What do oil drilling and crypto mining have to do with each other?
You might not think very much…
I didn’t.
At least, not when I first heard about ExxonMobil’s (XOM) recent move to start mining Bitcoin in the Bakken region—a massive shale formation largely located in North Dakota.
It’s normal for big businesses to expand outside of their core areas of expertise. Sometimes the moves make sense—like Apple developing an in-house payment processing system… And sometimes they’re hard to comprehend—like movie theater chain AMC buying a gold mine.
While Exxon’s move might seem confusing at first glance… a deeper look shows a reasonable long-term story…
You see, Bitcoin mining—the process of bringing new coins into existence—is a power-hungry enterprise.
The “mining” process is extremely high-tech… and requires massive computers running day and night to solve a series of complex mathematical equations in the original problem designed by Bitcoin creator Satoshi Nakamoto (the name is, really, a pseudonym).
The beauty of Bitcoin is that there’s a strictly limited number of solutions to the original problem—meaning that there’s a limited supply of Bitcoins that will ever exist… Once they’ve all been mined, that’s it.
As more coins are mined and the number of remaining solutions to the original problem dwindles further… it takes more processing power to crunch the numbers, mine new coins, and register them on the network.
These massive computer farms running 24/7 demand electricity… and a lot of it.
And this is where Exxon comes in…
As a byproduct of oil extraction, a significant amount of natural gas—methane—is often released.
Depending on the location of the oil well, it might not be economically feasible to capture this natural gas… and use it to generate energy. Instead, it gets burned off—flared—at the site. And some methane just escapes, polluting the atmosphere.
The amounts of wasted methane at these oil well sites can be massive… In 2019, this waste represented nearly 2% of all natural gas produced (according to official numbers). But this number is likely significantly underestimated.
Any project that can cut down on methane—a potent greenhouse gas with global warming impact more than 25 times greater than carbon dioxide—could be extremely valuable.
The solution reportedly being explored by Exxon: divert natural gas that would otherwise be burned off into generators… convert the gas into electricity… and use this electricity to power mobile Bitcoin mining factories.
The world will be using—and drilling—oil for the foreseeable future… and highly polluting methane will continue to be a frequent byproduct. The more of this otherwise wasted gas can be used for Bitcoin mining, the better.
This is a positive development for the crypto-mining industry… and good news for anyone who’s been avoiding Bitcoin purely out of environmental concerns.
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