The Nordic region is losing its edge in green bitcoin mining as the industry is increasingly scrutinized for its carbon emissions and everyone from Elon Musk to mom and pop investors pile up.
Iceland, Sweden and Norway were popular mining locations because of the abundance of geothermal, hydro and wind power. China, where most of the coins are mined, is mainly dependent on coal. This Nordic electricity surplus is expected to dwindle as aluminum smelters, oil rigs and steelmakers thirst for renewable energy.
“There could be very little excess energy in 2021 and 2022,” said Hordur Arnarson, CEO of Landsvirkjun, Iceland’s national utility. “Because of the climate issue, we are seeing a lot of very interesting segments that are growing rapidly and some of them require electricity.”
The coins are mined by computers that process complex algorithms in halls the size of airport hangars. This makes electricity one of the most important inputs and uses as much electricity as thousands of households. And it keeps growing. Bitcoin mining now uses 66 times more electricity than in 2015, and carbon emissions from the process could face increasing regulation, Citigroup Inc. said in a recently released report.
According to a study published in Nature Communications, emissions from coin mining in China are expected to peak in 2024, releasing as much carbon dioxide into the atmosphere as all of Italy.
Iceland was the pioneer in green mining. Up to four years ago it was up to 8% of global Bitcoin production, said the country’s blockchain foundation; today it is less than 2%. The University of Cambridge further reduced the contribution by 0.35% in April 2020. This is the latest available data. For comparison: China accounted for 65% at the time.
Growing concerns over China’s cryptocurrency impact are driving demand for mining locations elsewhere. Kevin O’Leary, chairman of O’Leary Funds Management LP, told CNBC earlier this month that two types of bitcoin will emerge, “blood coins” from China and “clean coins” that are mined using sustainable hydropower, with provenance of origin and that he would choose the green one.
Iceland’s biggest consumers of electricity are the huge huts that were built decades ago to benefit from cheap electricity. With aluminum prices soaring, plants from Rio Tinto Plc and others will use more electricity after a slowdown in 2020, according to Landsvirkjun.
It is unclear exactly how many cryptocurrency miners are operating in the region. Hive Blockchain Technologies Ltd. from Canada has expanded its mining operations domestically as well as in Iceland and Sweden this year. Genesis Mining Ltd., listed on the Hong Kong Stock Exchange. has offices in Sweden and Iceland. Bitfury Holding BV was also active on the volcanic island. None of them answered questions about the future role of the region.
Gisli Kr. Katrinarson, chief commercial officer at AtNorth, Iceland’s largest data center operator and home to some miners, says he doesn’t see a power shortage.
When Bitcoin first sailed above $ 60,000 this month, Daniel Fannar Jonsson, CEO of new mining company GreenBlocks, is optimistic. Quoting Iceland’s stellar history in the industry, he says that carbon-free electricity is still a big plus.
In other parts of the Nordic region, new green and energy-intensive industries will produce everything from carbon-free steel to hydrogen and ammonia. Their selling point is that they boost the economy by creating thousands of jobs while helping to reduce emissions. Bitcoin mining, on the other hand, offers society little in return.
Bitcoin mining is problematic because “it leads to an almost infinite increase in energy demand,” said Espen Barth Eide, the leading energy legislator for the Norwegian Labor Party. “It will displace other, far more productive industries.”
According to grid manager Statnett SF, the Norwegian electrification program will increase electricity demand by 30% by 2040. Known as Europe’s green battery due to its enormous hydropower resources, the country is ready to send more electricity to the continent via new cables, which will limit availability for new large-scale users.
According to industry advisor Volue Insights AS, the Nordic electricity surplus excluding Iceland is expected to shrink by 90% from 2023 by the end of the decade. The new demand will mainly be for hydrogen production and data centers.
While Iceland built a separate hydropower plant in 2008 to enable a new smelter, that courtesy does not apply to Bitcoin miners, according to Arnarson, the utility company.
“Nobody would build a power plant for Bitcoin,” he said. “There’s a lot of uncertainty about future developments.”
Cryptocurrencies have emerged as an alternative investment over the past decade, but have been known to blow investors away. A spectacular crash three years ago made it freezing. It was scorned by billionaire investors like Warren Buffett and loved by business people like Musk.
It’s a tear again after doubling in value this year.
Goldman Sachs Group Inc. and Morgan Stanley plan to offer their customers access to crypto investments. Tesla Inc. announced a $ 1.5 billion investment in Bitcoin earlier this year and is now accepting it as payment for its electric cars.
Back in Iceland, Johann Snorri Sigurbergsson, business development manager at HS Orka power plant, says the nation is closer to an energy shortage than an overload. His company is busy building capacity on the Reykanes peninsula in the southwest.
While he’s open to gaining more customers at some point, the price should be “pretty high” right now.
“We’d have to buy some power from the market in order to serve it,” he said. “But that kind of business case isn’t the price the miners are looking for.”