The value of bitcoin may have stumbled in recent months, but in Iceland it has so far only known only one direction: upward. The stunning success of cryptocurrencies around the globe has had a more unexpected repercussion on this island of 340,000: It could soon result in an energy shortage in the middle of the Atlantic Ocean.
As Iceland has become one of the world’s prime locations for energy-hungry cryptocurrency servers — something analysts describe as a 21st century gold-rush equivalent — the industry’s electricity demands have skyrocketed, too.
For the first time, they now exceed Icelanders’ own private energy consumption and energy producers fear that they won’t be able to keep up with rising demands, if Iceland continues to attract new companies bidding on the success of cryptocurrencies.
Companies have flooded Iceland with requests to open new data centres to “mine” cryptocurrencies in recent months, even as concerns mount that the country may have to slow down investments amid an increasingly stretched electricity generation capacity.
If all these projects are realized, we won't have enough energy for it
“There was a lot of talk about data centers in Iceland about five years ago, but it was a slow start,” Johann Snorri Sigurbergsson, a spokesman for Icelandic energy producer HS Orka, told The Washington Post.
“But six months ago, interest suddenly began to spike. And over the last three months, we have received about one call per day from foreign companies interested in setting up projects here.”
“If all these projects are realized, we won’t have enough energy for it,” Sigurbergsson was quoted as saying.
The Associated Press first reported the surge in demand.
Every cryptocurrency in the world relies on a so-called blockchain platform, which is needed to trade with digital currencies.
Tracking and verifying a transaction on such a platform is like solving a puzzle because networks are often decentralized and there is no single authority in charge of monitoring payments. As a result, transaction involves an immense number of mathematical calculations, which in turn occupies vast computer server capacity — which requires a lot of electricity.
The economics of bitcoin mining mean that most miners need access to reliable and very cheap power on the order of two or three cents per kilowatt hour
The bitcoin rush may have come as a surprise to locals in sleepy Icelandic towns that are suddenly bustling with cryptocurrency technicians, but there’s a simple explanation to scientists.
“The economics of bitcoin mining mean that most miners need access to reliable and very cheap power on the order of two or three cents per kilowatt hour. As a result, a lot are located near sources of hydro power, where it’s cheap,” Sam Hartnett, an associate at the nonprofit energy research and consulting group Rocky Mountain Institute, told The Washington Post in December.
Located in the middle of the Atlantic Oceans and famously known for its hot springs and mighty rivers, Iceland produces about 80 per cent of its energy in hydroelectric power stations, compared to about six per cent in the United States.
That and the cold climate make it a perfect location for new data-mining centres filled with servers in danger of overheating.
While some are already sensing a possible new revenue source for the country that is so far mostly known abroad as a tourist haven and low-budget airline hub, others are more concerned by a phenomenon that has so far mostly alarmed analysts due to its possible financial unsustainability.
Some predictions have concluded that cryptocurrency computer operations may account for “all of the world’s energy by 2020,” or may already account for the equivalent of Denmark’s energy needs.
But many other analysts say the real figure is likely smaller, and several experts recently told The Washington Post that bitcoin — currently the world’s biggest cryptocurrency — used no more than 0.14 per cent of the world’s generated electricity, as of last December.
Even though global consumption may not be as significant as some have claimed, it still presents a worrisome drain to a tiny country like Iceland where consumption suddenly began to spike with almost no warning — and continues to grow fast.
Some networks are considering or have already pushed through changes to their protocols, designed to reduce energy use.
But implementing such changes for the leading currency, bitcoin, won’t be as easy because it is inherently decentralized. The companies that provide the vast amounts of computing power needed for these transactions earn a small share, comparable to a processing fee.
They are the source of the Icelandic bitcoin miners’ income — a revenue source many Icelanders are still not quite sure what to make of, especially if the lights start flickering.