Bitcoin, specifically the mining process gets a lot of flack for its energy usage. However, Bitcoin mining can help alleviate one of the greatest challenges facing renewable energy – the Duck Curve. 🧵
The Duck Curve ELI5
Energy from renewables is inconsistent and peaks at inconvenient times. Solar peaks during the midday and wind in the middle of the night.
But, peak demand occurs in the morning and in the late afternoon which is opposite from renewable energy generation.
Renewables now provide an excessive amount of renewable energy from solar and wind during the middle of the day which screws up the economics of electricity generation because the net energy production (grid load) continues to increase without any outlet.
This results in the “Duck Curve” where there’s too much energy being generated which ends up getting curtailed – wasted – or sold at negative prices.
Conversely, as demand rises at the end of the day, generators scramble to ramp up energy load, typically utilizing fossil fuels.
Texas is the largest producer of renewable energy and has a deregulated energy grid which increases competition and so the Duck Curve – and the fate of renewables – is an even larger dilemma.
The Solution
Bitcoin mining provides a mechanism known as demand response:
• Bitcoin mining consumes energy constantly
• Bitcoin mining operation is a flexible load, meaning it is
relatively easy to shut down since it doesn’t require any
sort of continuous operations.
Layer1 is capitalizing on this use case by negotiating with ERCOT – the Texas energy grid regulator – for long term demand response contracts. Essentially, Layer1 agrees to shut down at a moment’s notice while collecting an annual premium based on their expected power demand.
How does this help?
Demand response helps stabilize the energy grid by removing price spikes, leveling energy demand, and realign economic incentives – reduce negative pricing – that allow for the continued growth of renewable energy sources.
Now, Layer1’s strategy comes with the obvious downside that their bitcoin printers – mining facilities – go brrrr less often.
However, in exchange for guaranteed revenues, this may be an effective hedge for miners against bitcoin’s volatility.
Bitcoin and The Environment
Bitcoin mining energy usage is dependent on local energy grids, most mining facilities already use renewable energy sources such as thermal, hydro, wind, and solar.
CoinShares estimates a 73% renewables penetration in the bitcoin mining energy mix and that Texas is a prospective region for mining.
Still, Bitcoin will only ever be as clean and environmentally friendly as the grid. Period.
If mining utilizes energy from peaker plants that are turned on only when demand reaches certain levels – then it’s not entirely environmentally friendly.
Bitcoin is unique, it will continue to consume energy.
There is no upper limit on the price of bitcoin and therefore no limit on how much energy can be dedicated to mining bitcoin. This is the biology of Bitcoin.
The ever – and altruistically – moving goalpost of environmental servitude ensures that Bitcoin will never be without environmental consequences. The hope is Bitcoin’s benefits will outweigh its flaws.
There are a few common crypto business models:
- Exchanges and marketplaces
- Transaction sequencing
- Asset managers
Let's dive into some examples 👇
Exchange Model
Subset 1) marketplace models – fee on transactions
- create a new asset and market (e.g. Polymarket, Perps)
- expand access to emerging asset (Coinbase and BTC)
- convenience fee (wallet swaps)
- SaaS enabled marketplaces – Proof marketplaces
Exchange subset 2): Liquidity servicing - build valuable pool of specialized liquidity and charge acces fee to end app (e.g. hooks) or match-maker fee (e.g. swaps)
- DEXs
- Lending
MEV / Transaction sequencing – own and monetize valuable order flow
- App PFOF (e.g. TG Bots)
- Sequencer model - own sequencer and MEV (e.g. L2)
- SaaS enabled tx sequencing and monitoring - RaaS, RPC providers, security providers, oracles etc.
When combined with new products, tokens – or the promise of tokens – have proven effective at alleviating the cold start problem.
But, networks that launch with a token from the jump, must find PMF in a shortened window amidst inorganic activity or otherwise these networks are just spending tokens for limited upside.
My friend and fellow investor, @howdai27 calls this the “hot start problem” where the presence of a token limits the window of time a startup has to find PMF and gain enough organic traction such that the startup can retain users/liquidity as token rewards diminish.
The hot start problem – launching tokens early and dealing with finding PMF amidst inorganic activity – is favorable to the cold start problem in two scenarios:
1) Startups competing in red ocean markets (markets with a high degree of competition and known demand)
Examples: Second mover defi protocols, Blur vs OpenSea, LRTs, etc.
2) Products and networks with passive-supply side participation
Examples: passive jobs to be done – staking (L1s), providing liquidity, or set-it and forget-it hardware (e.g. DePIN). masonnystrom.com/p/tokenized-ma…
Over 2 million compressed NFTs have been minted in just a few weeks.
Enabled by @metaplex's new NFT compression standard (Bubblebum), Compressed NFTs offer greater scale to NFT minting and open up a new array of use cases for Solana NFTs.
But what are compressed NFTs?
Normal Solana NFTs have metadata stored in on-chain accounts
Compressed NFTs group the state of many NFTs into a merkle tree and hash the merkle root on-chain with each leaf of the tree (e.g. NFT) verifiable on-chain while the metadata is offchain
Compressed NFTs allow minting NFTs at scale while securing them cryptographically on-chain.
Importantly, compressed NFTs can be redeemed/decompressed in which case the NFT is removed from the offchain merkle tree and then exits on-chain as a normal Metaplex NFT.
The magic of NFTs as an asset class is that the underlying assets are composable. But, this effortlessly destroys the moat of secondary trading liquidity that marketplaces have relied on to succeed.
NFT marketplaces must find proprietary liquidity that lives on their platforms, that drives users, and is unique.
Fluid secondary liquidity means marketplaces & NFT social networks must compete in the streets of the bazaar where trading occurs and not behind their castle moats.
Artists have earned over $5m in earnings on Sound Protocol.
Let’s take a brief look at the state of @soundxyz_ Protocol & Marketplace 🎧 🧵 sound.xyz
Sound Protocol by the numbers:
•$10m in NFT volume (4.4m Primary and 5.7m Secondary)
• Minted over 80,000 music
• Over 400 talented artists
• Nearly 13,000 collectors
Feb 2023 was Sound’s best month ever in terms of music NFTs minted.
The record month was aided by the launch of Sound’s curator rewards which enabled fans to earn 5% on primary mints generated through their referral links and playlists.
1) Network-driven protocol GTM focuses on building a protocol with broad distribution and permissionless access, and then evangelizes others to build on top of the network.