Texas paid Bitcoin miner more than $31M to cut energy usage
cbsnews.com
cbsnews.com
Please balance the reflexive crypto hate with an appreciation of the logistical challenges of grid management especially when electrical supply and consumer demand don't naturally match out.
I share these words from direct experience of being a credit receiver from my utility company for several years which has been a great WFH benefit through awareness of the program. While I am now humbled and fortunate to have a renewables battery backed system in addition to multiple EVs prior to obtaining this renewable system I certainly played this money 'saving' game as well at every turn it was offered. The day before the voluntary shutdown my utility company would use this pre day as the credit baseline for the following shutdown day. I would lower the HVAC much greater than normal and charge all EVs beyond our typical SOC at a kW rate of 11 cents per. On the day of the shutdown I would use nearly no electricity intentionally and be credited at 1.25 USD per kW not used. Participating in this shutdown a few times a month would cover a whole month's bill++.
It is absolutely certain that someone will see this as "cheating" or "not fair" however everyone is equally capable of comprehending the offering as it stands and applying it to their own situation. It just takes time, which most don't want to give proactively, but those same "most" will certainly spend much more time reactively complaining. Mind your time as we all get the exact same interval of its passing however we certainly do not get the same aggregate amount.
Stay Healthy!
The fact that there have not been scalable, reliable storage schemes devised that can be deployed safely at any location ideal to the grid is not bitcoin's fault nor is it Bitcoin's problem to solve.
Only if anyone buys hydrogen. And technological infrastructure for trading it exists. Even then risks involved in operating hydrogen production facility are way higher than just plopping a box with few miners near your brand new windturbine you are struggling to monetize.
Storage is blocked by technology and resources. We can't wait for storage to build more renewables.
This relationship probably works for them because at times when there are no customers, crypto could take the load. And the energy company cares more about continuing to sell electricity to make money rather than the opinion of people who are not customers and are not involved in these transactions.
Cryptocurrencies are still a solution in search of a problem. The search has cost billions of dollars and multiple years so far. Maybe it’s time to call it a day?
Crypto continues to be a store of wealth and tool of commerce in countries like Turkey and Argentina. High throughput payment networks (lightening, ethereums L2 ecosystem) are delivering low latency and low fee transactions with strong security guarantees. On chain definitely rivals centralized exchanges trading volumes while providing lending / borrow facilities. And in this case of electrical demand there is a happy coincidence between Bitcoin miners and grid operators.
All this without massive public subsides, completely voluntary participation, and no government bailouts.
So it'll probably be a while before everyone decides to call it a day.
Also, crypto is an objectively riskier "store of wealth" than traditional measures, and is mostly used as a speculative investment or an arbitrage opportunity.
This statement is simply incorrect. The later 2 scaling ecosystems built on top of Bitcoin and Ethereum offer 1-2 second transaction times for 3-4 cents in fees. The electrical costs are equivalent to sending an email.
https://ethereum.org/en/layer-2/
> Also, crypto is an objectively riskier "store of wealth" than traditional measures, and is mostly used as a speculative investment or an arbitrage opportunity.
In a country like Argentina where inflation is over 100% the risk of holding crypto seems to be a much better deal than a savings account.
https://www.bloomberg.com/features/2023-argentina-presidenti...
Now? I've been saying this for years now. It's a load on demand and a way to monetize any amount of excess energy in distributed manner. One of the potential future of bitcoin is to provide monetization that can let investors overbuild renewables so that they can fully cover regular demand in times where production is just a few percent of full capacity.
> Cryptocurrencies are still a solution in search of a problem.
Cryptos are just a thing that exists. Applications turn up as economy develops in new directions and landscape changes.
This is worse because they have made it more $ attractive for more miners to come by subsidising operations.
Instead they should pass emergency laws that let them cut power to non essential enterprises like this. Then the crypto community will blacklist Texas and leave it alone.
Give the money to Elon to trial some stabilization tech instead.
Or connect to other grids lol!
This situation is ideal for both parties.
It's very obvious that the person you replied to consider crypto mining inherently bad.
I don't necessarily agree with them, but I believe the absolute majority of HN users hold this view.
The equivalent here would be picking what industries to forcibly shut down. In that sense with such a system crypto mining might be OK (at least for this argument).
But this compensation is a subsidy to ask more people to come in and use up a scarce resource.
You are mischaracterizing the payments because you hate crypto.
I don't hate crypto, I have some nuanced opinions on it. Happy to criticize and defend it, depending on the argument. Once you get to PoS there is a lot less wrong with it environmentally. Unlimited carbon-free energy infra (and silicon production infra too, along with proper recycling!) would also make it less of a problem, but obviously we are not there yet. And I say unlimited because PoW demands that difficulty goes up and up and up to bid up PoW assets.
Try thinking it through in terms of reduced rates for spare capacity. Any criticism that doesn't work under both frameworks is logically unsound.
But that aside I don't think your response is a fair one for three reasons:
(1) because solar and wind are the least expensive source of energy the excess power is significantly solar/wind.
(2) But because they're the least reliable maximizing their use requires solutions like a large amount of sheddable load on the grid.
(3) You're imposing your own opinions on the 'right' and 'wrong' sources of power which far from universal outside of internet filter bubbles and are not supported by the law. You may not like that some parties burn fossil fuels for energy but they currently have a right to do so. I agree that good cases can be made for restricting fossil fuel use, but so long as it isn't it's unproductive to pick and choose arbitrary targets that use energy for purposes you don't care about simply because fossil fuels for energy happens to exist. It's doubly so, considering 1/2 above because responsive loads help increase the share of renewable power.
I think lawmakers have an ethical duty to fix the "burning carbon is too cheap" problem, but the odds of that happening in Texas are low. If we had something like a carbon fee and dividend, miners could become a net good for society just by following price signals.
If they believed crypto mining is inherently bad, it should not be allowed in the first place.
If they believed crypto mining is at least neutral, it should get compensated for being forced to shut down (even temporarily), and it did.
This makes literally zero sense. Mining adds extra load that wouldn’t otherwise exist. If crypto didn’t exist, the Texas grid would experience reduced load. This should be obvious: if paying these miners to stop has the desired effect of reducing the load on the grid, miners not existing would surely have a similar effect.
> their argument applies to every industry.
Most other industries provide actual societal value, unlike crypto. And to hear off the rebuttal I already hear coming: no, just because it has a market cap doesn’t mean it’s adding value to society. As a trivial counterexample, Mexican cartels are undoubtedly worth billions but I think it’s pretty inarguable we’d all be better off without them.
Your counter-factual doesn't make sense because you assume that additional demand has no effect on supply and vice-versa. Electricity generation isn't some constant that is unrelated to industrial needs.
If there isn’t enough supply to satisfy things like residential demand then you loose demand (and therefore re revinue
If those industries are using that power that Texas has invested in producing, then how is it "abundantly available" for socially valuable uses?
Yes, without things like crypto, we probably would have somewhat less investment in green energy sources. We'd also be burning less coal. Given possible futures with "more fossil fuels and more renewables" versus "fossil fuels coal and fewer renewables", I'll pick the latter every time. The goal isn't more renewables, it's replacing fossil fuel with renewables.
Worse, those renewables being used up by cryptocurrencies are going to be the optimally-located renewables with the lowest installation and maintenance costs for the highest energy output (think: most reliable wind at high speeds, least cloud cover and highest sun angle). As we do continue to transition further away from fossil fuels, every additional installation is going to be in locations marginally less competitive than the ones that came before. This means that transitioning the non-crypto loads will take longer and be less cost-effective than if crypto magically disappeared overnight.
In a privatized system, a large, predictable, static load would attract additional infrastructure. Assuming how that's how Texas' system works, if these miners did not exist, the peak capacity would be lower.
And the crop is just canola oil but someone else is paying you to burn it in a fire.
Granted an industrial use of that same land might use as much power. Now it is a case of well: they are doing something more useful for society.
In addition imagine a spreadsheet for miner profit based on world location. That spreadsheet now might add this new upside in being paid to not run the miners and make more money. This attracts more miners!
If the goal is to protect society and especially local people, having miners AND shitty power supply is not good (choose one or the other)
They are causing the same amount of 'strain' (demand) as any other industry. Their demand will attract investment in supply the same as any other industry. The advantage is that their demand can be shed quickly, which is useful for the grid operators, and helps 'protect society.'
The grid is also not a normal free market operating under normal free market principles. Regulated monopolies are a different beast with different constraints. Given the challenge of supplying during peak loads, attempting to prioritize use cases strikes me as a reasonable endeavor in principle.
No, there would be a corresponding reduction in generation capacity and the strain on the grid would be identical.
> This attracts more miners!
Good. The miner's usage pays to build more generation capacity (acres of solar, etc), but then when there is an imbalance (production down and/or demand up) the miners turn off so the extra capacity they paid to be built is available for others.
The miner load has other unique and favorable attributes, but those are the ones that are relevant in this situation.
Is the energy for sale or not?
Pumped water storage, aluminum production, gravel or other crushed rock product manufacturing, municipal base load, etc. all come to mind.
Paying consumers to reduce their load does not incentivize supply investment. In real terms, it essentially does the exact opposite: it takes dollars that would go into plants and infrastructure and turns them into paychecks for people who are stressing the grid. In other words: it effectively rewards those who can consistently torture the grid with the money that would be used to improve it.
On the other hand we have proposals to increase the upfront costs, consume more valuable land (real estate prices too low for anyone's taste?), and utilize it in environmentally unfriendly ways (who wants to live next to a rock crusher operation or an aluminum factory). Relying on Bitcoin miners as a flexible consumer is extremely compelling.
Of course not. The thing that incentivizes supply is the load. Preferably a nice flat load. Oh, like miners.
Also, "aluminum production"? Really? You can just turn off an aluminum factory? What about the workers? What about all of the hot things that will cool down?
Less strain on the grid would be less economic reasons to develop the grid and expand energy production capacity.
The only reason any business ever develops is unsatisfied customer needs.
The difference is that this is very complex and would have a minor effect (compared to shutting down a single large industrial consumer).
"Congratulations, you earned $4.13 for saving 3.3 kWh."
Compare that with the crypto miners: ERCOT knows how long they take to shutdown and their load, as well as already having commercial arrangements for the shutdown. And with one switch they reduce many multiples of an average homes load.
Well.. Texas doesn't just pay this miner, they pay any enterprise which "strains the grid." It's a market for perverse incentives the way the Cobra Effect is.
> The miner is being compensated for lost production in exchange for grid stability.
The miner is arbitraging the tax payer against their ability to construct new plants, which is how this money could presumably be better spent.
> The only way your analogy works is if you consider industry bad (playing loud music).
His analogy is flawed. There's an absolute limit to sound pressure in this universe. There's probably not an absolute limit to human greed in this universe. So, yes, unconstrained processes without any natural (e.g. non-external) feedback are probably bad.
If, however, the number of "strain incidents per unit of time" were factored into pricing accordingly, I'm sure these enterprises would change their strategy.
This is a contract where Bitcoin miner uses energy that would be wasted otherwise. [1]
I see a lot of bad faith here on understanding why Ercot did that. But if you prefer state laws that “makes you safe”, go ahead.
[1] https://www.cnbc.com/2021/12/04/bitcoin-miners-say-theyre-fi...
This is nothing but cope from bitcoin maxis in the face of the terrible reputation that cryptocurrency now has.
Bitcoin was the first cryptocurrency, it practically defines the term cryptocurrency, it has all the same features as other cryptocurrencies, many of which start life as either code or chain forks of Bitcoin anyway. It has first mover advantage and name recognition, but it absolutely is a cryptocurrency.
To illustrate, imagine a grid with 1000MW max demand and 2000MW of production. Let's say the generation is composed of equal parts solar, wind, gas, and nuclear.
You've got 500MW of always on (nuclear), 500MW dispatchable (gas), and 1000MW intermittent.
When the sun is shining and the wind is blowing, where do you put all your extra energy?
Well if you add on another 500MW of bitcoin mining, you can send it there. And if you hit peak demand when you've got no renewables (or the gas/nuclear is offline) you can switch off your extra demand.
The dispatchable industrial user is helping to pay to keep the extra capacity around you only need a few days a year.
Keeping industrial scale operations running is usually cheaper, safer and more efficient than turning them completely off. This is not like switching off a lightbulb. ERCOT is using these agreements so that they can smoothly ramp down and dial up generation capacity.
Miners help to stabilize the Texan power grid by providing a steady demand for power and get paid in ERNERGY CREDITS during an emergency when power is needed elsewhere. This is a win-win-win no matter how uninformed people are trying to spin this.
This is particularly hard when there is a lot of renewables on the grid because their minimum output is very low compared to their average output but the renewables are inexpensive relative to their average output compared to other sources so the utility prefers to build more and more renewables if it can.
To address this, utilities must build generation capacity that sits idle. This has terrible economics. Instead, utilities can take a portion of the money that they would have spent building idle capacity and pay it to users who are able to quickly shut off when demand approaches capacity (or approaches the 'cheap' capacity).
This is equivalent to selling these parties spare capacity at a discounted rate.
So consuming energy but being willing/able to stop on a moments notice stabilizes the grid by (1) making it economical to have worst case capacity capacity closer to the peak demand, and (2) getting out of the way when that capacity is needed.
The key point is that they can immediately turn off on the utilities request. This is easier for bitcoin miners than it is for many industrial scale energy users (though there are other ones who do this too).
The energy consumer gets a cheaper electricity prices year round, on the condition that they are contractually obligated to cut power in emergencies when the energy provider demands it (though, there still can be penalty payments if the demands exceed the maximum in the contract). This allows the provider to always know how much capacity it can shed ahead of time, in exchange for slightly lower revenue.
With this alternative arrangement, Texas is forced to dynamically outbid bitcoin profits and other uses of energy in the middle of an emergency.
I actually have a similar deal on a consumer level for my home. In exchange for lower power prices, the power company is allowed to turn my hot water tank off remotely. Usually doesn't matter unless multiple people have very long showers on very cold days.
This is exactly what happened here, the difference is just how the payment is structured? Obviously an industrial operation can get a different contract than a home owner, and can provide different benefits for the providers.
ERCOT have no idea how much load shedding capacity they have ahead of time. They have to start bidding on the wholesale market and see which bids are accepted.
Which makes it harder to do long-term planning and potentially slower to respond in an emergency.
It also result in headlines like this :)
If your workload is such that it causes grid instability, you should pay at least $X more for the service, where $X is the cost of grid instability.
This way if it's too expensive for big customers to run a workload which exceeds the capability of the grid, they'll go elsewhere. This would incentivise the grid operator to improve stability such that they could better support the big customer's workload.
https://en.wikipedia.org/wiki/Power_factor
https://www.energy.gov/eere/amo/articles/reducing-power-fact...
https://www.bchydro.com/news/conservation/2019/your-power-fa...
If it wasn't for some internal goodwill I as the gov would want to just shut down their access to energy after a certain treshhold of consumption was reached.
Literally right now we're looking at the proof. The data/experiment is already here. When you hear people talking about how wasteful crypto is, it's because the data are already in and we're on to the analysis.
The legacy transaction industry, if it does consume more energy, can move to begin to conserve energy because consuming energy is not in its design.
It's designed to be wasteful. PoW is a race to burn as much energy as possible to get an edge on the other guy.
Close to 200,000 people work on or with cryptocurrencies[1]. Visa employs around 27,000[2], some of whom are no doubt being double-counted here.
(But note: this is still a pointless comparison. Even an absurdly wasteful Visa facilitates more value-per-watt-second than cryptocurrencies do.)
It's massively subsidised from block rewards. Coins created out of thin air.
Checking this chart [1], historically, block-rewards are almost always a 90% or larger subsidy, except in cases where there massive congestion is forcing high fees.
As the block reward subsidy is phased out over the next hundred years, the transaction fees will have to go up to compensate.
Second, where do you think Visa is getting the money to run all their datacenter and offices? Visa don't have any alternative source of funding for operating costs, so it all comes from the visa transaction fees that you pay.
Will they? Bitcoin's difficulty can go up and down to adapt to the offered supply of mining.
Currently the fees (no subsidy) Bitcoin mining earns are about $657k/day. This comparable to the total income with subsidy of other cryptocurrencies (and substantially larger than most).
Any argument that Bitcoin couldn't exist on the current level of fee income alone ought to explain the other systems that bring in significantly less e.g. BCH has $175k/day in subsidy and essentially no fee income because their design makes the rational fee rate approximately zero.
It really depends on how much value Bitcoin is securing at the time.
Because the amount paid out for mining rewards is also the rough cost for someone to execute a 51% attack. If miners can produce X hashes/sec for an easy profit at $Y, then an attacker should also be able to produce slightly more than X hashes/sec for about the same cost of $Y, or at least in the same order of magnitude.
So, can the attacker make more than $Y profit/day from exploiting double-spends? The security of bitcoin becomes an economic problem.
------------------
On a related tangent, I used to track random shitcoins as a hobby. And you might be shocked at just how many 51% attacks happened. Many of the shittest shitcoins were secured by no more than a few hundred dollars per day of hashrate. Super-easy for someone to rent that off nicehash. Some of the reorgs I saw were multiple days long, and the attacker would continue attacking the same chain until their victim noticed, or ran out of money.
I saw this done on dozens of shitcoins in the few months I was tracking. Based on that experience, I wouldn't trust any PoW blockchain that didn't have the majority of hardware miners for a given algorithm.
So I would not trust BCH... how long before some medium sized bitcoin miner decided they could get more profit by 51%ing BCH for $175k/day?
You can assume bitcoin is somewhat safe right now, but only because most of the SHA256 miners are already mining bitcoin. It would take a massive upfront investment for someone to create enough SHA256 miners to execute a 51% attack.
But in your suggested scenario where the hashrate of BTC is dropping? Where are those older SHA256 miners going? The second hand market? What if someone buys them all up?
And what if Bitcoin becomes actually successful? Becomes the backbone of the world economy and doing trillions per day in transactions? Someone might decide that upfront cost of creating miners is worth it, especially if they only need $657k of hashrate.
For a system that is actually in use, the consequences of these attacks you imagine are difficult to reason about. It's not like the system stops existing if some attacker attacks-- the attacker can reverse some of their own transactions near the chain tip. Recipients can adapt to the behavior by requiring more confirmations, restricting who and how they attack, etc.
It's difficult to generalize from what's seen in those "random shitcoins" (to use your phrase) since most of them have little to no economic use, so an attack may have an oversized or undersized impact depending on pure chaos: their value is purely speculative so the narrative around the attack determines the outcome more than anything. Since you've said you tracked these things presumably you're aware that in many cases their value goes up after they're attacked.
> but only because most of the SHA256 miners are already mining bitcoin
That's also not clear to me, there are an awful lot of idle two generation old miners out there at any given time.
> And what if Bitcoin becomes actually successful? Becomes the backbone of the world economy and doing trillions per day in transactions?
The total value of activity on the chain isn't equivalent to the value available to attackers in an attack, especially to the extent that attacking undermines the value of the system as a whole.
In any case, I wasn't (and am not now) trying to take a strong position here-- I would say that there are a lot of unknowns but that I think the position you were taking that the current fee level isn't adequate doesn't really pass a sniff test for me. Perhaps it isn't but if you really strongly believe that there are about 1000 cryptocurrencies that you should be figuring out how to short hard instead of posting on HN. :P
I wasn't actually arguing that, yes there are a bunch of unknowns. I'm only making the argument that there is a clear formula connecting mining rewards, potential double-spend profits and the cost of attacking a PoW coin. I don't care enough to actually derive the formula and plug numbers in it to answer that question.
> Recipients can adapt to the behavior by requiring more confirmations, restricting who and how they attack
More confirmations don't really work as a solution. The cost to hold a double-spend open is known, so we could try requiring enough confirmations to make such a double-spend unprofitable, but the attacker can execute multiple double-spends in parallel to spread their costs.
For large transactions (relative to the hashrate of that coin), the confirmations can can get quite high, which destroys the usefulness of cryptocurrency for fast and easy transactions.
For one of the "random shitcoins" I was tracking, I found the centralised exchange I suspect the attacker was targeting (presumably trading them to another currency and then withdrawing). The exchange had set really high numbers of confirmations (2-5 days worth of blocks) but the because these coins were so cheap to attack, the attacker had no problem doing reorgs that large.
And then the exchange delisted the coin due to "51% attacks".
> The total value of activity on the chain isn't equivalent to the value available to attackers in an attack, especially to the extent that attacking undermines the value of the system as a whole.
Yes, another thing to go into that formula.
Centralised exchanges and other automated systems interacting with cryptocurrencies really mess things up. They provide a lot of liquidity open to double-spend attacks.
In a world were cryptocurrencies were only used as the peer-to-peer cash in the way a lot of it's early proponents advocated for (and still do), where everyone can manually verify their transactions and establish trust, then your suggestions do work somewhat better.
But in the highly centralised nightmare that cryptocurrencies have become... well it changes numbers going into the formula.
> That's also not clear to me, there are an awful lot of idle two generation old miners out there at any given time.
When hashrate is trending up, I suspect the two generation old miners are slow enough to not worry about.
But the economics might change as block reward subsidies drop, or if the potential profit of double-spends goes up.
> Perhaps it isn't but if you really strongly believe that there are about 1000 cryptocurrencies that you should be figuring out how to short hard instead of posting on HN. :P
I mean, I considered it. Hence the research.
But these were really, really, shit shitcoins, not listed on exchanges with futures markets, so the only real way to profit was to execute the 51% attacks myself, and I didn't want to go down the black hat path.
Also, I moved onto other hobbies.
It doesn’t have the affordances of credit cards like refunds/chargebacks/AML/KYC/simplicity/speed etc.