The last few months have changed a great many things in a great many ways. Industries of all kinds have been struggling in ways that they could not have foreseen, but one sector that seems to continue to thrive is crypto-mining and the crypto asset market. The challenge is that as crypto [or digital assets] rise in prominence and value, its appetite for power grows. If only there was a potential source of power that is currently being wasted that could be put to good use…
With much of the world on lockdown, online sales have become the norm, even for people that had previously preferred to shop in person than go online. While numbers are still only just coming in, the picture appears to be similar around the world: e-commerce rose significantly during 2020 and the continued uncertainty in 2021 means that this trend is likely to stay in place. The rise may not be enough to offset the economic damage of the collapse of retail sales, but it is certainly where the focus is likely to remain as people adapt to the Covid-19 enforced new normal.
The rise of crypto…
Unsurprisingly, this feeds into the debate about cryptocurrencies. Cryptocurrencies were developed as a peer-to-peer electronic cash system, making it possible to trade goods and services on a trust-based global network that foregoes the need for the involvement of a central authority. The internet was developed to make it simple to share knowledge and move information quickly and efficiently, crypto is intended to do the same for cash.
Covid-19 arrived at around the same time as various governments began to start talking in earnest about the potential of setting up cryptocurrencies that run in parallel with their fiat equivalents. While this may run slightly contrary to Satoshi Nakamoto’s original vision, the interest of the central banks is likely to add legitimacy to the sector as a whole. It could go some way to reducing the perception of the crypto sector as the latest outpost of the financial markets’ wild, wild west.
The rights and wrongs of the wild west cliché and the question of whether crypto is evolving beyond its original focus in many ways is irrelevant. What matters is that there is a lot of interest in crypto at the moment, and it’s not just from the traditional tech evangelists, there are active projects involving global corporates, small to medium enterprises, governments and institutional investors.
…and the interest in blockchain
Over the last five years or so, there has also been increasing interest in the blockchain as a tool for activities well beyond cryptocurrencies. The blockchain underpins crypto activity, but what more and more organisations are looking at is ways that it can be deployed to support other activities. There are now blockchain projects covering food, fine wine, luxury goods, educational certificates, cars and even oil and gas. As Covid-19 has shown, supply-chains can be delicate, but the blockchain’s potential to enhance efficiency, reduce costs and create opportunity is recognised in many sectors.
Interest has moved well beyond the technology’s evangelical circles, and major global companies, as well as governments and regulators are well into the process of developing ways to implement blockchain projects that will be cheaper and more efficient way of interacting with colleagues, partners and citizens.
Introducing demand to supply…
All of this interest is great, but it also brings into focus the sector’s energy footprint. The decentralised structure of crypto means that it requires a massive amount of server capacity to ensure that information is verified and consistent. This in turn requires a great deal of power. The more interest that there is, the more power is required to support activities.
So, there’s a good chance that the crypto’s voracious demand for power will become a discussion point over the next few months. It could even reach the point where the development is impeded.
The collapse of oil prices in mid-2020 created an interesting opportunity. Energy extraction projects have had a torrid time over the last few months and desperately need support. Oil and gas exploration and production is an expensive business and many previously viable projects were mothballed as a result of the challenging economic conditions. This could be a missed opportunity as the global economy gets back on its feet.
Natural gas can be an expensive waste biproduct for many energy projects. The simple reason for this is that it is often un-economical to pipe the gas away from smaller, short-lived extraction projects, so rather than turning it into power, it is either left in place, allowed to escape into the atmosphere or flared off. Flaring is marginally less environmentally damaging than simply letting the gas escape into the atmosphere, but it is increasingly being banned in many countries. This changes the price dynamic and some viable wells are being left untapped because of the stranded gas [Try our natural gas bitcoin mining calculator. Explore how much your natural gas is worth when used for bitcoin mining].
…and creating opportunity
So on the one hand, the natural resources industry is in dire need of support, with excess energy that is going to waste rather than being turned into useful power. On the other hand, the crypto sector needs competitively priced, geographically agnostic power that can be used in support of the growing demand for online transactions as well as the myriad of other activities that the blockchain is creating.
In short, there is a demand, and there is a potential supply. But there needs to be a way to bring the two together.
PermianChain has developed a proprietary digital platform that allows oil and gas companies to catalogue, manage and monetize their excess natural gas that would otherwise be wasted. Our Digital Energy Currency (DEC), based on a smart offtake agreement (SOTA), is a digital representation of natural gas converted to electricity. It transforms an energy resource into a tradable unit of power that can be consumed by crypto-miners and data centre operators, providing energy for computing power and suites of servers in support of crypto and blockchain networks, irrespective of where they are located in the world.
The system that we have developed supports mobile mining data centres that are around the size of a shipping container. These can be placed unobtrusively onsite at an oil and gas extraction project site and left to go about their business. Crypto organisations can either buy and operate the units themselves, or they can pay for access to the processing power.
For the crypto sector, it means an increase in processing power at the lowest cost possible. For the natural resources, it means that they can enjoy consistent income from a previously wasted biproduct at a point when some are in desperate need of financial support.
In the end, there is demand and there is supply and an unusual confluence of events has created a unique opportunity. As we have seen, a lot can happen in six months, but it certainly feels like there is a lot pointing in the right direction at this stage.
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).