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In June of this year, the Icelandic government warned that it was facing another economic crisis. The statement sent shockwaves through the Nordic island nation, as it has only just recovered from a crippling three-year collapse in 2011 – the largest experienced by any country in economic history, relative to the size of its economy.
The cause this time around, however, was not the struggle of the country’s three major privately owned commercial banks to refinance their short-term debt but the cost of mining. Yet, the Icelandic government wasn’t referring to the crippling expenditure of extracting the more traditional resources that we associate with mining, such as iron ore or coal.
Instead, Finance Minister Bjarni Benediktsson warned that the digital ‘mining’ of cryptocurrencies like Bitcoin and Ethereum had placed such a monopoly on the country’s electricity supplies that its very economy was at risk. Iceland has long been attractive to the crypto world thanks to its cheap and plentiful supply of hydro and geothermal power, meaning that crypto can be extracted there in a less costly manner than across much of the rest of Europe.
However, Iceland became a victim of its own success.
According to a recent study by
Politicians have expressed concern that the crypto industry is using so much electricity that it is severely restricting the growth of other areas of the economy and could lead to serious power shortages for the nation’s population. Crypto mining is so energy intensive because it requires huge computer power, both through adding transactions to the blockchain and then in the releasing of new currency.
Iceland’s government is, however, far from alone in expressing alarm about the enormous costs involved in the crypto mining process.
The Chinese introduced a blanket ban on all crypto mining in the country over concerns about its electricity-usage earlier this year. Officials explained that by eradicating crypto mining they hoped to halt out-of-control annual carbon emission growth in the country.
While there is no nationwide ban in the United States, many local governments have followed the Chinese example by banning crypto mining within their jurisdiction. In the city of Plattsburgh, New York, Mayor Colin Read made the decision to ban crypto mining in the city for the next 18 months. Thanks to the city’s adjacent location to several hydroelectric dams on the St. Lawrence River, it was able to provide the ‘cheapest rates of electricity in the world’, thus attracting a range of crypto mining firms.
Read acted after residents complained that their power bills had jumped by up to $200 a month due to an increasing demand on supplies by crypto. Coinmint, who operated the largest Bitcoin mining operating in the city, used roughly 10% of the city’s entire power budget in January and February of this year.
So, with inordinate power usage and escalating costs the ‘Achilles heel’ of crypto mining – what can be done?
From Russia With Love
A Moscow-based crypto mining firm believes it has the answer to both problems, thanks to the country’s vast energy supplies.
Set up in January 2018 by Denis Maximov, WattsOn runs several crypto mining pools in Russia, with the largest based in Moscow, to extract Bitcoin. Previously, customers have only been able to access the pools from Russia or the former Soviet States. However, WattsOn has this week extended membership of its mining pools to crypto enthusiasts from Europe and China, in an attempt to attract miners priced out elsewhere in the continent.
WattsOn works by combining the power of existent miners and their specialist equivalent – knows as ASICS – for joint cryptocurrency mining. Consumers can then enter into joint crypto mining by which they share the opportunities to solve blocks and divide the mined crypto and profits between them.
Miners joining the WattsOn pool do not need to relocate to Moscow and can instead register their own ASICS machines to the pool remotely. The firm has even made it possible to remotely rent from WattsOn virtual machines in Russia, although this costs slightly more.
The main advantage of using the WattsOn pool is that users have access to unlimited, cheap electricity to power their mining. Russia has the world’s second largest coal reserves and is the second largest oil producer – ranking number one in Europe.
Therefore, its government possesses energy supplies, that many European states like Iceland do not, to power crypto mining and is actively encouraging the growth of the industry. Regional governments have even constructed their own crypto mining facilities, such as in Leningrad and Siberia to take advantage of the country’s energy boom.
Day-to-day maintenance of the facility in Russia also costs less thanks to the country’s subarctic climate. Simply, less power is needed in ventilation and in keeping machines cool given that average outside temperatures in Moscow for example, only rise above 10°C during five months of the year.
“The power system of the Russian Federation is one of the most favorable in the world to the demands of hosting mining,” said Elena Medvedeva, a spokesperson from the Russian Ministry of Finance. “In Russia, we have one of the lowest costs for energy consumption in the world. To compare, according to 2017 data, in Europe – the average price ranges from 5 to 20 rubles (0.07-0.2$) per kWh but in Russia, it is 3.1 rubles (0.05$) per kWh.
“This alone already makes the placement of computing power in Russia quite attractive. In addition, given the excess capacity for individual power systems in the IPS (Integrated Power System) of Russia, such consumption from individual miners would be welcome.”
WattsOn also offers an average 4.5% commission on the profit of the mined Bitcoin, significantly higher than many of its global competitors. European consumers can also make money from the WattsOn pool by letting other users buy cloud mining capacity, for example.
“Of course, now everyone is discussing the fall of Bitcoin,” concludes Maximov, “but if you know the history of this cryptocurrency, then it should be obvious that it has already fallen so deeply several times during its entire existence. Every time, however, it recovered, and this is an amazing characteristic of both the blockchain technology and the cryptocurrency.”
December 14, 2018 at 09:58AM
Forbes – Entrepreneurs