Energy riches fuel bitcoin craze for speculation shy Iceland

In the case of bitcoin, a total of 21 million can be mined (Pixabay photo)

KEFLAVIK, Iceland — Iceland is expected to use more energy “mining” bitcoins and other virtual currencies this year than it uses to power its homes.

With massive amounts of electricity needed to run the computers that create bitcoins, large virtual currency companies have established a base in the North Atlantic island nation blessed with an abundance of renewable energy.

The new industry’s relatively sudden growth prompted lawmaker Smari McCarthy of Iceland’s Pirate Party to suggest taxing the profits of bitcoin mines. The initiative is likely to be well received by Icelanders, who are skeptical of speculative financial ventures after the country’s catastrophic 2008 banking crash.

“Under normal circumstances, companies that are creating value in Iceland pay a certain amount of tax to the government,” McCarthy told The Associated Press. “These companies are not doing that, and we might want to ask ourselves whether they should.”

The energy demand has developed because of the soaring cost of producing and collecting virtual currencies. Computers are used to make the complex calculations that verify a running ledger of all the transactions in virtual currencies around the world.

In return, the miners claim a fraction of a coin not yet in circulation.

In the case of bitcoin, a total of 21 million can be mined, leaving about 4.2 million left to create. As more bitcoin enter circulation, more powerful computers are needed to keep up with the calculations — and that means more energy.

The serene coastal town of Keflavik on Iceland’s desolate southern peninsula has over the past months boomed as an international hub for mining bitcoins and other virtual currencies.

Local fishermen, chatting over steaming cups of coffee at the harbour gas station, are puzzled by the phenomenon, which has spawned oversize construction sites on the outskirts of town.

Among the main attractions of setting up bitcoin mines at the edge of the Arctic Circle is the natural cooling for computer servers and the competitive prices for Iceland’s abundance of renewable energy from geothermal and hydroelectric power plants.

Johann Snorri Sigurbergsson, a business development manager at the energy company Hitaveita Sudurnesja, said he expected Iceland’s virtual currency mining to double its energy consumption to about 100 megawatts this year. That is more than households use on the island nation of 340,000, according to Iceland’s National Energy Authority.

“Four months ago, I could not have predicted this trend — but then bitcoin skyrocketed and we got a lot more emails,” he said at the Svartsengi geothermal energy plant, which powers the southwestern peninsula where the mining takes place.

“Just today, I came from a meeting with a mining company seeking to buy 18 megawatts,” he said.

At the largest of three bitcoin “farms” currently operating within Keflavik — called “Mjolnir” after the hammer of Thor, the Norse god of thunder — high metal fences surround 50 metre-long (164 foot) warehouse buildings stacked with computer rigs.

The data centres here are specially designed to utilize the constant wind on the bare peninsula. Walls are only partial on each side, allowing a draft of cold air to cool down the equipment.

“What we are doing here is like gold mining,” said Helmut Rauth, who manages operations for Genesis Mining, a major bitcoin mining company. “We are mining on a large scale and getting the gold out to the people.”

Genesis Mining, founded in Germany, moved to Iceland in 2014 when the price of bitcoin fluctuated from $350 to $1000.

Today, one bitcoin is valued at about $8,000, according to tracking site Coindesk, after peaking at almost $19,500 in December.

The currency took a hit in January when China announced it would move to wipe out its bitcoin mining industry, following concerns of excessive electricity consumption.

Rauth said bitcoin should not be singled out as environmentally taxing. Computing power always demands energy, he argues.

“How much energy is needed for credit card transactions and internet research? Cryptocurrencies have the same global impact,” he said.

In the capital, Reykjavik, some are more skeptical about bitcoin.

The last time Iceland was an international hub for finance, the venture ended with a giant bank crash, making the country one of the symbols of the 2008 global financial crisis.

The political turmoil following the crash swept the upstart Pirate Party into Iceland’s parliament, where it currently holds 10 per cent of seats.

Pirate Party legislator McCarthy has questioned the value of bitcoin mining for Icelandic society, saying residents should consider regulating and taxing the emerging industry.

“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,” he said. “That can’t be good.”