Crypto
Can Bitcoin Mining Make Nuclear Energy Abundant And Free?
Welcome to part two of this series on Bitcoin and nuclear energy. Let us recap what we went through in part one before we dive deeper into the topics we’ll cover in part two.
Key Takeaways From “Why Bitcoin Is The Future Of Our Energy Grid”
- Bitcoin has great utility and is important for humans. Not everyone may use or appreciate its utility today, which is fine, but that does not mean it holds no utility to others. Currently, close to $400 billion of the world’s wealth is stored in it, that’s a lot of monetary energy to disregard.
- Bitcoin uses only about 0.1% of global energy. Current energy usage is between 100 to 200 terawatt hours (TWh) per year and per the projections shared in part one, Bitcoin’s energy usage will always be a rounding error with regards to global energy consumption. It would most likely be sub-1% for a long time to come.
- Bitcoin, in fact, may use too little energy for the value it may store in the future. Considering that Bitcoin likely grows over this coming decade and could store $20 trillion of world’s wealth, maybe even $50 trillion or $100 trillion, that’s a lot of monetary energy to be secured safely and protected. We should invest and use more energy to protect the network than we do currently.
- Bitcoin miners are highly mobile, look for the cheapest and lowest cost energy to mine and do not compete with other industries or your personal use for energy.
- Energy usage is a good thing. You want to live in a place where there is a good amount of energy available to use and enjoy, rather than too little. We need to use and harness more energy to become a Kardashev Type-I civilization which will take decades.
Nuclear plants have always fascinated people over the years but very few average people to date actually understand the economics behind constructing a nuclear power plant at scale. Today we deconstruct this very topic and in a fun and innovative way.
As the industry saying goes, “There are only two things that matter in construction of a nuclear power plant — capital cost and the costs of capital”
A Tale That Begins In 2009
All good tales need to start from the very beginning. Why should we do it any differently? So here we go.
The year is 2009. There are two nuclear reactor technology companies in the market competing to bring their technology online, deploy reactors and sell electricity. We’ll call these companies Alpha Labs and Beta Labs.
Both companies are currently in their R&D phases and going through their conceptual design for the reactor deployment. The next six or so years would be grueling. Both of these companies will go through extensive R&D, engineering decision making processes, supplier and vendor selections, component testing, hardware testing, conceptual design reviews and iterations and a thorough licensing review by the Nuclear Regulatory Commission (NRC) before they get a construction permit for building a nuclear reactor site. This period will be filled with challenges, both technological and otherwise. Like working on any deep technology, there are always things that need detailed design and engineering to be worked through and iterated upon before you’re ready to bring that technology to reality. The nuclear sector is no different.
However, another thing happened around 2009: the invention or discovery of Bitcoin. In the initial years no one took any notice, at least not in the nuclear industry, since they were pretty occupied in their technology work and Bitcoin was only heard about or really found in the weeds of the internet. And who was really busy searching for that in those days? But this changed. In 2012, one engineer working at Alpha Labs discovered Bitcoin by chance, going through a Reddit blog post. This engineer was intrigued and started looking into it more. Being from an engineering background with deep experience in energy markets, he started thinking about bitcoin as a commodity with a production cost associated with it like any other commodity. He discovered proof-of-work mining. This led him down a rabbit hole which changed the very nature of Alpha Labs’ history and, more importantly, the future of nuclear energy, power markets, the energy grid and humanity forever. This is the story of that one engineer.
The engineer started with mining bitcoin at his home in the beginning. He figured there was no better way of learning about mining than to do it himself and be in the trenches. The year was now 2013 and he had been mining for a good six months and had developed deep thinking about mining. He soon realized the repercussions of this innovation, how mining could be used to monetize energy that could otherwise never be monetized. Bitcoin mining offers a buyer of first resort for any energy that is low cost — wasted, stranded, curtailed, surplus or underutilized. The engineer realized this. He was way way ahead of his time, the world would not figure out the profoundness of this innovation until about 2030.
The engineer, having realized this in 2013, started pitching the idea of a co-location bitcoin mining site on the nuclear island that Alpha Labs was designing for its first site. He received severe pushback in the beginning since no one was aware of Bitcoin, much less of bitcoin mining. But he was persistent and did not give up.
Bitcoin had also started to get into the mainstream news because of a price surge, then a subsequent crash due to the Mt. Gox debacle, and more people were at least becoming aware of it. He started giving talks and presentations to the executive team and orange pilled a few of them. After six months of thorough design and engineering work in early 2014, Alpha Labs announced its plan to co-locate a bitcoin mining center on its nuclear island site, which was supposed to begin construction in 2016.
The engineer got switched to a newly-created bitcoin mining division inside the company and started leading that group. Over the next year, the team worked through the details of the build out and integrated the mining center co-location design into its nuclear island design. Alpha Labs went with a highly-mobile construction design for its mining center, so that in case it had to move or shift the mining center elsewhere it would be relatively easy to do, plus this limited its risk of owning an asset which cannot be moved if the circumstances demanded it. It realized the footprint that the mining center took as part of the nuclear island itself was not substantial and did not have a huge impact (increase) to the size of land it would need to get to build the site.
Alpha Labs received the permit approval for construction of Alpha-1, its flagship nuclear plant with the bitcoin mining co-location in the second half of 2016. It was now ready for construction.
All this was happening while Beta Labs was itself busy developing its own technology for the nuclear reactor and making amazing progress. It had gone through the design process, completed its entire hardware and component testing by 2014 and had itself been keeping engagements with the NRC around the licensing piece as early as 2012. Beta Labs went with a traditional nuclear plant with no bitcoin mining co-location, since it was not sold on the idea of this innovation by anyone particular, even though it had heard about the announcement of Alpha Labs in the early part of 2014.
It had held some preliminary discussions to understand Alpha Labs’ decision making but decided against pursuing a similar strategy, partly due to the fact that there were no resources out in the public markets to guide it around the use case for bitcoin mining colocation with its reactor build out. Beta Labs itself received its permit approval for construction in the second half of 2016 and was ready for its own build out.
Both Alpha Labs and Beta Labs were pursuing a nuclear plant construction of 1 gigawatt electrical (GWe) (or 2.5 gigawatt thermal (GWth), with 40% efficiency) capacity from the very early days. In 2014, Alpha Labs shifted track and announced a 2 GWe (or 5 GWth, 40% efficiency) reactor deployment and construction plan, with 1GWe to be used for selling electricity to the grid while the balance of 1GWe was to be used solely for mining bitcoin onsite.
So, to recap, here is the construction plan for both companies:
Alpha Labs: 2 GWe cap., 1 GWe sell to grid wholesale, 1 GWe to mine bitcoin onsite
Beta Labs: 1 GWe cap., 1 GWe to sell to grid wholesale
Economics Of Nuclear Power Plants
We’re in the second half of 2016 now. Both Alpha and Beta Labs have announced their nuclear power plants (NPPs) constructions and are actively looking to raise capital.
NPP financing can take many different, exotic forms and arrangements. The structure of financing for NPPs is not part of the scope for this article. Here we would assume that both Alpha Labs and Beta Labs get funding on equal terms for their construction plants, so as to do an “apples-to-apples” projection of their capital costs, revenue and profits/losses.
Assumptions
- Let us assume that NPP construction for both companies will take six years to complete. So, from 2016 to 2022. This is in line with construction times of most NPPs to date.
- Let us assume that the capital costs for NPP construction for both companies are $5,000 per kilowatt (kW). This ballpark estimate is in line with the construction costs of NPPs to date.
Based on this number, here are the capital requirements for both companies:
Alpha Labs: $5,000 * 2 Gw/Kw = $10 billion
Beta Labs: $5,000 * 1 Gw/Kw = $5 billion
Now, keep in mind that Alpha Labs would also require capital to buy miners and deploy them onsite at its co-located mining center. But this would only be required when it is ready to produce electricity, which would not happen until 2022. So, it decides to get a higher limit of capital line which they can draw upon when needed six years down the line. At this point in 2016, bitcoin ASICs were going mainstream, new and more efficient machines were expected to come to market over the coming years, which Alpha Labs was keeping a track of. It was still quite a few years away from placing orders for miners, that would consume 1 GWe of nuclear generation, so the only thing to do right then was to track the mining industry and see it evolve.
Here are the funding terms received by both companies:
Alpha Labs: $10 billion at 3% interest, with a debt service period of 25 years. The capital line would be extended up to $15 billion at the same terms if needed in the future. Alpha Labs would draw $2 billion in each year for the first five years of NPP construction.
Beta Labs: $5 billion at 3% interest, with a debt service period of 25 years. Beta Labs would draw $1 billion in each year for the first five years of NPP construction.
Now, based on the terms, Beta Labs would need to pay about $57 million every year for the next 25 years for every $1 billion it drew from its capital line during the first five years of construction.
And, on similar lines, Alpha Labs would need to pay about $114 million every year for the next 25 years for every $2 billion it drew from its capital line during the first five years of construction.
Now, we’ll use blocks of capital to represent the economics of both Alpha Labs and Beta Labs over the next many years so as to compare what their debts and profits would look like.
Let us assume about $57 million is one block. We’ll represent this as a green block on the graph going forward.
So, it’s mid-2016 and both NPP constructions are about to begin.
Year One: 2016
Beta Labs: Takes out its first $1 billion in capital to begin construction. Based on this, it would need to pay one block of debt, which is added to its balance sheet below.
Total capital drawn: $1 billion
Total debt: One block
Alpha Labs: Takes out its first $2 billion in capital to begin construction. Based on this, it would need to pay two blocks of debt, which is added to its balance sheet below.
Total capital drawn: $2 billion
Total debt: Two blocks
Year Two: 2017
Beta Labs: Takes out another $1 billion in capital. Based on this, it would need to pay two additional blocks of debt in year two, which is added to its balance sheet below.
Total capital drawn: $2 billion
Total debt: Three blocks
Alpha Labs: Takes out another $2 billion in capital. Based on this, it would need to pay four additional blocks of debt in year two which is added to its balance sheet below.
Total capital drawn: $ 4 billion
Total debt: Six blocks
Year Three: 2018
Beta Labs: Takes out another $1 billion in capital. Based on this, it would need to pay three additional blocks of debt in year three, which is added to its balance sheet below.
Total capital drawn: $3 billion
Total debt: Six blocks
Alpha Labs: Takes out another $2 billion in capital. Based on this, it would need to pay six additional blocks of debt in year three which is added to its balance sheet below.
Total capital drawn: $6 billion
Total debt: 12 blocks
Year Four: 2019
Beta Labs: Takes out another $1 billion in capital. Based on this they would need to pay four additional blocks of debt in year four, which is added to its balance sheet below.
Total capital drawn: $4 billion
Total debt: 10 blocks
Alpha Labs: Takes out another $2 billion in capital. Based on this, it would need to pay eight additional blocks of debt in year four which is added to their balance sheet below.
Total capital drawn: $8 billion
Total debt: 20 blocks
Year Five: 2020
Beta Labs: Takes out another $1 billion in capital. Based on this, it would need to pay five additional blocks of debt in year five which is added to their balance sheet below.
Total capital drawn: $5 billion
Total debt: 15 blocks
Alpha Labs: Takes out another $2 billion in capital. Based on this, it would need to pay 10 additional blocks of debt in year five which is added to its balance sheet below.
Total capital drawn: $10 billion
Total debt: 30 blocks
Year Six: 2021
Beta Labs: No additional capital. So, it would need to continue paying five additional blocks of debt in year six which is added to its balance sheet below.
Total capital drawn: $5 billion
Total debt: 20 blocks
Alpha Labs: No additional capital. So, it would need to continue paying 10 additional blocks of debt in year six which is added to its balance sheet below.
Total capital drawn: $10 billion
Total debt: 40 blocks
Year Seven: 2022
This is where things get interesting now. Both Alpha Labs and Beta Labs have completed their NPP constructions and are now ready to produce electricity. At this point, both companies’ balance sheets have nothing but a massive compilation of debt obligations based on the amount of capital they have taken out for their respective constructions.
Assumptions
- Let us assume that the all in revenue from selling 1 GWe electricity per year in the wholesale power markets is about $525 million with a clearing price of 6 cents per kWh. This means, based on our block model, that both Alpha Labs and Beta Labs would make about nine blocks of revenue each year going forward from selling electricity. We would assume that both companies will run their NPPs at full power or capacity factor of 100%.
- Let us assume that the operating cost of running the NPP per year is about $100 million per GWe. This includes the yearly fuel cost and variable operations and maintenance. This means, based on our block model, that both Beta Labs would spend about blocks in covering operating expenses every year going forward while Alpha Labs would spend about four blocks in covering operating expenses every year going forward.
Assumptions And Estimates For Bitcoin Mining
- Mining numbers and profitability analysis was done on June 18, 2022 for this article, when the bitcoin price was about $20,000, network difficulty was 30 T and the network hash rate (30 days) was 215 exahashes per second (EH/s). The mining revenue projections take into account the halving in 2024 and take an assumption that both bitcoin price and difficulty would increase 50% on average every year for the next five years.
- Let us assume that Alpha Labs is able to secure latest-generation ASIC miners at the cost of about $10,000 each for their 1GWe mining colocation center. Based on the average power draw from a single miner, Alpha Labs would need around 300,000 miners. The total capital cost for this side of the operation would be about $3 billion which it would draw from its existing capital line at the same terms as before. This means that they would need to pay an additional debt of about $172 million (or the equivalent of three blocks) every year going forward for this new capital draw.
- Let us assume that the mining hardware would have a life of five years.
- Let us assume that Alpha Labs keeps no bitcoin on its balance sheet from this exercise and therefore converts all mining revenue into USD.
- Let us run some mining profitability numbers using Braiins OS to get a projection of how much revenue Alpha Labs would make over the next five years of mining with this mining equipment:
- Here are the mining revenue results that Alpha Labs would make each year:
- Year seven: $1.5 billion or about 27 blocks
- Year eight: $1.6 billion or about 29 blocks
- Year nine: $970 mil or about 17 blocks
- Year 10: $1.1 billion or about 19 blocks
- Year 11: $1.25 billion or about 22 blocks
Now, let us continue with our block analysis of both companies’ balance sheet.
Beta Labs: 20 blocks in debt already, five additional blocks in debt for year seven, two blocks in operating expenses, nine blocks in 1GWe to grid revenue
Yearly profit and loss = 9 blocks – (5 blocks + 2 blocks) = 2 blocks
Total debt = 20 blocks – 2 blocks = 18 blocks
Alpha Labs: 40 blocks in debt already, 10 additional blocks in existing debt for year seven, three additional blocks in miner debt taken for year seven, four blocks in operating expenses, nine blocks in 1 GWe to grid revenue, 27 blocks in 1 GWe mining revenue
Yearly profit and loss = (9 blocks + 27 blocks) – (10 blocks + 3 blocks + 4 blocks) = 19 blocks
Total debt = 40 blocks – 19 blocks = 21 blocks
As you can now see, Alpha Labs is moving up from the trenches of debt collection much quicker than Beta Labs, which would take a long time to turn profitable.
Year Eight: 2023
Beta Labs: 18 blocks in debt already, five additional blocks in debt for year eight, two blocks in operating expenses, nine blocks in 1 GWe to grid revenue
Yearly profits and losses = 9 blocks – (5 blocks + 2 blocks) = 2 blocks
Total debt = 18 blocks – 2 blocks = 16 blocks
Alpha Labs: 21 blocks in debt already, 10 additional blocks in existing debt for year eight, three additional blocks in miner debt taken for year eight, four blocks in operating expenses, nine blocks in 1 GWe to grid revenue, 29 blocks in 1 GWe mining revenue
Yearly profits and losses = (9 blocks + 29 blocks) – (10 blocks + 3 blocks + 4 blocks) = 21 blocks
Total debt = 21 blocks – 21 blocks = 0 blocks
Alpha Labs has broken even in year eight in just its second year of NPP operation while Beta Labs still has 16 blocks in debt remaining on their balance sheet. The difference on the balance sheets between the companies has suddenly become astonishingly wide. Alpha Labs has been able to wipe off 40 blocks of debt over just two years of operation.
Year Nine: 2024
Beta Labs: 16 blocks in debt already, five additional blocks in debt for year nine, two blocks in operating expenses, nine blocks in 1GWe to grid revenue
Yearly profits and losses = 9 blocks – (5 blocks + 2 blocks) = 2 blocks
Total debt = 16 blocks – 2 blocks = 14 blocks
Alpha Labs: Zero blocks in debt already, 10 additional blocks in existing debt for year nine, three additional blocks in miner debt taken for year nine, four blocks in operating expenses, nine blocks in 1 GWe to grid revenue, 17 blocks in 1 GWe mining revenue
Yearly profits and losses = (9 blocks + 17 blocks) – (10 blocks + 3 blocks + 4 blocks) = 9 blocks
Total Profit = 9 blocks – 0 blocks = 9 blocks
Year 10: 2025
Beta Labs: 14 blocks in debt already, five additional blocks in debt for year 10, two blocks in operating expenses, nine blocks in 1 GWe to grid revenue
Yearly profits and losses = 9 blocks – (5 blocks + 2 blocks) = 2 blocks
Total debt = 14 blocks – 2 blocks = 12 blocks
Alpha Labs: Nine blocks in profit already, 10 additional blocks in existing debt for year 10, three additional blocks in miner debt taken for year 10, four blocks in operating expenses, nine blocks in 1 GWe to grid revenue, 19 blocks in 1 GWe mining revenue
Yearly profits and losses = (9 blocks + 19 blocks) – (10 blocks + 3 blocks + 4 blocks) = 11 blocks
Total Profit = 9 blocks + 11 blocks = 20 blocks
Year 11: 2026
Beta Labs: 12 blocks in debt already, five additional blocks in debt for year 11, two blocks in operating expenses, nine blocks in 1 GWe to grid revenue
Yearly profits and losses = 9 blocks – (5 blocks + 2 blocks) = 2 blocks
Total debt = 12 blocks – 2 blocks = 10 blocks
Alpha Labs: 20 blocks in profit already, 10 additional blocks in existing debt for year 11, three additional blocks in miner debt taken for year 11, four blocks in operating expenses, nine blocks in 1 GWe to grid revenue, 22 blocks in 1GWe mining revenue
Yearly profits and losses = (9 blocks + 22 blocks) – (10 blocks + 3 blocks + 4 blocks) = 14 blocks
Total Profit = 20 blocks + 14 blocks = 34 blocks
As you can now see very clearly, it would take Beta Labs around 16 years to break even (around 2031) while Alpha Labs broke even in only its second year of operation (in 2023) and year eight from the start of NPP construction in 2016.
Co-location of a bitcoin mining center onsite was truly a game-changing decision for Alpha Labs, thanks to that one visionary engineer who has now been promoted to the executive team. Well deserved indeed.
As we get to see from this case study, co-location of bitcoin mining onsite at the NPP improves both the project revenue and pay back period, which makes the investment capital more attractive. Could bitcoin mining actually help push nuclear power into the mainstream again? Something to think about.
Near-Free Electricity: A Thought Experiment
Now, how about we do a little thought experiment and see if Alpha Labs can sell its 1 GWe electricity to the grid at half the price it was selling in the case study before. How would its balance sheet look in this case?
Until year six, there would be no difference, as NPPs are just finishing construction, so we’ll pick up from year seven onwards. Here’s how both companies’ balance sheets look like at the end of year six:
Year Seven: 2022
This is where things get really interesting again. Both Alpha Labs and Beta Labs have completed their NPP constructions and are now ready to produce electricity.
All of our assumptions from the previous case study remain valid for this thought experiment. The only difference is that Alpha Labs is monetizing 1 GWe of its electricity generation by mining bitcoin the exact same way while its 1 GWe portion which it was previously selling to the grid for about $525 million or nine blocks of revenue is now making them half, so about $267 million or five blocks of revenue. This would mean selling at a clearing price of 3 cents per kWh instead of 6 cents per kWh.
Beta Labs: 20 blocks in debt already, five additional blocks in debt for year seven, two blocks in operating expenses, nine blocks in 1 GWe to grid revenue
Yearly profits and losses = 9 blocks – (5 blocks + 2 blocks) = 2 blocks
Total debt = 20 blocks – 2 blocks = 18 blocks
Alpha Labs: 40 blocks in debt already, 10 additional blocks in existing debt for year seven, three additional blocks in miner debt taken for year seven, four blocks in operating expenses, five blocks in 1 GWe to grid revenue, 27 blocks in 1 GWe mining revenue
Yearly profits and losses = (27 blocks + 5 blocks) – (10 blocks + 3 blocks + 4 blocks) = 15 blocks
Total debt = 40 blocks – 15 blocks = 25 blocks
Year Eight: 2023
Beta Labs: 18 blocks in debt already, five additional blocks in debt for year eight, two blocks in operating expenses, nine blocks in 1 GWe to grid revenue
Yearly profits and losses = 9 blocks – (5 blocks + 2 blocks) = 2 blocks
Total debt = 18 blocks – 2 blocks = 16 blocks
Alpha Labs: 30 blocks in debt already, 10 additional blocks in existing debt for year eight, three additional blocks in miner debt taken for year eight, four blocks in operating expenses, five blocks in 1 GWe to grid revenue, 29 blocks in 1 GWe mining revenue
Yearly profits and losses = (29 blocks + 5 blocks) – (10 blocks + 3 blocks + 4 blocks) = 17 blocks
Total debt = 25 blocks – 17 blocks = 8 blocks
Year Nine: 2024
Beta Labs: 16 blocks in debt already, five additional blocks in debt for year nine, two blocks in operating expenses, nine blocks in 1 GWe to grid revenue
Yearly profits and losses = 9 blocks – (5 blocks + 2 blocks) = 2 blocks
Total debt = 16 blocks – 2 blocks = 14 blocks
Alpha Labs: 18 blocks in debt already, 10 additional blocks in existing debt for year nine, three additional blocks in miner debt taken for year nine, four blocks in operating expenses, five blocks in 1 GWe to grid revenue, 17 blocks in 1 GWe mining revenue
Yearly profits and losses = (17 blocks + 5 blocks) – (10 blocks + 3 blocks + 4 blocks) = 5 blocks
Total Debt = 8 blocks – 5 blocks = 3 blocks
Year 10: 2025
Beta Labs: 16 blocks in debt already, five additional blocks in debt for year nine, two blocks in operating expenses, nine blocks in 1 GWe to grid revenue
Yearly profits and losses = 9 blocks – (5 blocks + 2 blocks) = 2 blocks
Total debt = 14 blocks – 2 blocks = 12 blocks
Alpha Labs: 18 blocks in debt already, 10 additional blocks in existing debt for year nine, three additional blocks in miner debt taken for year nine, four blocks in operating expenses, five blocks in 1GWe to grid revenue, 19 blocks in 1 GWe mining revenue
Yearly profits and losses = (19 blocks + 5 blocks) – (10 blocks + 3 blocks + 4 blocks) = 7 blocks
Total profit = 7 blocks – 3 blocks = 4 blocks
Alpha Labs has broken even in year 10 in this case instead of year eight, or four years after beginning operation. Still quite amazing considering Beta Labs would not turn profit until year 16 and Alpha Labs is selling 1 GWe electricity at half price compared to them.
Year 11: 2026
Beta Labs: 16 blocks in debt already, five additional blocks in debt for year nine, two blocks in operating expenses, nine blocks in 1 GWe to grid revenue
Yearly profits and losses = 9 blocks – (5 blocks + 2 blocks) = 2 blocks
Total debt = 12 blocks – 2 blocks = 10 blocks
Alpha Labs: 18 blocks in debt already, 10 additional blocks in existing debt for year nine, three additional blocks in miner debt taken for year nine, four blocks in operating expenses, five blocks in 1 GWe to grid revenue, 22 blocks in 1GWe mining revenue
Yearly profits and losses = (22 blocks + 5 blocks) – (10 blocks + 3 blocks + 4 blocks) = 10 blocks
Total profit = 4 blocks + 10 blocks = 14 blocks
Co-location of a bitcoin mining center onsite was truly a game-changing decision for Alpha Labs and even if it sold their electricity at half price compared to Beta Labs, it is considerably more profitable compared to that operation at this stage.
Here is a sensitivity analysis on the clearing price of electricity sold by Alpha Labs and its balance sheet based off of block increments:
As you can see from the table above, in all cases up to 2 cents per kWh, Alpha Labs would turn a profit by year 11 (all highlighted in yellow).
Having worked through the math on both Alpha and Beta Labs’ balance sheets, here are some important things to point out and keep in mind:
- Raising north of $10 billion at 3% interest with the terms outlined in this article for constructing NPPs with bitcoin mining co-location (two heavily misunderstood industries) is no easy task in today’s environment. NPP constructions are very sensitive to the capital cost and cost of capital and it is imperative to get the best terms to build NPPs with mining colocation for long-term profitability.
- NPP constructions can take a long time, around six years for full construction, assuming there are no delays caused due to multiple possible reasons, including public outcry and protests. Compared to this, a natural gas power plant can be up and running in about two years. NPPs are costly to construct and incredibly cheap to operate while the natural gas power plants are the other way around. Given how cyclical and evolving the mining industry is and how competitive it could become over time, it is difficult to project mining revenues six years down the line with any given certainty for raising capital and building capacity expansion upfront for mining onsite.
- Bitcoin mining is going to become incredibly cost competitive over time and revenues are going to shrink to the point where running large mining centers would only be possible behind the meter in some form. Nuclear provides the best case base load for building mining centers for 24/7 reliable energy and no tie in to the grid is required. Even if you are co-locating your mining center with solar or wind, you’ll need some tie in to the grid, since solar and wind are both intermittent sources of generation, unlike nuclear.
- NPP construction costs and timelines might both go down considerably with the advent of modular reactors and next generation reactor types which do not require design and materials of the past, which had led to cost and construction times both ballooning previously.
- The NPP and bitcoin mining model of electricity generation could be adopted by nation states at scale as a matter of energy and national security. These projects could receive state funding and subsidies/credits to make them even more attractive for investment capital.
The intention of this article was to provide a thorough case study on what bitcoin mining co-location with a nuclear power plant construction could look like and how much of a difference it could actually make to the balance sheet of the company owning that generation asset. As we see, you’d rather take the strategy of Alpha Labs than Beta Labs. All you need is one engineer in your company to understand this and pitch it to you.
References
- “The Economics Of Nuclear Energy,” Real Engineering
- “Economics Of Nuclear Reactor,” Illinois EnergyProf
Disclaimer: The information provided in this article is based upon our forecasts and reflects prevailing market conditions and our views as of this date, all of which are subject to change. The article contains forward-looking projections which involve risks and uncertainties. Any statements made in the article are based on the authors’ current knowledge and assumptions. Various factors could cause actual future results, performance or events to differ materially from those described in these statements.
This is a guest post by Puru Goyal and Tina Torres. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
El Salvador’s Minister of the Economy Maria Luisa Hayem Brevé submitted a digital assets issuance bill to the country’s legislative assembly, paving the way for the launch of its bitcoin-backed “volcano” bonds.
First announced one year ago today, the pioneering initiative seeks to attract capital and investors to El Salvador. It was revealed at the time the plans to issue $1 billion in bonds on the Liquid Network, a federated Bitcoin sidechain, with the proceedings of the bonds being split between a $500 million direct allocation to bitcoin and an investment of the same amount in building out energy and bitcoin mining infrastructure in the region.
A sidechain is an independent blockchain that runs parallel to another blockchain, allowing for tokens from that blockchain to be used securely in the sidechain while abiding by a different set of rules, performance requirements, and security mechanisms. Liquid is a sidechain of Bitcoin that allows bitcoin to flow between the Liquid and Bitcoin networks with a two-way peg. A representation of bitcoin used in the Liquid network is referred to as L-BTC. Its verifiably equivalent amount of BTC is managed and secured by the network’s members, called functionaries.
“Digital securities law will enable El Salvador to be the financial center of central and south America,” wrote Paolo Ardoino, CTO of cryptocurrency exchange Bitfinex, on Twitter.
Bitfinex is set to be granted a license in order to be able to process and list the bond issuance in El Salvador.
The bonds will pay a 6.5% yield and enable fast-tracked citizenship for investors. The government will share half the additional gains with investors as a Bitcoin Dividend once the original $500 million has been monetized. These dividends will be dispersed annually using Blockstream’s asset management platform.
The act of submitting the bill, which was hinted at earlier this year, kickstarts the first major milestone before the bonds can see the light of day. The next is getting it approved, which is expected to happen before Christmas, a source close to President Nayib Bukele told Bitcoin Magazine. The bill was submitted on November 17 and presented to the country’s Congress today. It is embedded in full below.
This is an opinion editorial by Joakim Book, a Research Fellow at the American Institute for Economic Research, contributor and copy editor for Bitcoin Magazine and a writer on all things money and financial history.
I don’t.
That’s it. That’s the article.
In all sincerity, that is the full message: Just don’t do it. It’s not worth it.
You’re not an excited teenager anymore, in desperate need of bragging credits or trying out your newfound wisdom. You’re not a preaching priestess with lost souls to save right before some imminent arrival of the day of reckoning. We have time.
Instead: just leave people alone. Seriously. They came to Thanksgiving dinner to relax and rejoice with family, laugh, tell stories and zone out for a day — not to be ambushed with what to them will sound like a deranged rant in some obscure topic they couldn’t care less about. Even if it’s the monetary system, which nobody understands anyway.
Get real.
If you’re not convinced of this Dale Carnegie-esque social approach, and you still naively think that your meager words in between bites can change anybody’s view on anything, here are some more serious reasons for why you don’t talk to friends and family about Bitcoin the protocol — but most certainly not bitcoin, the asset:
- Your family and friends don’t want to hear it. Move on.
- For op-sec reasons, you don’t want to draw unnecessary attention to the fact that you probably have a decent bitcoin stack. Hopefully, family and close friends should be safe enough to confide in, but people talk and that gossip can only hurt you.
- People find bitcoin interesting only when they’re ready to; everyone gets the price they deserve. Like Gigi says in “21 Lessons:”
“Bitcoin will be understood by you as soon as you are ready, and I also believe that the first fractions of a bitcoin will find you as soon as you are ready to receive them. In essence, everyone will get ₿itcoin at exactly the right time.”
It’s highly unlikely that your uncle or mother-in-law just happens to be at that stage, just when you’re about to sit down for dinner.
- Unless you can claim youth, old age or extreme poverty, there are very few people who genuinely haven’t heard of bitcoin. That means your evangelizing wouldn’t be preaching to lost, ignorant souls ready to be saved but the tired, huddled and jaded masses who could care less about the discovery that will change their societies more than the internal combustion engine, internet and Big Government combined. Big deal.
- What is the case, however, is that everyone in your prospective audience has already had a couple of touchpoints and rejected bitcoin for this or that standard FUD. It’s a scam; seems weird; it’s dead; let’s trust the central bankers, who have our best interest at heart.
No amount of FUD busting changes that impression, because nobody holds uninformed and fringe convictions for rational reasons, reasons that can be flipped by your enthusiastic arguments in-between wiping off cranberry sauce and grabbing another turkey slice. - It really is bad form to talk about money — and bitcoin is the best money there is. Be classy.
Now, I’m not saying to never ever talk about Bitcoin. We love to talk Bitcoin — that’s why we go to meetups, join Twitter Spaces, write, code, run nodes, listen to podcasts, attend conferences. People there get something about this monetary rebellion and have opted in to be part of it. Your unsuspecting family members have not; ambushing them with the wonders of multisig, the magically fast Lightning transactions or how they too really need to get on this hype train, like, yesterday, is unlikely to go down well.
However, if in the post-dinner lull on the porch someone comes to you one-on-one, whisky in hand and of an inquisitive mind, that’s a very different story. That’s personal rather than public, and it’s without the time constraints that so usually trouble us. It involves clarifying questions or doubts for somebody who is both expressively curious about the topic and available for the talk. That’s rare — cherish it, and nurture it.
Last year I wrote something about the proper role of political conversations in social settings. Since November was also election month, it’s appropriate to cite here:
“Politics, I’m starting to believe, best belongs in the closet — rebranded and brought out for the specific occasion. Or perhaps the bedroom, with those you most trust, love, and respect. Not in public, not with strangers, not with friends, and most certainly not with other people in your community. Purge it from your being as much as you possibly could, and refuse to let political issues invade the areas of our lives that we cherish; politics and political disagreements don’t belong there, and our lives are too important to let them be ruled by (mostly contrived) political disagreements.”
If anything, those words seem more true today than they even did then. And I posit to you that the same applies for bitcoin.
Everyone has some sort of impression or opinion of bitcoin — and most of them are plain wrong. But there’s nothing people love more than a savior in white armor, riding in to dispel their errors about some thing they are freshly out of fucks for. Just like politics, nobody really cares.
Leave them alone. They will find bitcoin in their own time, just like all of us did.
This is a guest post by Joakim Book. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
This is an opinion editorial by Federico Tenga, a long time contributor to Bitcoin projects with experience as start-up founder, consultant and educator.
The term “smart contracts” predates the invention of the blockchain and Bitcoin itself. Its first mention is in a 1994 article by Nick Szabo, who defined smart contracts as a “computerized transaction protocol that executes the terms of a contract.” While by this definition Bitcoin, thanks to its scripting language, supported smart contracts from the very first block, the term was popularized only later by Ethereum promoters, who twisted the original definition as “code that is redundantly executed by all nodes in a global consensus network”
While delegating code execution to a global consensus network has advantages (e.g. it is easy to deploy unowed contracts, such as the popularly automated market makers), this design has one major flaw: lack of scalability (and privacy). If every node in a network must redundantly run the same code, the amount of code that can actually be executed without excessively increasing the cost of running a node (and thus preserving decentralization) remains scarce, meaning that only a small number of contracts can be executed.
But what if we could design a system where the terms of the contract are executed and validated only by the parties involved, rather than by all members of the network? Let us imagine the example of a company that wants to issue shares. Instead of publishing the issuance contract publicly on a global ledger and using that ledger to track all future transfers of ownership, it could simply issue the shares privately and pass to the buyers the right to further transfer them. Then, the right to transfer ownership can be passed on to each new owner as if it were an amendment to the original issuance contract. In this way, each owner can independently verify that the shares he or she received are genuine by reading the original contract and validating that all the history of amendments that moved the shares conform to the rules set forth in the original contract.
This is actually nothing new, it is indeed the same mechanism that was used to transfer property before public registers became popular. In the U.K., for example, it was not compulsory to register a property when its ownership was transferred until the ‘90s. This means that still today over 15% of land in England and Wales is unregistered. If you are buying an unregistered property, instead of checking on a registry if the seller is the true owner, you would have to verify an unbroken chain of ownership going back at least 15 years (a period considered long enough to assume that the seller has sufficient title to the property). In doing so, you must ensure that any transfer of ownership has been carried out correctly and that any mortgages used for previous transactions have been paid off in full. This model has the advantage of improved privacy over ownership, and you do not have to rely on the maintainer of the public land register. On the other hand, it makes the verification of the seller’s ownership much more complicated for the buyer.
Source: Title deed of unregistered real estate propriety
How can the transfer of unregistered properties be improved? First of all, by making it a digitized process. If there is code that can be run by a computer to verify that all the history of ownership transfers is in compliance with the original contract rules, buying and selling becomes much faster and cheaper.
Secondly, to avoid the risk of the seller double-spending their asset, a system of proof of publication must be implemented. For example, we could implement a rule that every transfer of ownership must be committed on a predefined spot of a well-known newspaper (e.g. put the hash of the transfer of ownership in the upper-right corner of the first page of the New York Times). Since you cannot place the hash of a transfer in the same place twice, this prevents double-spending attempts. However, using a famous newspaper for this purpose has some disadvantages:
- You have to buy a lot of newspapers for the verification process. Not very practical.
- Each contract needs its own space in the newspaper. Not very scalable.
- The newspaper editor can easily censor or, even worse, simulate double-spending by putting a random hash in your slot, making any potential buyer of your asset think it has been sold before, and discouraging them from buying it. Not very trustless.
For these reasons, a better place to post proof of ownership transfers needs to be found. And what better option than the Bitcoin blockchain, an already established trusted public ledger with strong incentives to keep it censorship-resistant and decentralized?
If we use Bitcoin, we should not specify a fixed place in the block where the commitment to transfer ownership must occur (e.g. in the first transaction) because, just like with the editor of the New York Times, the miner could mess with it. A better approach is to place the commitment in a predefined Bitcoin transaction, more specifically in a transaction that originates from an unspent transaction output (UTXO) to which the ownership of the asset to be issued is linked. The link between an asset and a bitcoin UTXO can occur either in the contract that issues the asset or in a subsequent transfer of ownership, each time making the target UTXO the controller of the transferred asset. In this way, we have clearly defined where the obligation to transfer ownership should be (i.e in the Bitcoin transaction originating from a particular UTXO). Anyone running a Bitcoin node can independently verify the commitments and neither the miners nor any other entity are able to censor or interfere with the asset transfer in any way.
Since on the Bitcoin blockchain we only publish a commitment of an ownership transfer, not the content of the transfer itself, the seller needs a dedicated communication channel to provide the buyer with all the proofs that the ownership transfer is valid. This could be done in a number of ways, potentially even by printing out the proofs and shipping them with a carrier pigeon, which, while a bit impractical, would still do the job. But the best option to avoid the censorship and privacy violations is establish a direct peer-to-peer encrypted communication, which compared to the pigeons also has the advantage of being easy to integrate with a software to verify the proofs received from the counterparty.
This model just described for client-side validated contracts and ownership transfers is exactly what has been implemented with the RGB protocol. With RGB, it is possible to create a contract that defines rights, assigns them to one or more existing bitcoin UTXO and specifies how their ownership can be transferred. The contract can be created starting from a template, called a “schema,” in which the creator of the contract only adjusts the parameters and ownership rights, as is done with traditional legal contracts. Currently, there are two types of schemas in RGB: one for issuing fungible tokens (RGB20) and a second for issuing collectibles (RGB21), but in the future, more schemas can be developed by anyone in a permissionless fashion without requiring changes at the protocol level.
To use a more practical example, an issuer of fungible assets (e.g. company shares, stablecoins, etc.) can use the RGB20 schema template and create a contract defining how many tokens it will issue, the name of the asset and some additional metadata associated with it. It can then define which bitcoin UTXO has the right to transfer ownership of the created tokens and assign other rights to other UTXOs, such as the right to make a secondary issuance or to renominate the asset. Each client receiving tokens created by this contract will be able to verify the content of the Genesis contract and validate that any transfer of ownership in the history of the token received has complied with the rules set out therein.
So what can we do with RGB in practice today? First and foremost, it enables the issuance and the transfer of tokenized assets with better scalability and privacy compared to any existing alternative. On the privacy side, RGB benefits from the fact that all transfer-related data is kept client-side, so a blockchain observer cannot extract any information about the user’s financial activities (it is not even possible to distinguish a bitcoin transaction containing an RGB commitment from a regular one), moreover, the receiver shares with the sender only blinded UTXO (i. e. the hash of the concatenation between the UTXO in which she wish to receive the assets and a random number) instead of the UTXO itself, so it is not possible for the payer to monitor future activities of the receiver. To further increase the privacy of users, RGB also adopts the bulletproof cryptographic mechanism to hide the amounts in the history of asset transfers, so that even future owners of assets have an obfuscated view of the financial behavior of previous holders.
In terms of scalability, RGB offers some advantages as well. First of all, most of the data is kept off-chain, as the blockchain is only used as a commitment layer, reducing the fees that need to be paid and meaning that each client only validates the transfers it is interested in instead of all the activity of a global network. Since an RGB transfer still requires a Bitcoin transaction, the fee saving may seem minimal, but when you start introducing transaction batching they can quickly become massive. Indeed, it is possible to transfer all the tokens (or, more generally, “rights”) associated with a UTXO towards an arbitrary amount of recipients with a single commitment in a single bitcoin transaction. Let’s assume you are a service provider making payouts to several users at once. With RGB, you can commit in a single Bitcoin transaction thousands of transfers to thousands of users requesting different types of assets, making the marginal cost of each single payout absolutely negligible.
Another fee-saving mechanism for issuers of low value assets is that in RGB the issuance of an asset does not require paying fees. This happens because the creation of an issuance contract does not need to be committed on the blockchain. A contract simply defines to which already existing UTXO the newly issued assets will be allocated to. So if you are an artist interested in creating collectible tokens, you can issue as many as you want for free and then only pay the bitcoin transaction fee when a buyer shows up and requests the token to be assigned to their UTXO.
Furthermore, because RGB is built on top of bitcoin transactions, it is also compatible with the Lightning Network. While it is not yet implemented at the time of writing, it will be possible to create asset-specific Lightning channels and route payments through them, similar to how it works with normal Lightning transactions.
Conclusion
RGB is a groundbreaking innovation that opens up to new use cases using a completely new paradigm, but which tools are available to use it? If you want to experiment with the core of the technology itself, you should directly try out the RGB node. If you want to build applications on top of RGB without having to deep dive into the complexity of the protocol, you can use the rgb-lib library, which provides a simple interface for developers. If you just want to try to issue and transfer assets, you can play with Iris Wallet for Android, whose code is also open source on GitHub. If you just want to learn more about RGB you can check out this list of resources.
This is a guest post by Federico Tenga. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
