What would you guess? Five…twenty five…fifty?
James Stafford, editor of Oilprice.com not only does the math, but explains the energy-driven geographic arbitrage currently driving bitcoin mining.
The bitcoin boom is well and truly underway, and investors are constantly looking for new ways to gain an advantage in this space The best way to do this, it seems, is by cutting the energy costs of mining this precious commodity. The bitcoin mining industry consumes 22.5 TWh of energy annually, which amounts to 13,239,916 barrels of oil equivalent.
With 12.5 bitcoins being mined every 10 minutes, that means the average energy cost of one bitcoin would equate to 20 barrels of oil equivalent.
While it’s all about where you sit on the cost curve, Stafford provides us with some context on gross energy consumption.
To put this in perspective, the total energy consumption of the world’s Bitcoin mining activities is more than 40 times greater than that required to power the entire Visa network.
And it’s very profitable...
Mining bitcoin has the potential to be a wildly lucrative business, with a single Bitcoin now valued at more than 100 barrels of oil.
That kind of price makes it one of the most valuable commodities on the planet and, just like oil, this commodity is increasingly valuable to mine if the energy costs can be kept down. Bitcoin transactions are secured by computer miners, who are competing for rewards in the form of coins from the network.
The more computation power they use, the better their chances. The drill rig is a computer, and hydraulic fracturing is done with the tip of your fingers.
...if you’ve got bucket loads of cheap electricity.
It’s a phenomenally energy-intensive process. Cheap electricity is exactly what made China the Bitcoin mining king. The yearly cost of the energy necessary to mine Bitcoin determines its economics. But to get in on that you risk reputation because you’re either siphoning off surplus energy from somewhere else, or you’re partnering with the government. No matter how you look at it, it’s a very gray area. No one wants dirty coal fueling such a sophisticated endeavor, for example.
As we discussed recently, subsidized electricity and hyperinflation has led to rapid growth in Bitcoin mining in Venezuela, albeit from a low base.
When it comes to scale, however, the new Bitcoin mining hub - with a different type of energy advantage - is Iceland. James Stafford calls it the “New Ground (Below) Zero”, he continues.
That’s why HIVE Blockchain Technologies Ltd. - a gold-miner-turned-bitcoin-miner - has set up in Iceland. As one of the first public companies that lets you participate in the build-up and infrastructure of crypto mining, HIVE is taking advantage of Bitcoin’s favorite element: Ice. It’s freezing in Iceland, so the relative energy cost of mining there is lower. Mining hardware requires enormous power and creates tons of heat, and natural temperature is key: Iceland saves on cooling costs, making it one of the most potentially profitable places to mine Bitcoin.
He cites other examples of crypto companies moving to Iceland.
Giant ether mining start-up, BitFury Group, is there. BitFury, out of the Netherlands, generated over $90 million in revenue this year, and predicts it will be generating $585 million in revenue by 2021. While its flagship data center is in the Republic of Georgia, it’s also now tapping into the cool temperatures of Iceland. Emmanuel Abiodun, founder of Cloud Hashing, a company which owns a computing facility in Iceland, chose Iceland because of its cheap and plentiful geothermal and hydroelectric energy, and the “free Arctic air” that is piped in to cool the machines. Iceland is also ground zero for Hong-Kong-based Genesis Mining Ltd, which is building the largest ether mining facility in the world in Iceland. And HIVE has recently acquired a new data center from Genesis for $9 million and a 30 percent equity stake in HIVE, according to Bloomberg, which says HIVE shares have “Bitcoin investors buzzing”. Right next door to this landmark bitcoin facility in Reykajanes, Iceland, HIVE has just acquired a second data center from Genesis.
Stafford states that “The cold countries are now the home of what is being dubbed ‘geothermal gold’.” Talking of which.
HIVE’s backers include mining mavericks Frank Giustra and Frank Holmes. Giustra built up Goldcorp (NYSE:GG) in 2000 and today it trades at a market cap of nearly $11 billion, and is one of the largest gold-mining companies in the world. He was also behind Silver Wheaton, which is now Wheaton Precious Metals Corp. (NYSE:WPM), the biggest silver and gold streaming company in the world. Giustra’s 20-oscar-winning entertainment behemoth, Lion’s Gate, also took in $2.4 billion in revenue in 2015. And these are just a few of his multi-billion-dollar hits. Holmes is the CEO of San Antonio-based US Global Investors, which has $2.6 billion in assets under management and is one of the definitive top precious metals funds. Both have backed HIVE, and Holmes is now its chairman. Both still love gold because gold will always be gold, but they’re not old-fashioned. Bitcoin is huge, and they won’t be left out of the wave.
A two-pronged strategy of gold and crypto, we’re not going to argue with that.