Getting involved in Bitcoin mining used to be as easy as kicking your little brother off of World of Warcraft long enough to log into the server and start the process. It cost little, and gave you a few neat little tokens to shore up your geek cred among your fellow nerds, and maybe your little brother could get a kickback for his time if you order him a pizza or something.
They were almost worthless except as a neat thought experiment. When I first heard about bitcoin, in fact, it was introduced to me by an anarcho-capitalist friend as an example of a market devoid of regulation, but not necessarily as a potential investment. He would later go on to push me to invest, which I did, after a fair amount of independent research. I don’t regret it. You never regret the wins.
But as anyone paying attention to the space knows, times change and bitcoin with it. The computing power to close the block and get your reward has gone from your brother’s gaming computer to a room full of gaming computers, to kilometres of Chinese server farms, fuelled by coal and spewing out environment-choking fossil fuels. The price of bitcoin has also gone from a fraction of a fraction of a penny to over CAD$10,000. (CAD $12,151 as I write this sentence.) The difficulty of mining costs so much in electrical power that only companies that can afford the aforementioned server farms can compete.
Some of these companies are public and open to investment. It’s not quite the same as investing in Bitcoin, or altcoins—if you wanted to do then join an exchange—but it does represent a potential way to profit from Bitcoin without waiting for price fluctuations to go your way. But there are a handful of pitfalls to be mindful of when considering investing in a cryptocurrency mining company. They’re cost-efficiency and environmental impact.
Breakdown
Mining cryptocurrency is expensive. At least mining the secure hash algorithm coins (SHA), because they require proof-of-stake mining. Bitcoin and its bastards are perfect examples of SHA coins. Most companies deal with Chinese-led Bitmain for their machinery, which is the biggest company in the cryptocurrency mining market. Their core product is the antminer series of Bitcoin mining servers, outfitted with application-specific integrated circuit, which are designed to performing one purpose and only that purpose and cannot be retrofitted towards anything else.
This is an expensive process with a lot of moving parts.
Let’s consider MGT Capital Investments (MGTI.Q) as a case study.
The company has put 1,500 new generation Bitcoin miners collectively rated at around 80 petahashes per second as its facility in LaFayette, Georgia. The miners were purchased from Bitmain and possess enough computational power to mine 38 Bitcoin a month at the currently difficulty rate. The total electrical load for this level is estimated to be slightly under 4.8 megawatts.
That’s a respectable rate of return, but what they’re not mentioning is that there are two different but complementary drains on your electrical bill when it comes to Bitcoin mining. The first is the power needed to actually run the machines, which they mention, and the second is their bill to keep the machines cool, which they don’t. Hot machines overload and melt down without sufficient air conditioning. If that happens MGT is going to be left with expensive, heavy scrap, good only for a few hundred dollars, so they’re going to shell out for a large air conditioning bill because Georgia is one of those hot-as-shit states, especially in the summer.
Secondarily, let’s consider the environmental impact of MGT’s mining operation.
The question you should always be asking yourself when investing in a bitcoin (or any other coin, really) miner isn’t just how much does their energy cost, but where is it coming from?
According to the State of Georgia’s State profile and energy estimates:
“Natural gas, nuclear power, and coal fuel more than 90% of Georgia’s electricity generation. A small amount of the state’s net generation is provided from renewable resources. Coal-fired power plants fueled more than three-fifths of net generation in Georgia a decade ago, but coal’s contribution has declined steadily since 2009.”
So the hidden “negative externalities” of MGT’s bitcoin mining are that they’re spewing 4.8 megawatts worth of climate change inducing chemicals into the air every month. That really isn’t helping anyone, be it the company, the environment, or Bitcoin’s reputation.
Yeah. You won’t find that in a press-release or a balance sheet, either.
The best option for energy intensive proof-of-work mining is hydroelectric. Apparently even hydroelectric isn’t quite as green as we once thought, but since so far with existing technology it is impossible to have zero climate footprint, we should strive towards a harm reduction approach and for the time being, that’s hydroelectric.
DMG Blockchain Solutions (DMGI.V) is the other end of the scale, at least as of last month when they and Bitmain shifted their operations from a fossil-fuel emitting Bitcoin operation in Rockdale, Texas, in favour of a hydroelectric using Bitcoin mining facility in Christina Lake, British Columbia.
Then there’s Cryptostar (CSTR.V), which took advantage of Newfoundland’s subsidized hydroelectric power in December by building their data centre and cryptocurrency mining station in the cold recesses of Newfoundland and Labrador. This is the smartest play on the list because it meets all three criteria for cost reduction and environmental efficiency.
- It uses subsidized, cheap electricity.
- The energy source of hydroelectric, and therefore won’t contribute heavily to global warming.
- Newfoundland and Labrador are cold enough to give polar bears cause for concern most of the year, which means that Cryptostar will save money on air conditioning.
Last week, DMG started experimenting with immersion cooling options, which are interesting.
Immersion cooling includes custom designed tanks filled with specialized, non-electricity conductive liquids, that DMG would essentially dunk their miners into to cool them off. The fluid transfers the heat from the miners and then is cooled with a connected heat exchange system. If it works, it will mean less fans and a drastic reduction in air conditioning bills, while increasing processing speed and a reduced power draw per petahash, and therefore more profit. If it works, it’ll mean less geographical limitations on where and how to mine.
Here’s what Adrian Glover, DMG’s director of engineering, had to say,
“Single phase immersion cooling is the best solution we’ve worked with, for not only managing the temperature of miners in a variety of climates, but also as a way to maximize the efficiency of the cryptocurrency mining equipment in all conditions. This dovetails nicely into some of our future-looking testing and development in rendering, high performance computing and new ways to build low-cost, high-reliability data centres.”
If it works it’ll change everything. But let’s just wait and see if it works before we get excited.
—Joseph Morton