims that, quote, there is the possibility that if Bitcoin mining mitigates enough methane that it will result in the entire Bitcoin mining industry, not only turning carbon neutral but carbon negative. Taking over well sites has complex legal liability issues, so Porter's proposed legislation would help make the risk more predictable, thus removing a potential barrier to getting miners involved in the cleanup effort. Porter said, quote, it's a win-win for everybody.

Starting point is 00:06:20 It's an inarguable win for the environment, it's an inarguable win for the economy, and it's an inarguable win for those states that don't have to spend taxpayer dollars to plug these abandoned oil and gas wells. Currently, the proposal appears to be getting the most traction in Missouri and Mississippi. Now, what I think is great about this is that it really just obliterates the normal distinctions between environmentalists and Bitcoin advocates. Pretty much everyone can agree and get on board with the idea that having old gas wells leaking methane into the atmosphere is probably a bad thing. What's more, it's clear that the structures that have been built so far to solve that problem just haven't worked. They haven't had enough incentives. These proposals create the opportunity to add a profit motive on top of that, which either will or won't work.

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Starting point is 00:07:37 Visit consensus.coindex.com or check the link in the show notes. Next, let's look at a piece from the City of London newspaper City AM published last week. Financial Systems analyst Susie Violet Ward walked through the Bitcoin 101 for financial professionals in the city. The article itself was nothing new for Bitcoiners. It walked through some basic facts about the origins of Bitcoin, and then broke down some of the typical myths surrounded by the asset. What's really notable is the article's presence in such a widely circulated publication aimed at traditional finance professionals. What's more, the largest section of the article was dedicated to examining and questioning the environmental

Starting point is 00:08:15 harm claims often levied against Bitcoin. For those who are used to fighting that fight, it has many of the normal counterclaims. That Bitcoin mining can be used to soak up excess renewable energy generation to prevent curtailment, as well as helping to provide a monetization avenue for stranded energy. She cites examples like the deployment of mining by gridless compute in Africa to provide monetization opportunities for excess energy while helping to prevent brownouts. She also points to Vespine's energy's use of microturbines to harness waste methane from landfill, and argues that Bitcoin mining is assisting to move electricity generation towards more stable and less carbon-intensive grids in a current practical way. This is not a proof of concept,

Starting point is 00:08:51 she writes, it's happening. The article closes by encouraging the reader to consider how integration of Bitcoin into the ongoing climate fight can ensure a much faster path towards decarbonization of electricity generation than the alternative, which is costly, sometimes corrupt, and always time-consuming government-led subsidy. Now, of course, the relevance here isn't that it is some dramatic new information. It's the presence of this sort of counter-voice editorial that is telling the story of Bitcoin mining's potential for positive environmental impact as compared to the reverse, which has been so much more prevalent historically. Along similar lines is this piece from Forbes, why no one's

Starting point is 00:09:24 saw the success of demand response coming. The article basically discusses the rise of demand response programs in which consumers are compensated for reducing their electricity consumption during pre-notified peak demand periods. Tests of this in the UK and the U.S. have shown a lot more people willing to participate in these sort of programs than many might have thought. This article argues that the growth in demand response has obvious parallels with the Bitcoin mining implementations that have been growing in popularity in recent years. In July 2021, Marathon Digital established their first Bitcoin mining facility which was co-located on a Texan wind farm. While the wind farm was capable of producing 280 megawatts of energy operating at capacity, it could not bring the entirety of this electricity

Starting point is 00:10:02 generation onto the grid, requiring the energy to be curtailed. Having a Bitcoin mining facility built behind the meter alongside the wind farm allows the electricity output to be stabilized. At the same time, the mining operations can be curtailed during a grid emergency, allowing the full power of the wind farm to be delivered to the grid. This use of Bitcoin mining is a natural match for wind and solar generation, which naturally have massive peaks and troughs in their output depending on when the sun shines and when the wind blows. As the race to replace carbon-intensive fuels used on electricity grids increases, there's a need for additional load-balancing infrastructure. But again, proposals are often in the form of costly projects like battery storage or

Starting point is 00:10:37 carbon sequestration facilities. Bitcoin miners can offer a much more financially viable alternative, and most importantly, they actually exist today rather than being a solution that will take years to develop. And this is really the key point here and why Bitcoin mining advocates are so excited about this technology's potential as a part of renewable infrastructure. Yes, there are other approaches to dealing with these issues, but many of them involve technology that's still very nascent versus something that can be set up and just works today. Yes, of course, you need to build facilities, but building a data center is a fairly well-established construction method, whereas, for example, battery facilities are much more

Starting point is 00:11:12 complicated to say nothing of large-scale carbon sequestration or hydrogen production facilities. So anyways, what you're seeing is again this trend of a different type of discussion around ESG and Bitcoin mining. But while op-eds are all well and good, the question is anything actually happening? For that, we turn to New Hampshire. A commission established by New Hampshire Governor Chris Sununu on the subject of cryptocurrency has returned their recommendation to the state government. That Bitcoin use in the state should be encouraged and incentivized, and that miners should be offered partnerships to improve the electricity grid. The New Hampshire Commission on cryptocurrencies and digital assets was formed by executive order last February to conduct a wide

Starting point is 00:11:49 range of research into how the crypto industry could benefit the state. Their recommendation made in late January suggests that the New Hampshire Department of Energy create a public review of how Bitcoin mining operations might be integrated into a statewide energy plan. The commission cites, quote, positive impacts for the electricity system, including contributing to a more stable electricity grid, more sustainable generation projects, and lower costs for consumers generally as the reason for this recommendation. The commission's report acknowledgment. The commission's report, criticism of the environmental harm associated with fossil fuel-powered mining facilities, but made a strong and well-researched claim that usage of renewable energy and Bitcoin mining

Starting point is 00:12:24 can both stabilize the grid, as well as encourage more renewable generation to be built by having a way to rapidly monetize infrastructure. The report layered out the ability for Bitcoin miners to purchase excess renewable power generation, as well as rapidly shut down if the electricity is needed on the grid. This flexible electricity customer can mean more renewable energy generation is financially viable to build. The commission recommended that Bitcoin mining firm should be encouraged to enter into official partnerships with the state to set up permanent mining facilities near existing power plants for the purpose of acting as load balancers. Of course, this was just a commission, but it seems as though the report was well received.

Starting point is 00:12:59 Governor Sununu said that its quote, specific recommendations would establish New Hampshire as a leading jurisdiction for the development of sound and effective application of blockchain technologies. So you take all these things together and I really do believe that the things that Bitcoiners have been saying about Bitcoin mining's potential to be a part of a more environmentally friendly future are actually starting to make it into the mainstream. It won't take many real-life examples of this happening for those stories to get to all the different halls of power and start to make people think differently about how they might take advantage. Now, of course, the mining industry itself continues to be in a tough moment, but there is even progress on that front.

Starting point is 00:13:37 Bitcoin miner, core scientific, has settled up its debt with Nidig and has also agreed to borrow 70 million from investment bank B. Riley to replace an existing facility and keep the company operational while it completes Chapter 11. Marathon Digital sold 1,500 Bitcoin in January to monetize the recent rally, which while formerly a lot of members of the community might have been frustrated that Marathon had to sell their Bitcoin, seems a lot better now than the sort of debt that got us into all the problems with miners from the last couple years. Anyways, the point is that as challenging as it is right now, mining infrastructure remains in place, and frankly, companies are going through their hardest period. What comes out on the other side will not only be stronger as an industry,

Starting point is 00:14:14 but if this narrative trend continues, be in a better position vis-a-vis the larger world of political goals and environmental goals as well. Don't get me wrong, I think there is still a lot of environmental fud to fight and narrative battles to be had, but it does feel a bit like there's a corner being turned, and that's pretty exciting to me. Anyways, guys, I hope this was interesting to you. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - Is the Narrative Around ESG and Bitcoin Mining Shifting?

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