Imagine you are the head of a major utility. Imagine that you have excess production capacity you would love to sell. How could you use that capacity to increase revenue? You could invite Bitcoin miners to set up shop in a newly built facility and do what they do powered by your electricity. Your utility would earn money by selling electricity and charging rent.
If this sounds fanciful to you, take some time to give it a little more thought. Why? Because it is not a dream. It is real. Russia's state-owned Rosatom State Atomic Energy Corporation is now indirectly involved in the Bitcoin mining industry thanks to a brand-new mining farm that opened in late December 2019. The mining farm sits 200 miles northwest of Moscow.
Whether or not industrial scale miners flock to the $4.8 million facility remains to be seen. But if they do, you can bet they will generate significant revenues for Rosatom. That is what this is all about. Rosatom sees the crypto mining sector as quite ripe for long term investment.
Consumers with stable demand
Understand that what we are talking about here is not a previously existing facility that was underutilized. We are talking about a brand-new facility Rosatom built specifically to attract Bitcoin miners. They did it because they have the capacity to generate more electricity but not enough traditional customers to make the excess generation worthwhile.
Bitcoin mining proved to offer the market they were looking for. According to Rosatom's Sergei Nemchenkov, "both data centers and miners are large energy consumers with a stable demand." By building a brand-new facility, Rosatom taps into the best of both.
Mining operations are essentially huge data centers with tremendous computing power. Even when no cryptocurrency mining is involved, data centers consume a ton of energy. So combining both the data center concept and the power needs of Bitcoin mining creates a win-win for Rosatom. Their new facility allows them to diversify their business model, affording the opportunity to sell electricity and rent server space to a whole new market with plenty of long-term potential.
The best part of the whole thing is the stability Nemchenkov mentioned. That stability is rooted both in the necessity of data centers and the reality that cryptocurrency is here to stay. Let us look at both in a little bit more detail, shall we?
The world runs on data centers
Data centers were virtually unheard of - at least among the general public - 50 years ago. That is no longer the case. The term 'data center' has become a household term among younger generations who now see it as one of the primary drivers of their world. Suffice it to say that the modern world runs on data centers - literally.
Just stop and think about how much of your life takes place online. If you are like most people, you use the internet to keep in touch with friends and family. You use it to pay your bills, plan your travel, check your bank balance, get the news, and on and on. But that is not all. Every device you own with internet connectivity is part of the internet of things (IoT), a vast network of interconnectivity that exists on servers hosted by the world's data centers.
How many things in our lives would be interrupted if the internet went down? If we were honest with ourselves, we would have to admit that modern life would grind to a halt without everything that the internet provides. We would not know what to do with ourselves.
All of our data centers doing all the work they do consume approximately 2% of all electricity produced worldwide. Some estimates suggest it could be as high as 8% just 10 years from now. That is a lot of electricity. Why wouldn't a utility like Rosatom want to diversify into the data center arena? Not doing so would mean giving up a tremendous amount of revenue.
Bitcoin Mining is power-hungry
Standard data center operations consume a ton of electricity. Now let us talk about Bitcoin mining. It is a power-hungry enterprise thanks to the way blockchain works. Please bear with us if you are already familiar with the inner workings of blockchain technology.
Blockchain takes its name from the actual structure of the computer code within. Imagine viewing computer code on a screen. Let's say the code applies to a mobile app. You can scroll up and down the screen at the various commands within that code.
Now, imagine the code contains more than just what is necessary to run the app. Imagine it also contains a record of all of the activity produced by that app over a year's time. You would expect to have to scroll through hundreds of screens to see all of it, right? Now let us apply that to blockchain.
Every time a Bitcoin transaction is completed, it has to be verified and added to the official record. The record in question is presented as a distributed ledger. Think of it like a checkbook ledger on steroids. Every Bitcoin transaction is like a single entry in that checkbook ledger.
Blockchain is set up so that groups of transactions are added to the ledger in blocks of data. Blocks have a limited size so, when one block reaches the limit, a new block has to be created. Each completed block is linked to the previous block to create a chain. In the 10 years since Bitcoin's first release, the chain has continued to get longer with every transaction.
Processing blocks requires computing power
The next thing to understand is that one of the things that keeps Bitcoin secure is its encryption. Making maximum use of encryption is achieved partially by forcing every block in Bitcoin's blockchain to be consulted as new blocks are built. That means coin miners cannot simply process one block in isolation. Processing a single block involves going through every other block in the chain to establish legitimacy.
As you can imagine, the amount of work computers do to process blocks grows exponentially with the chain. The more work computers have to do, the more power they consume. After a decade of mining, the amount of work necessary to process a single block has become astronomical.
The most successful mining operations now utilize hundreds of servers that all have to be powered by electricity. Russia's new mining farm has a capacity of 30 MW. It turns out that 30 MW is small potatoes compared to two other mining facilities being built in Texas. One of those facilities will eventually have a capacity of 300 MW while the other will settle in at 1 GW.
Keep in mind that Bitcoin is not the only cryptocurrency in the world. There are literally thousands of them. And guess what? Nearly every one of them requires mining of one form or another. We talk about Bitcoin because most people are familiar with it. But there are miners actively engaged in mining Bitcoin Cash, Litecoin, Ethereum, Monero, XRP, Dash, and on and on.
Too big to fail
When you step back and analyze the sheer scale of cryptocurrency mining in 2020 it is easy to walk away with the impression that crypto is now too big to fail. In that sense, cryptocurrency is a lot like its fiat counterparts. Fiat is so pervasive throughout the world that its failure is nearly impossible. Even if one particular fiat were to fail, there would be others ready and waiting to pick up the slack. Just ask Venezuela about that.
Cryptocurrency started out as a hobby project a little more than a decade ago. It has since become a viable financial force with its own investors, exchanges, payment processors, etc. It also has its own rules built on decentralization and equal access.
Lesser-known cryptocurrencies may come and go over time. That is evident by the thousands of cryptocurrencies that you and I have never heard of. And of course, some of those crypto projects were never intended to be anything more than hobbies or educational research. But the big boys - like Bitcoin and Litecoin - are here to stay.
Rosatom knows full well what it is getting into. They did not invest millions in a brand-new mining farm on a hope and a prayer. They spent the money because they know that successful mining operations need two things that Rosatom can easily provide: server space and electricity.
It would not be surprising to see the Rosatom facility fill up rather quickly. Even though their cost for electricity is not necessarily the cheapest in the world, Rosatom does have plenty of capacity and the ability to produce more. Their climate is also more conducive to data center operations than some others, making Russian soil attractive for Bitcoin mining.
Perhaps Rosatom will do so well with their new facility that they end up building several more mining farms. They have the industrial infrastructure to make it all work. They apparently have the will as well. Bitcoin mining could turn out to be the best thing that happened to the state-owned utility in a long time.