How Bitcoin Mining Can Energize Real Estate
The Bitcoin Newsletter 25
Welcome to the 25th edition of The Bitcoin Newsletter,
Real estate development and management are among the most energy-intensive industries, with significant demands on resources for construction, maintenance, and daily operations. From the high energy consumption involved in manufacturing building materials and running machinery for construction to the ongoing costs of heating, cooling, and lighting buildings.
The sector faces rising capital expenditures (CapEx) and operating costs. This increase is mostly driven by monetary inflation, which has led to higher costs for goods and services. There is little incentive for market participants to lower costs, as they also face higher prices for goods and services, perpetuating an inflationary spiral and contributing to the sector's growing financial pressures. Given that energy expenses are a significant component of operating costs for properties, real estate entrepreneurs are continually seeking innovative solutions. Bitcoin mining presents a promising opportunity for addressing these challenges.
By integrating Bitcoin mining with real estate operations, property owners and developers can benefit from reduced energy costs, enhanced operational efficiency, and the potential for generating additional revenue. In the 25th edition of the newsletter, I delve into how Bitcoin mining can energize real estate, providing cost-effective energy solutions and enhancing the overall value and sustainability of properties.
Best regards,
Leon
DEEP DIVE
How Bitcoin Mining Can Energize Real Estate
Real estate is inherently energy-intensive. During construction, significant energy resources are required for producing materials like cement and steel, as well as operating heavy machinery and equipment. Once constructed, buildings continue to demand substantial energy for various functions. For instance, residential properties require consistent heating, cooling, and lighting, while commercial properties like event centers and stadiums have additional energy needs for climate control, complex lighting systems, and high-capacity HVAC systems. Shopping centers and hotels require energy for powering amenities such as elevators, escalators, and restrooms. Agricultural facilities and stables often use energy-intensive systems for irrigation and equipment operation. This persistent demand for energy can result in high capital expenditures and operational costs, creating a significant financial burden for property owners and developers.
Bitcoin mining generates substantial heat because it involves extensive computational work. Miners search for a random number that meets specific criteria set by the Bitcoin software, with a valid number being found on average every 10 minutes through trial and error. This process, known as Proof-of-work, requires miners to demonstrate their computational effort to the network to compete for the chance to add a new block of transactions to the timechain. Miners compete by using specialized computers to perform these calculations.
A single machine used for bitcoin mining is typically referred to as a “miner,” while a “mining rig” describes a setup that may consist of multiple miners working together. The more computational power miners use, the more secure the network becomes, as it becomes harder for any single entity to manipulate the network. In return, successful miners are rewarded with bitcoin for adding new blocks of transactions to the timechain.
This intense computational activity generates a lot of excess heat. As mining rigs operate around the clock, they consume substantial amounts of electricity, which is transformed into both processing power and heat. This heat, often regarded as a waste byproduct, presents a valuable opportunity for energy reuse.
With an effective system in place, this excess heat can be captured and utilized for various purposes, allowing energy to be harnessed in two dimensions—computing power and heat. This approach enhances overall efficiency in the long term, reduces energy costs, and creates economic incentives for a faster transition to sustainable energy solutions.
By incorporating Bitcoin mining into energy management strategies, property owners can repurpose the excess heat generated by Bitcoin mining to meet various energy needs. This heat can support building heating systems, warm water, or directly heat spaces such as residential and commercial areas. New technologies are being developed to integrate bitcoin miners with specialized heating systems, allowing for efficient use of this heat to maintain comfortable temperatures and improve energy efficiency within a property.
In regions with abundant sunlight, like agricultural areas or warm climates, combining Bitcoin mining with solar panels presents a valuable opportunity. This integration can significantly boost the return on investment for solar systems. For residential properties, it also addresses issues like grid capacity limits, where homeowners may struggle to sell surplus solar energy back to the grid. Bitcoin mining helps monetize stranded and excess energy, with the added income potentially offsetting the initial costs of solar panels, making renewable energy more financially viable.
This is indicative of how Bitcoin mining can promote renewable energy profitably, creating economic incentives for a faster transition to sustainable energy solutions. Miners actively seek out affordable energy sources, including renewables, to maximize profits, which can drive further investment in and adoption of clean energy technologies. In many regions, including colder climates like Germany, regulations require renewable energy sources like solar panels to be included in building designs.
However, the installation costs of solar panels can be high, with energy generation often limited. Bitcoin mining offers a solution by providing an additional revenue stream, helping to offset these costs and making solar energy more economically viable. In commercial settings such as malls, business parks, or industrial complexes, the potential for additional solar capacity is significant.
Overall, integrating Bitcoin mining into real estate can result in several economic benefits:
Reduced Energy Costs: By repurposing the excess heat from mining for heating or other energy needs, property owners can lower their overall energy expenses.
Increased Property Value: Incorporating innovative energy solutions like Bitcoin mining can reduce energy costs, which in turn may increase a building’s value by lowering operational expenses and creating additional revenue streams. Properties that reduce energy costs and integrate renewable energy sources become more appealing to buyers.
ESG Compliance: Bitcoin mining aligns with ESG (Environmental, Social, and Governance) requirements that prioritize energy-efficient "green" buildings. While opinions on ESG may differ, properties embracing these concepts are likely to attract more buyers and increase in market value.
Alternative Revenue Stream: Bitcoin mining can provide an additional cash flow alongside traditional real estate income. This extra revenue can be reinvested into the property or used to offset operational costs. Bitcoin mining offers a bitcoin-denominated income stream, similar to rental income in real estate.
While Bitcoin mining offers significant potential for the real estate industry, regulatory considerations must be carefully navigated. In some jurisdictions, integrating Bitcoin mining into property operations may face legal challenges. These concerns can vary based on local laws and regulations, which could impact how mining activities are implemented and managed within real estate developments.
For example, in Germany, Bitcoin mining operations could be classified as commercial activities, which might affect tax advantages associated with property sales. Specifically, properties held in certain company structures, such as a "KG" (Kommanditgesellschaft), are taxed similarly to individuals. If such properties are held for ten years, they can be sold tax-free under German law, as they are classified as “personal property”. This provides a significant tax advantage similar to that enjoyed by individuals who own properties personally. However, if Bitcoin mining is classified as a commercial activity, it could alter this tax treatment, potentially reducing the tax benefits of selling the property.
Therefore, it is crucial to navigate local laws and regulations carefully to ensure compliance and maximize the benefits of integrating Bitcoin mining into property management. The primary goal of this integration is to reduce costs and build maintenance reserves, enhancing financial stability, operational efficiency, and sustainability.
Real estate developers and investors who embrace Bitcoin mining can position themselves at the forefront of a new era in property management, where Bitcoin plays a key role. If the real estate industry returns to its utility value, integrating Bitcoin mining reflects a shift in how we view properties—not just as financial assets but as physical spaces with purpose that require care and profitability. This approach could foster a new relationship between buildings and people, countering the trend of treating real estate purely as a financial asset.
In addition, for Bitcoiners, a potentially exciting side effect is that many small mining facilities will be integrated in a decentralized manner, leading to a less centralized Bitcoin mining industry compared to the current dominance of large mining farms. While bitcoin is a digital currency, its operations are grounded in a physical network governed by the Proof-of-Work algorithm, which is essential for reaching consensus within the Bitcoin network. Instead of relying on a central authority, all participants align with the Bitcoin timechain that has the greatest computing power. This process ensures consensus is achieved without centralized control and also helps each network participant to validate the entire transaction history independently. This unique blend of the digital and physical realms is what sets Bitcoin apart.
As someone with a background in the real estate development environment, I appreciate that Bitcoin is not just a concept or utopia. It is a proven computer network with tangible impacts on our physical world. The synergy between Bitcoin mining and real estate offers a promising opportunity to enhance the efficiency, profitability, and sustainability of properties.
Integrating Bitcoin mining into real estate operations can actively support existing business processes and demonstrates how mining can positively impact living environments. As mining technology continues to evolve and its benefits become clearer, the adoption of these practices in real estate is expected to grow, bringing great value to the industry.
The integration of Bitcoin mining into existing property structures or new developments currently faces several challenges, including regulatory uncertainties and the lack of pre-manufactured solutions that can be easily incorporated into buildings. These obstacles underscore how early we are in the development of this technology but also present a significant opportunity for entrepreneurs to innovate and create practical solutions. Just as it took decades to build out the internet infrastructure, the integration of Bitcoin mining into physical structures like real estate will require time and effort.
Bitcoin is truly transformative; while around 50% of the world's primary energy is used for heat production, amounting to 166,680 TWh, Bitcoin mining consumes only 125 - 150 TWh. If approx. 6 million single-family homes switched to Bitcoin heating, we could already cover the entire energy needs of the Bitcoin network.
Personally, I find it exciting to be at the forefront of such a groundbreaking technological advancement. The prospect of contributing to and witnessing Bitcoin's evolution fuels my enthusiasm and strengthens my commitment to this technology. With creativity and persistence, Bitcoin mining can be integrated into physical structures and financing models. But, it requires careful planning—allocating space for battery storage, secure areas for mining operations, and addressing energy management concerns. A dedicated and forward-thinking landlord or property manager can overcome these challenges and unlock the benefits of combining real estate with Bitcoin mining.
WORTH TO KNOW
Podcast and publications
Bitcoin's Collateral in Real Estate w/ Leon Wankum (BTC199)
Once again I joined Preston Pysh on his Bitcoin Fundamentals podcast to discuss real estate and bitcoin. We had a great time discussing how bitcoin can serve as collateral for development, real estate market trends, the markdown of commercial properties, and the potential of Bitcoin-backed loans. WATCH
The Your Life! Your Terms! Show: How Do Bitcoin & Real Estate Evolve Together?
Recently, I had the pleasure of being a guest on the Canadian real estate podcast "The Your Life! Your Terms! Show" hosted by Tom Karadza, co-founder of Rock Star Real Estate. Tom is not only an expert in real estate but has also ventured into Bitcoin recently. During our conversation, we explored the fascinating interplay between these two asset classes, as well as themes of entrepreneurship, discipline, and the art of writing. It was a personal and insightful chat that I’m excited to share. WATCH
IDEAS OF INTEREST
Why Bitcoin is the Key to a Multi-Planetary Future – In this episode of 21 Voices, Erik Cason delves into how Bitcoin could reshape our energy markets, empower the global South, and even fuel humanity’s journey to Mars and beyond. Discover why Bitcoin is not just the currency of today, but the foundation for a multi-planetary future. WATCH
Lyn Alden: September 2024 Newsletter: Why Nothing Stops This Fiscal Train – I have been reading Lyn's newsletter with great interest for a while. Her analysis is top notch. Even if I don’t structure my portfolio like Lyn, her macroeconomic and geopolitical outlook is superb. As described, there are only two options for the US and thus globally for all countries operating in the fiat system. Either keep interest rates low to stimulate the economy, which commonly leads to high price inflation. Or keep interest rates relatively high to keep price inflation lower, which would lead to high interest costs and for nation states and companies. A third option would be to raise taxes. A hopeless situation for which, in my view, there is only one solution for the individual: Bitcoin. READ
Bitcoin DESTROYS All Financial Models with Preston Pysh - In this episode of “The Your Life! Your Terms! Show”, Preston Pysh and host Tom Karadza discuss how bitcoin is complicating the traditional price-to-earnings ratio model of stocks, how bitcoin is repricing real estate, and how real estate investors can effectively navigate this paradigm shift. I was happy to see that Tom referenced me (min. 21:21), as well as Tom’s and Preston's class analysis of how real estate developers can leverage their existing portfolios to buy bitcoin. WATCH
Base Fiat Money and Bitcoin w/ Matthew Mežinskis (BTC200) - Matthew Mežinskis of porkopolis.io joins Preston Pysh to discuss the history of money, monetary expansion, Bitcoin's unique growth, and the implications of central banking trends. WATCH
El Bitcoin Ambassador: Häusermarkt in Deutschland am 19.09.2024 - In his German Substack, the German Bitcoiner “
If you want to support me. Feel free. You can send me some satoshi/bitcoin.
Lightning: law@getalby.com
On-chain: bc1qyc9q89wjzmvaw729tj3wsrsfhft53mjycrjxdk
Nostr PubKey
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Resources
Hass McCook - The data shows Bitcoin’s energy use would represent just a rounding error in the construction, transportation or healthcare industries READ
Christian Naef - Earn Bitcoin while Heating Your Home! (BTC Prague 2024 Keynote) WATCH
Vivek Sen - Japan's largest power company TEPCO has begun mining bitcoin through its subsidiary using excess renewable energy, showing how Bitcoin can incentivize green energy growth READ
German Federal Government - Climate-friendly heating: new Building Energy Act to be implemented READ
OurWorldInData.com - Primary energy consumption by world region READ
University of Cambridge | Judge Business School - Bitcoin electricity consumption: an improved assessment READ
The assumption that 6 million households switching to Bitcoin mining for heating would suffice to meet the energy needs of the Bitcoin network can be calculated using hashrate and difficulty metrics. According to calculations provided by Lukas Waldner, Co-Founder & COO of 21energy, with a Bitcoin network hashrate of approximately 600 Exahash divided by 100 TH—sufficient to heat about 100 m²—this calculation translates to a total of 6 million households.
Photo Credit: Gabriele Croppi
Disclaimer: the content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Make sure you do your own research before making any investment and be aware of your own risk tolerance. If you like to build on my thoughts, feel free, but please cite me as the source. 2024 - Leon A. Wankum.
Editing and content creation by Clemens Haidinger.
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