Iceland will use more energy 'mining' cryptocurrencies than it needs to for domestic usage in 2018

Large virtual currency companies have established a base in Iceland, which is expected to use more energy "mining" cryptocurrencies this year than it uses to power its homes

Mike Richardson
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Smari McCarthy of Iceland's Pirate Party, an anti-establishment political party that entered Iceland’s Parliament after the 2008 financial crash, brought up the possibility of taxing any profits made by Bitcoin mining, considering that a mining company falls under the category of “creating value” within the country. 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."


WHAT IS BITCOIN?

Bitcoin is the most popular virtual currency in the world, and it has fluctuated significantly in value over the past year. It was created in 2009 as a new way of paying for things that would not be subject to central banks that are capable of devaluing currency. The sustainability concerns about bitcoin, voiced by economists and environmentalists, stem from the process of “mining” that is central to its existence.

The “miners” use computers to make complex calculations that verify transactions in bitcoins. This uses a tremendous amount of energy via computers and server farms all over the world, which has given rise to concerns about the amount of fossil fuel-dependent electricity used to power the computers. Some estimates say bitcoin’s energy impact is more than that of a small country.

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 coastal town of Keflavik has over the past months boomed as an international hub for mining bitcoins and other virtual currencies.

The main attractions of setting up bitcoin mines 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.

The data centers 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.

Bitcoin mining hardware requires a large amount of energy to perform the calculations to find “hashes,” which then gives the miner a Bitcoin reward. Alternatives to the current energy-consumption-heavy method of mining have been proposed, like using a Proof-of Stake system instead of Proof-of Work, or using renewable energy to power mining computers.

Mining sites in Iceland naturally have the opportunity to produce less pollution than the coal-burning mining sites located in China, for they have access to geothermal and hydroelectric power plants, both cheaper and more environmentally friendly alternatives to coal.

"What we are doing here is like gold mining," said Helmut Rauth, who manages operations for Genesis Mining,"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. 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.

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."


HOW MUCH DOES BITCOIN AFFECT ENERGY CONSUMPTION?

Estimates vary, and a true figure could be impossible to come by because of the intentionally anonymous nature of bitcoin use. But Dutch bitcoin analyst Alex de Vries, who operates a Bitcoin Energy Consumption Index on the website Digiconomist, has produced estimates he believes are alarming.

If bitcoin miners are using the most efficient machines possible, the lowest amount of electricity they could possibly be using is 13 terawatt hours, de Vries said in an interview. That’s about as much as the entire country of Slovenia. De Vries said less conservative estimates make it entirely possible that bitcoin is using as much energy as Ireland, which consumes about twice as much as Slovenia, or about 0.7 percent of the U.S. total.