The Value of Energy, Proof-of-Work (PoW), and Bitcoin Mining

Updated: May 9

This writing is an opinion piece and does not reflect the views of Texas Innovators. This writing is strictly for educational purposes and is not financial, investment, tax, or any other form of advice.

 

Energy is something that can be converted but not created or destroyed. The conversion of energy to physical value makes our economies hum and Texas run.


Why shouldn't something so fundamental as energy conversion be correlated with and involved in our measurement and store of value?


The conversion of energy into work illustrates the power of the Proof of Work (PoW) mechanism behind Bitcoin, transforming energy into sound money through mining. PoW makes bitcoin a currency of energy and a medium for energy transfer through space and time. This transference of energy through space and time is why Bitcoin is a powerful concept.


Bitcoin is energy-backed, sound money. Only 21 million bitcoins can be created, and it would take an earth-sized load to destroy or take over the protocol—more on this in future writings.


When embarking on a journey with Bitcoin, it's easy to get stuck on the price and numbers on the screen. While the numbers on the screen are great, that's all they are - just numbers.


The wonder of Bitcoin is the philosophical principles on which the system and the community are built. Learning about and understanding Bitcoin is tiring work. Time must be allocated to understand the technology, the economics, and the political frames of thought behind this powerful innovation.


The ideals of Bitcoin challenge everything we have come to accept as standard and, most importantly, the incentives we face as economic actors.


Energy is the currency of work, and bitcoin is the currency of energy.


Bitcoin vs. Gold


When we talk about sound money, it has been the tradition to speak about gold. Gold is the traditional money that propelled us to where we are today. The phenomenon Americans are experiencing right now arguably resulted from that transition away from money backed by a sound asset to a monetary free-for-all powered by federal printers and political narratives.


To entertain the viability of Bitcoin as recognized money and as a verified global reserve asset, let's compare Bitcoin with the global reserve asset of old.


Bitcoin currently sits at roughly 6% of the market cap of gold (at a bitcoin price of ~ $40,000). Understanding the presence of the gold standard and its role in shaping the great empires of history correlates directly with current currency discussions. Ray Dalio dives into this in his book "Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail." For a summary of the book and its main ideas, check out this supplemental video.


Given the relationship between the adoption of the gold standard and the rise of empires as illustrated in Ray Dalio's research, and world order in flux, the value of understanding the importance of sound money and the maintenance of hard-earned value is more present than ever.


When Bitcoin reaches the market cap of gold - and it will - where will we be?


Will Bitcoin be, in the eyes of the mainstream, the soundest form of money?


Will we transition to "The Bitcoin Standard?" Consider these exciting thoughts as we enter the decentralized digital age.


An interesting thought. The final supply of gold is unknown. However, the final supply of bitcoin is known; there will only ever be 21 million bitcoin.


Food for thought: would you rather move $1 million worth of gold or $1 million worth of bitcoin?


Oil & Gas and Bitcoin Mining

There is no denying the presence of the oil & gas (O&G) industry in the Lone Star State. Texas is the largest oil-producing state in the nation and is slowly but surely, becoming the bitcoin mining capital of the U.S., if not the world's bitcoin mining capital.

Many of the developments related to bitcoin mining in Texas are popping up in West Texas. With partnerships like the one between the City of Abilene, Taylor County, and Lancium to develop data centers that will utilize bitcoin mining, the opportunities are vast and synergistic for economic gain and the stabilization of the ERCOT grid. If we dive into exploring Texas's place as a leader in O&G production and as a leader in bitcoin, we may be surprised at the problems we can solve on multiple fronts.

As we continue to see the convergence of O&G and bitcoin mining in the world's ninth-largest economy, valuable insight can be gained when looking into the innovators working on manifesting these solutions.


Companies such as Steve Barbour's Canadian-based Upstream Data have been orange-pilling O&G operators left and right since 2017. Upstream Data has been developing industry-leading solutions to capture methane emissions in the upstream O&G industry by creating products that monetize natural gas without pipelines or midstream facilities. Its products enable operators to generate revenue from gas that would otherwise be vented or flared by developing portable bitcoin mines powered by what would be otherwise economically stranded natural gas. The PoW mechanism of bitcoin allows an asset such as natural gas that would generally be flared (burned and wasted) to convert into a hard monetary asset.


Companies continue to tap into the synergy between O&G and bitcoin mining in Texas. To start, EnergyFunders is the first-ever digital platform for investing in O&G and off-grid bitcoin mining. EnergyFunders is on a mission to democratize investing in O&G and new bitcoin mines through the company's exploration projects and vertically integrated and crowdsourced ownership of bitcoin mines. Be on the lookout for a podcast episode with EnergyFunder's CEO and Chief Geologist, Laura Pommer, in the coming weeks to get more insight into this innovative company.


Another group building a community around the synergy of O&G and bitcoin mining is Digital Wildcatters. Digital Wildcatters prides itself in building a community "for the next generation of energy professionals," and it has the content to back its claims and mission. For insight into their content and get to know Laura Pommer and EnergyFunders ahead of time, check out the Digital Wildcatters Oil and Gas Startups Podcast.


The City of Fort Worth Dabbles With Bitcoin Mining


Today, Fort Worth became the first city government in the U.S. to mine bitcoin. The Texas Blockchain Council donated three S9s for the six-month trial. The ASICs are "deployed to run 24/7 in a closed environment on a private network operated by the Information Technology Solutions Department Data Center located at Fort Worth City Hall."


"With blockchain technology and cryptocurrency revolutionizing the financial landscape, we want to transform Fort Worth into a tech-friendly city… today, with the support and partnership of the Texas Blockchain Council, we're stepping into that world on a small scale while sending a big message - Fort Worth is where the future begins," Fort Worth Mayor Mattie Parker told Bitcoin Magazine.


"By starting small to learn as they go, Fort Worth is positioning itself to be the bitcoin mining capital of Texas. The state as a whole already established itself as the bitcoin mining capital of the world," President & Co-Founder of the Texas Blockchain Council Lee Bratcher told Bitcoin Magazine.




 

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Disclosure: Cole currently HODLs Bitcoin (BTC), Tezos (XTZ), and Ethereum (ETH). Cole has been involved with Bitcoin and crypto for eight years and constantly strives to learn more about digital assets. Cole is also currently mining bitcoin.

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