We have established the power of the technology behind Bitcoin and briefly discussed the technology behind it. Now it is important to remind ourselves that the incredible advancements in the network's capacity come in large part from the development of a large-scale infrastructure to support it, namely: the crypto mining industry.
What does the MINING INDUSTRY look like?
While Bitcoin mining was initially carried out at home, in basements and in makeshift "mining farms", we see an increased move to industrial-scale data center mining by investors, mining groups, cloud mining providers and device manufacturers.
It is increasingly difficult to find facilities with the aggressive cooling systems that are required to cool Bitcoin mining hardware, and miners are now competing with large businesses for data center wholesale space and infrastructure.
With multiple Megawatts becoming the norm, purpose-built "ghetto-mining" facilities with complex structures and large engineering and administrative overhead are no longer a good option. More professional solutions are required.
Imitating Google and Facebook's open approach to server hardware and data center architecture (like Google Platform and Open Compute Project) looks like a good idea at first, but proves to be a time consuming process. Both companies spend hundreds of millions to build their data centers, and both build for hardware cycles of several years. On the other hand, miners face much shorter cycles in a more volatile environment with heavy technological turnover.
In the rushed world of Bitcoin mining, a constant cycle of infrastructure upgrades and maintenance, deployment and redeployment, tends to lead to overhead and delays, and the need for a growing number of staff to work 24/7s on a continuous basis. It's not the "wash-rinse-repeat" experience that one would expect from the business of Bitcoin mining, where long down-time to set-up a new cluster leads to higher opportunity costs.
With rising Bitcoin popularity it can be expected that investments into Bitcoin mining remain attractive.
The disruptive nature of blockchain for many existing businesses makes the valuation of its associated technologies highly volatile within the foreseeable future.
Moreover, Bitcoins are destined to be created until 2140 by design. This creates a ‘rush for gold’ environment. Just as Bitcoin is driving innovation, it is also pushing the limits of hardware manufacturing, deployment, cooling, power distribution, infrastructure, connectivity and administration. With higher densities come high and unpredictable costs that vary with every data center operator. Bitcoin mining hardware density has long exceeded common IT hardware and even supercomputer densities.
Renting and building out 10MW sites comes with a complete new set of implications. Lease terms, businesses and budgets involved cannot be described as simple. 5-10 year lease agreements with 75+ pages and prices based on credit checks, are not unusual. In contrast, renting smaller industrial facilities with 1-2 MW or less appears simple, often only requiring industrial space and the electricity company to establish power.
With larger investments being required and a maturing Bitcoin market, it can be expected that more traditional investors will join the arms race for the fastest and largest Bitcoin clusters. New investments from countries like China and Russia are adding to the pressure.
Decreasing lifespan of mining hardware and a steep increase in network difficulty leads to the need for constant upgrades and new investments. Power and thermal design, supply chain, administrative and logistical overhead is taking up significant resources and leads to unnecessary delays. Cooling system parts including heatsinks, fans, water blocks, and support hardware such as enclosures, power supplies and mechanical parts are not an essential part of the mining core, but very often take up a majority of the manufacturers or mine operators resources. This results in a large number of suppliers that must be orchestrated to deliver a working product.
Larger facilities need more time to adapt their cooling and power systems to support the next hardware generation, and will make this orchestration even more difficult. Thus, resulting in an inflexible operation where the operator needs to rely on many third parties to deliver a working and efficiently running operation.
Cloud mining can eliminate this problem for the small-scale miner, but shifts the need to deal with these challenges to the cloud operators. “Traditional” mining methods and brick and mortar data centers seem unable to provide the flexibility that Bitcoin requires during fast hardware cycles.
Looking back to the industry in 2019, Quebec was tapping the bitcoin mining market to improve its annual economic projections.
All told, an operation like the one in Saint-Hyacinthe will harvest an average of 3.5 Bitcoins a day, which in the rodeo-esque world of Bitcoin trading is worth anywhere from about $2,200 (in early 2016) to roughly $75k (this past week). Call it a noisy cog in the wheel of the digital economy, in which computing power mates with copious amounts of electricity to churn out a currency that exists only in an ethereal ledger.
The Saint-Hyacinthe warehouse is one of five such facilities that Bitfarms, one of the largest Bitcoin mining firms in the country, has built since 2017. It’s also a model of how the company plans to make Quebec a global Bitcoin harvesting centre. Bitfarms, which is listed on Israel’s Tel Aviv Stock Exchange, had revenues of US$22 million in the first half of 2018, according to its financial statements. It has plans for another three facilities, for a total of 162.5 megawatts of power consumption. That’s enough to mine hundreds of thousands of dollars’ worth of Bitcoin a day—or to power more than 120,000 homes.
Globally, Bitcoin mining will soon consume nearly as much energy as the entire country of Austria uses in a year, according to a recent report published in the energy research journal Joule. Another study, in Nature Climate Change, claims Bitcoin mining could single-handedly increase global temperatures by two degrees Celsius, the limit set in the Paris Agreement, within 30 years.
The region’s energy regulator, the Régie de l’énergie (LRQ), ordered public utility Hydro-Québec to allocate a 300-megawatt block of electricity to the blockchain industry. The move increased the total power supply granted for mining cryptocurrencies from 368 megawatts to 668 megawatts without touching the underlying costs. LRQ said it had excess electricity to spare for the mining industry operations, which would ensure lower tariffs.
“The creation of a reserved block and the requirement to curtail electricity use during peak hours at Hydro-Québec’s request (up to a maximum of 300 hours a year) will allow us to provide power to these new customers without any negative impacts on our capacity balance,” LRQ said in a press statement. “This will enable us to protect the low rates we offer our customers.”
Electricity rates are one of the most crucial metrics for deciding miners’ profit/loss ratio. A lower tariff ensures that miners validate transactions on a blockchain at a cheaper rate and earn rewards in cryptocurrencies of higher values. LRQ’s decision clarified that it was looking to establish Quebec as the most attractive destination for cryptocurrency miners, a title otherwise held by China, which currently hosts more than 70 percent of the global crypto mining operations.
Reuters reported in its April 9 story that China’s state planner was planning to ban bitcoin mining in the country. The mining community believed that such a decision would lead to two possible scenarios: either the operators will shut down mining facilities or they will move to places with the friendlier crypto regulations.
The worry, telegraphed both by Hydro-Québec and former premier Philippe Couillard, is that these automation-heavy operations won’t provide much in the way of jobs, but will overload even Quebec’s formidable electrical capacity and expose the province’s economy to Bitcoin’s boom-and-bust spikes. “If the market were to tank, most for-profit miners would no longer be able to offset their costs and would likely exit the market,” says Jeremy Clark, a professor and cryptocurrency expert at Concordia University.
Another problem is the gold-rush-like atmosphere surrounding Bitcoin. There is a finite number of Bitcoins, and the algorithms to mine them are designed to become exponentially more complex as more computers try to solve them. Governments worry that Bitcoin miners, much like prospectors of yore, will begin disappearing as harvesting becomes more cash- and energy-intensive—and disappear outright when there are no more Bitcoins to be had.
“Though we have certain energy surpluses, we simply can’t connect every would-be Bitcoin farmer who knocks on our door. If we were sure these demands were going to be here in five or 10 years, we might be able to up capacity. But that certainly isn’t the case.” said Hydro-Québec spokesperson Jonathan Côté.
Bitfarms says it is different than the fly-by-night Bitcoin miners. Instead of just reaping Bitcoins, Bitfarms co-founder and president Pierre-Luc Quimper wants to use the blockchain, Bitcoin’s underlying virtual ledger, as a backbone to host authentication, logistics and payment systems for companies and individuals. The blockchain’s open-source ubiquity and transparency, along with its robust security, provides an ideal arena for financial transactions between companies. In other words, mining Bitcoin is just a lucrative opening act. Bitfarms’s true future, Quimper believes, lies in the blockchain.
Big businesses are on the same wavelength. Two years ago, Walmart and IBM partnered to create a blockchain project that monitors food safety for the Arkansas-based retail giant. Maersk has a blockchain project to monitor shipping. De Beers has done the same to track the sale, importation and authenticity of its diamonds.
Quimper wants to use his company’s computer prowess to mine Bitcoin, using the proceeds to first expand its facilities and then leverage its digital footprint to get into the world of logistics and financial transactions—a far more lucrative market in the long run, he believes. To this end, Bitfarms has partnered with Montreal engineering school École de technologie supérieure on a blockchain research project, with the goal of sussing out practical applications for the technology beyond cryptocurrency.
“Two years ago, when I saw everyone was getting into Bitcoin and flooding the market, I saw the way to make money was through infrastructure,” says Quimper. “I want a company like Air Canada to come to us. We’ll do the ticketing, we’ll do the logistics, we’ll do the algorithms, we’ll do the infrastructure all on blockchain. The real money is in what’s coming.”
Blockchain, not Bitcoin, is the future, says Quimper. “We’re at the beginning of something huge.” In the summer of 2016, as part of a plan to double revenues over the next 15 years, Hydro-Québec launched an initiative to woo more data centres to the province. As charm offensives go, it was all carrot, not much stick. It included access to government assistance programs, a 25-million-square-foot array of available real estate, IT support and rates as low as four cents per kilowatt hour. (By comparison, the lowest off-peak commercial rate in Ontario is 6.5 cents.)
The offer attracted data centres and Bitcoin miners alike. The Chinese firm Bitmain, which also manufacturers the industry-leading Antminer computers used in most of the world’s cryptocurrency mining operations, met with Hydro-Québec in 2018. David Vincent, the utility’s business development director, has said that “three or four” of the world’s biggest blockchain players have sniffed around for a spot in Quebec to plug in.
All told, some 300 companies of varying sizes presented plans to Hydro-Québec, according to Côté. The utility accepted 20 proposals before it introduced a moratorium on further requests in June, and began penalizing mining companies that defied the moratorium—by, for example, pretending to be a greenhouse—by charging them a penalty rate of 15 cents per kilowatt hour.
“It was just too much,” says Côté of the demand. “Even if we just went with the ‘serious’ requests, the ones with proper business plans and whatnot, we’d need to outlay up to 6,000 megawatts. That’s four times the surplus capacity we have available for all industries. We don’t want to make all that capacity available exclusively to the cryptocurrency and blockchain industries.”
Along with electricity, Bitcoin mining requires industrial space with ready access to the electrical grid. Quimper and his partners found all three in places like Saint-Hyacinthe, Cowansville and Sherbrooke—towns and cities whose industrial bases have fallen on hard times. The Saint-Hyacinthe facility is housed in a former cocoa storage warehouse. The Farnham plant, where today some 6,700 mining computers hum along, used to manufacture carpets. Thetford Mines and Baie-Comeau, two other formerly grand industrial towns, have expressed interest in hosting Bitfarms.
Along with cheap rent and proximity to the grid, these towns usually draw an excess of power that would otherwise go unused. “We sat down with the head of Hydro-Québec and picked spots where there were surpluses,” Quimper says. That optimizes costs. It also has the effect—intended or not—of helping them escape the criticism of environmentalists who would argue their mining operations are a burden on the planet.
Another issue is jobs. Bitcoin mining, being a largely automated endeavour, isn’t a huge job creator. According to a KPMG report published in 2018 for Hydro-Québec, a 20 megawatt cryptocurrency mining operation generates 1.2 jobs per megawatt. Bitfarms, for instance, has about 100 employees. By comparison, a dedicated data centre creates five, while an actual bricks-and-mortar mine creates 27. “The economic impacts of Bitcoin mining are much less per unit of energy than of a data centre of comparable size,” reads the report.
Yet the same report is comparatively bullish on the “promising future” of the blockchain’s economic potential as a business platform. The blockchain is essentially an online ledger that records transactions. Anyone can make and record a transaction—so long as there’s consensus from all participants. As such, it can take the place of third parties who would otherwise be trusted with overseeing transactions between individuals and companies.
“Essentially, we’re shifting responsibilities of trust from humans and organizations to technology,” says Kaiwen Zhang, a professor and blockchain expert at Montreal’s École de technologie supérieure.
So, what is next for blockchain? Find out in our next article release in the series! We will cover in more depth the implications of blockchain-based applications and what is getting us excited about the technology.
#feelingbullishagain #blockchain #bitcoin #technology #thefutureisnow #analysis #quicktake #bullish #bitfarms #crypto #quebec
コメント