Does crypto’s growing prominence bring a cliff-edge closer?
The emergence of Covid-19 appears to have accelerated demand for cryptocurrencies. This should be a fantastic news for innovators around the world, but the sector lacks a credible, environmentally acceptable infrastructure to support what is fast becoming an important part of the world’s economy. If the issue isn’t addressed, there is a good chance that it will hold back innovation and development.
The economic challenges of the last few months have led to a lot of organisations and regulators taking a fresh look at their positions on cryptocurrencies, with several announcing accelerated adoption strategies. The latest of these is MicroStrategy, a US-based independent business intelligence company, which has announced a plan to purchase more than 20,000 bitcoins as part of a new capital allocation strategy (which you can read here).
The interest in bitcoin is being driven by several factors, not least of which is that it appears to be a hedging strategy against traditional, fiat currency fluctuations as the ramifications of the Covid-19 catastrophe make their way through the global economy. According to a press release put out by MicroStrategy, Bitcoin has distinctive properties that “led it to believe investing in the cryptocurrency would provide not only a reasonable hedge against inflation, but also the prospect of earning a higher return than other investments”.
This echoes noises being made by an increasing number of credible companies, organisations and even regulators around the world, but it also brings us closer to a fairly fundamental problem for the entire crypto sector: where can we find economical processing power that isn’t environmentally damaging?
Nice looking car, but the engine’s too small
Crypto’s decentralised nature means that it requires massive processing power to ensure that transactions are quickly and correctly validated. Server capacity is already at a premium, so the addition of a growing number of organisations of various types could drive up prices for the underlying technology and the energy used to power it.
Even its most ardent proponents would agree that the bursting of the bubble in 2018 hurt the crypto-sector’s reputation. Many organisations that had been looking to adopt cryptocurrency or blockchain strategies drew back and the price of most currencies suffered.
It can be argued pretty fairly that this was the result of over-confidence and lack of regulatory scrutiny attracting hype, naïve investors and more than a few bad actors, but there are still plenty of investors that would be reticent about involving themselves with the sector without certainty that it has the infrastructure to match its ambitions.
Without this infrastructure in place, there’s a good chance that even with the interest of increasingly significant names, the sector will come to a cliff edge beyond which it cannot develop.
Introducing demand to supply
At the same time meanwhile, the energy industry also has a problem. Many of the smaller projects that jointly form a large proportion of activity find that it is uneconomical to build pipes that could transport the deposits of natural gas that often accompanies oil deposits to refineries. As a result, the gas is treated as a waste product, flared off, left to dissipate into the atmosphere or pushed back underground. The first two of these solutions to the gas problem come with significant environmental costs while the third can add considerable cost to projects that are often already teetering on the edge of economic viability, a particularly acute problem given the fluctuating market prices that have been a reality in the Covid economy.
There is a relatively simple, cost-effective solution to this problem that’s already available: Servers can be placed on location at an oil and gas project and powered by the natural gas that would otherwise be wasted. It is a technology that already exists, it’s relatively low-cost and it brings together plentiful supply from the natural resources sector with growing demand from the crypto sector and, increasingly, the wider economy. There are several benefits to this approach:
For the wider economy:
· Plentiful energy ensures that there is enough processing power to support innovation
· Better use of natural resources compared to flaring or releasing gas
For the crypto sector:
· Cheap energy makes crypto-mining projects viable
· Increased availability and use of local energy and processing power
For the oil and gas sector:
· Make better use of previously wasted natural resources
· Enhance environmental reputation
· Create new income stream from allowing servers to be managed on site
With the current structure of the industry, the more people, organisations and regulators embrace cryptocurrency, the bigger the server issue could become. If the sector carries on with the current infrastructure approach, development is likely to be slower.
Ultimately, the technology underlying crypto works and it’s increasingly credible, but it needs environmentally sound, efficient and cost-effective infrastructure if it is going to avoid the cliff edge that it is currently heading towards.
PermianChain is a proprietary technology platform that brings together the crypto-mining and oil and gas sectors. Using a permissioned access blockchain, PermianChain makes it possible to utilise stranded and wasted energy resources, unlocking liquidity and transforming the way that oil and gas projects are funded, produced, bought and sold. Established in 2018, PermianChain Technologies is a pioneer member of the Blockchain Research Institute (BRI) and start-up member of the Petroleum Technology Alliance Canada (PTAC).