The biggest bang for the Watt, or how to make money out of thin air with Bitcoins
Some time ago, I saw a very interesting presentation by Prof. Sebastian Lehnhoff from University of Oldenburg about smart power grids. During his talk, he also mentioned that there are periods at the energy market, when the energy price gets negative -- then you get money for "buying" energy and additionally you get the energy! I will not go into details to explain the reasons but point you to the explanation given at the European Power Exchange website:http://www.epexspot.com/en/company-info/basics_of_the_power_market/negative_prices
However, negative prices are not just a theoretic concept. It happens in reality. As described in this study:http://www.ise.fraunhofer.de/de/downloads/pdf-files/aktuelles/kohleverstromung-zu-zeiten-niedriger-boersenstrompreise.pdf
In the first half of 2013, there were 36 h of negative prices where 176 GWh energy were "sold" for minus 12.6 Mio EUR. And with the advent of renewable energy, these periods might further increase. So this is concept number one, how to make money out of thin air.
Then recently I found a second concept to make money by burning energy: Bitcoin mininig. Possibly, everybody has heard about Bitcoins these days, and I think the concept of Bitcoin mining is also already known: You get money for calculating so-called proofs of work based on the calculation of a large number of hash sums. This concept ensures that as long as at least 50 % of the computational power is owned by honest participants, double spending of Bitcoins is avoided -- although this 50 % limit is questioned by this article http://hackingdistributed.com/2013/11/04/bitcoin-is-broken/
of Cornell researches which I have not read yet; so let's better say a significant portion of the participants should be honest to keep the system consistent. Of course, these calculations don't come for free: You need to invest energy.
It should be obvious that both concepts can be even combined to make the most money: You could mine Bitcoins while the energy price is negative! However, it still might be interesting to know, whether you earn more money just because you burn energy, or because you mine Bitcoins. If more money comes from wasting energy, then you could as well buy some water heaters, because they are much cheaper (reduced CAPEX), without bothering too much about Bitcoins. If on the other hand a significant portion of money comes from Bitcoin mining, it might be even profitable if the energy price is high(er than zero).
The following calculation is not very scientific. In fact, it's not scientific at all, and a "back of the envelop calculation" at best. Still, the comparison might be interesting.
So let's first calculate, how much money you earn per Kilowatt-hour while the spot price is negative based on the numbers from above: 176 GWh energy sold for minus 12.6 Mio EUR (should be plus
12.6 Mio EUR from our point of view ;) So you receive on average 0.07 EUR/kWh.
Let't see how much money we get per Kilowatt-hour for Bitcoin mining. Today, the most energy efficient way of doing mining is by using ASICs, which are more efficient than FPGAs, and much more efficient than GPUs, and much much more efficient than CPUs. So I took the Monarch ASIC from Butterflylabs as reference, which according to the spec-sheet has a processing speed of 600 GH/s (Giga hashes per second), power consumption of 350 W, and a price of 2196 Dollar (much more expensive than a water heater ;) According to the Bitcoin system, a lucky Bitcoin miner who was the first to calculate the proof of work of a block gets 25 Bitcoins every 10 minutes (of course, this is not always the same miner but usually different ones every 10 minutes ;) 25 Bitcoins are equivalent to about 17500 EUR at the time of writing this post. According to this website http://bitcoin.sipa.be/
currently the pool of hardware in the whole Bitcoin system can do about 17500 TH/s. Therefore, using one Monarch ASIC, we should get a fair share of 17500 EUR * (600 GH/s / 17500 TH/s) = 0.60 EUR every 10 min or 3.60 EUR/h spending 0.350 kWh of energy (of course, we only get the money after a longer period of time, if we do not join a mining pool). So we get 10.29 EUR/kWh (using an optimistic calculation without considering additional costs for hardware, cooling, etc.)
So Bitcoin mining brings you the most money per Watt, although you can get some extra money during periods of negative energy prices.
However, there are some problems of course. First, the reward is halved about every four years making mining less attractive. Second, the computational power of the pool increases -- and it increases fast if you look at these chartshttp://bitcoin.sipa.be/
--, which in turn decreases your fair share if you don't invest into new hardware. And of course it remains completely unclear, what a Bitcoin is worth in the future. So a very high risk.
Anyway, investing your energy into Bitcoins to keep the system alive might be more reasonable than heating up some water, so you won't feel guilty because you burned energy for nothing than making money ;)
Just my two Satoshi!#bitcoin #energy #market