Ecology and Decentralization: How the Green Trend Can Make the Bitcoin Network More Resilient

How is cryptocurrency decentralization related to ecology and alternative energy sources? In fact, there is no direct correlation here. However, there is an indirect relationship.

What is decentralization

Decentralization is the absence of a single center decision making. In relation to the historically first cryptocurrency, it is primarily understood as the possibilities of blockchain technology, namely, that transactions in the network are confirmed not by a sole and monopoly agent, such as in banks, but by different participants. Accordingly, the more users able to confirm transfers (in the case of Bitcoin and PoW consensus in general, miners), the more decentralized and stable the entire system will be.

It should be borne in mind that bitcoin mining does not exist on its own. It is connected to electricity. Most generating companies in the world are centralized. On the one hand, they cover a wide demand at relatively low energy prices (although not everywhere). On the other hand, if some unforeseen situation occurs, then many market participants associated with a large central supplier will suffer losses.

In today's unstable political environment and during military conflicts, infrastructure facilities, which include the electric power industry, are often attacked. Destruction can lead to the fact that the country becomes, in fact, paralyzed. This also affects the stability of the cryptocurrency network, the miners of which use electricity. If the system were decentralized, then it would be more difficult to completely disable it. Individual nodes would continue to function. Including thanks to alternative power sources.

How is the decentralization of the electricity industry related to the decentralization of bitcoin? 

Impact of energy decentralization on BTC

If power generation becomes completely decentralized, that is, everyone can mine it on their own, then they will be able to do, for example, mining. Of course, even if the “green trend” continues to gain momentum, not everyone will start mining, and those who do may pay attention to altcoins. But bitcoin remains both the largest capitalized currency and one of the leaders in the SHA-256 mining segment. At the same time, the Bitcoin dominance index did not fall below 38% over the past year, despite the growth in capitalization of popular cryptocurrency platforms and DeFi projects.

: tradingview.com

So, with even greater popularization of the “green trend” and alternative energy, those who want to mine BTC using their own sources will increase. Market experts note that in addition to alternative sources, "hard-to-get electricity" will be increasingly used.

And if so, then Bitcoin will become an even more decentralized system than it is now. So we have answered the first question. What about implementation in practice?

In order for more people to have access to electricity, it is necessary to organize access to sources. Interestingly, according to experts, major players with industrial access to water resources, coal or gas are not the leading mining agents, since their activities are largely associated with other methods of monetization. What remains? Renewable energy sources: wind, solar energy and the like. The amount of energy generated will vary by location. In addition, even in the same climatic zone, the flow of electricity will not be stable. The advantage can be obtained by those who live in a private house or own land. But even now mining is far from affordable for everyone, so nothing will change in this regard.

Solar Power Market

In the US, about 2020% of households had solar panels in 3,7. And the percentage is growing. According to an analysis by Princeton University (Princeton University), by 2024 the amount of electricity used from the sun will increase five times compared to 2020, and by 2030 and ten times. 

Positive dynamics is emerging in China. The Celestial Empire has long been a leader in the field of solar power. Given the difficult environmental situation in China, the authorities are going to increase the generating capacity to 2030 GW by 1. At the same time, experts from the International Economic Agency (IEA) believe that the result will be achieved earlier - in 200.

There are not many solar power plants in Russia yet - 0,78% of the capacity of the entire electric power industry as of the beginning of 2022. In the positive scenario of the Energy Strategy of Russia until 2035, it is planned to increase this figure to 3-5%. 

But all this is planned at the state level, that is, it does not contribute to decentralization in any way. And what about private initiative?

Here you can refer to the statistics of the Energy Information Administration of the United States (Energy Information Administration). According to it, only 5,7% of households with an income of more than $150 installed solar panels, and 000% of those with an income of less than $1,1. What does this say?

First, solar panels are not cheap. 

Secondly, a fairly small number of people are ready to acquire them. 

Thirdly, of those who have acquired, not all (most likely a minority) will start mining.

 

In other words, in terms of decentralization, bitcoin will not significantly increase the share of large players already involved in the network. On the other hand, it will make the network more stable anyway.

In addition, it is worth noting a study conducted by the University of Cambridge (University of Cambridge). According to his data, already now 26,3% of the electricity spent on bitcoin mining comes from renewable sources. Coal, gas and other fossil sources account for almost two-thirds - 62,6%.

The statistics are not in favor of those who produce electricity in a "green way", but their share is already significant. Given the cycles of protracted bearish trends in the market with depreciation, many industrial miners are already turning their attention to alternative or so-called secondary sources of electricity in order to reduce costs and survive the crypto winter. This is also facilitated by the statistics of rising electricity prices in the industrial sector of the United States, a country that has been among the leaders in BTC mining for a long time.

: hashrateindex.com

Environmental impact on BTC decentralization

Does this mean that in the future the system will become much more decentralized in terms of electricity sources? Probably no. Statistics show that the bias towards solar power is primarily in the centralized system. Among private users, this is still affordable for a few. Although the trend towards a “green trend” is gradually increasing the share of private energy sources in bitcoin mining, their share will not prevail in the near future. But the presence of different participants with their own sources in any case benefits the stability of the network. It is also worth considering the increase in costs for the miners themselves (ups in the cost of electricity, periodic bearish trends in the crypto market, and so on), as a result of which, in the long term, they will be forced to look for alternative and cheaper ways to generate electricity.

This material and the information in it does not constitute individual or other investment advice. The opinion of the editors may not coincide with the opinions of the author, analytical portals and experts.