Mining for the cryptocurrency Bitcoin is expected to overtake the energy consumption of Icelandic households this year. The abundance of renewable and cheap electricity has Bitcoin miners flocking to Iceland to set up shop. With the recent robbery of 600 computers specially fitted for Bitcoin mining, the national debate has focused its eye on Bitcoin mining. Alþingi, the Icelandic Parliament, has discussed changing the framework around Bitcoin mining. With Bitcoin’s ever-rising value it appears that the trickle of Bitcoin mining will soon become a flood. This raises the question - Is Bitcoin mining beneficial for the Icelandic nation?
Ideal mining site
Iceland is the perfect location for Bitcoin mining due to the natural surroundings. There is cheap and renewable energy in abundance. Hydroelectric and geothermal sources provide Iceland with a fraction less than 100% of the nation’s electricity. The energy-intensive process of Bitcoin mining also produces excessive heat. The cool air of the North Atlantic provides a natural cooling effect, negating the need for fitting mining centres with expensive air conditioning. These factors have Bitcoin miners raring to head for Iceland to engage in this modern-day gold digging.
High electric use, high payout
Bitcoin mining is the process of validating the Bitcoin transactions that take place all over the globe. Specially fitted computers, with advanced processors, solve complex equations which they received they receive a small amount of Bitcoins for. The excessive energy output of the equations is due to the high amount of Bitcoins out there. The Bitcoin mining network uses more electricity than the whole of Ireland in one year. Bitcoins have a finite reserve, 21 million in total, with 16.7 million of them already in circulation, which leaves 4.3. million left to be mined. The more Bitcoin transactions out there, the more computing power needed to validate them. The payout for validating a transaction at this point in time is 12.5 Bitcoins per validation. Iceland is an ideal mining site as electricity and infrastructure cost per Bitcoin mined is far lower than most countries.
Trouble in mining paradise
Iceland’s status as the go-to country for Bitcoin mining is not viewed favourably by all. Digital activist Smári McCarthy, an MP for the Icelandic Pirate Party has spoken of the need for a framework for Bitcoin mining. “We are spending tens or maybe hundreds of megawatts on producing something that has no tangible existence and no real use for humans outside the realm of financial speculation". Cryptocurrency mining requires almost no employees as well as being extremely hard to tax. Its detractors also claim that it provides very little in the form of capital investments. Some have even gone as far as stating that Bitcoin miners take advantage of Iceland.
Data storage of the future
It is not all doom and gloom, however, as there is great potential in the further growth of data centres. The technology giants Google and Facebook have both cast their eye towards Iceland as a potential site for their large-scale data storage centres. The rest of the Nordic countries are Iceland’s closest competitors for the future of large-scale data storage. “The respective governments have placed an emphasis on improving the infrastructure, even connecting data cables north of the Arctic circle”, Jóhann Þór Jónsson, head of Data Centers Iceland stated. “They have an incentive system in place for this type of industry to attract data centres to areas where there is an abundance of energy”.
Aluminium and Bitcoin – One and the same?
Some have drawn comparisons between the aluminium industry and Bitcoin mining, as both are energy-intensive industries which run 24/7. Iceland has lured large-scale aluminium manufactures with tax breaks since the turn of the century. In 2011, aluminium smelters in the country consumed 73.8% of the total electricity usage in Iceland. Some feel that the government is repeating the mistakes of the past – as foreign companies and ventures take advantage of Icelandic pastures, while the country has little to show for it. Icelanders paid € 0.13 per kilowatt while it is estimated that Bitcoin data centres pay € 0.04 per kilowatt. While Bitcoin miners pay a lower price, the data centres are running 24/7, 365 days a year, paying for every minute. Their stay here is therefore not without benefit. Bitcoin also compares favourably to the aluminium industry as it leaves less of an environmental footprint.
A chance to make a mark
It is unclear what the future holds for Bitcoin mining in the country. There are many eager to join the party but even more wish for the government to regulate the festivities. Cryptocurrencies are a borderline unregulated field, so Icelandic authorities have an opportunity to create a framework for the future which can benefit both miners and Iceland alike.
Sources of electricity production in 2014:
Wind plants 0.04%
Fossil fuels 0.01%
No other country produces more energy per capita than Iceland, with an average of 55,000 kilowatts per person in a year. The average in the European Union is close to 6,000 kilowatts.
It is estimated that Iceland has only tapped into about 35% of the estimated available geothermal and hydropower sources.
This In Focus article was published in the latest issue of Iceland Review. Click here to subscribe.