An employee checks on the operation of of cryptocurrency mining rigs, operated by BitCluster, inside a mobile mining farm in Russia. (Photographer: Andrey Rudakov/Bloomberg)

Extreme Bitcoin Mining Aids an Unexpected Revolution in Iceland

(Bloomberg) -- After devouring nearly as much energy as all of Iceland’s households combined, Bitcoin miners may be about to return something to the community that’s housed them.

Iceland is looking past the faddishness of cryptocurrencies and toward other projects that need the same kind of infrastructure that Bitcoin miners rely on. These include areas like deep learning applications for self-driving cars or automatic translators.

Extreme Bitcoin Mining Aids an Unexpected Revolution in Iceland

Bitcoin “probably won’t be here far into the future” said Johann Snorri Sigurbergsson, business development manager at the HS Orka power plant in Iceland, which provides electricity to the data centers that miners use. But the centers themselves will become new technology incubators, and “that’s the bet we’re making,” he said.

Mining for Bitcoin requires lots of energy, both to do the actual mining but also to cool the enormous computers used to crack the codes that release the limited supply of Bitcoin. Iceland estimates the industry will consume more than 100 megawatts by the end of the year.

What The Poet Says

In a Tweet, Icelandic poet and former presidential candidate Andri Snaer Magnason likened “crypto mining” to “Cryptonite for Superman.” He added that “evil villains have found the most stupid way to waste energy.”

Cheap Energy

The island became a magnet for the practice once miners figured out that the place is very cold and that electricity there -- geothermal and hydropower -- costs a lot less than in most other places. Iceland’s cheap energy has already drawn other power intensive industries, such as aluminum smelting.

Painful Memories

Iceland is more sensitive than most to the risk of supporting an industry that may be headed for bust. It still has painful memories of the 2008 banking meltdown, which drove the island into the arms of the International Monetary Fund and resulted in capital controls that have only just been lifted.

Extreme Bitcoin Mining Aids an Unexpected Revolution in Iceland

The future of Bitcoin, and other cryptocurrencies, is far from clear. After soaring close to $19,000 late last year, it crashed to less than $6,000 last week. Many other forms of cryptocurrency -- Dead Coins lists about 800 now effectively worth nothing -- have collapsed entirely.

But Iceland also needs to diversify its economy to rely less on fishing, tourism and aluminum smelting. And given it’s already facing a shortage of workers, less labor-intensive industries are welcome, said Kristrun Frostadottir, chief economist at Kvika banki hf. That’s where the data centers created to enable Bitcoin mining could play a key role.

Building Knowledge

Gisli Kr. Katrinarson, chief commercial officer at Iceland’s biggest data center operator, Advania Data Centers, says it has “developed immense knowledge about the most efficient ways to operate and maintain these blockchain systems" and is now using this knowledge and experience "to increase the quality of service for our customers.”

The Story of the Heist

Sindri Stefansson, a local man accused of stealing more than 600 computers from an Icelandic Bitcoin mining facility, was arrested in Amsterdam after escaping from prison and allegedly boarding a flight carrying Prime Minister Katrin Jakobsdottir to Sweden for a meeting with her Indian counterpart, Narendra Modi, in a case that’s come to be known as Iceland’s Big Bitcoin Heist.

The Next Revolution

For Iceland, the technology that came with Bitcoin mining helps create a clearer path to reaping the benefits of the digital age. Katrinarson says Advania is already working with Stanford University and HP Enterprise on simulating how a virtual human heart might respond to experimental medication.

“The fourth revolution is starting,” said Asgeir Margeirsson, chief executive officer of the HS Orka power plant. “It would be terrible for us in Iceland not to follow that development. If we were not to take part in the next development into the future, we would slide back.”

Kristinn R. Thorisson, director of the Icelandic Institute for Intelligent Machines, says the data centers currently being used by Bitcoin miners are “central to the industrial revolution that is still under way.” Artificial intelligence today still requires “way more data and computing power.”

“There is less supply than demand right now,” said Thorisson, who predicts "a significant reliance on data centers" for "at least the next 50 years."

©2018 Bloomberg L.P.