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From Gold Rush to Arms Race: Why Bitcoin Mining is Heading North

(@mpmcsweeney) | Published on August 22, 2014 at 21:25 GMT

The face of industrial-scale bitcoin mining is changing with every passing month, having already pushed far beyond the bounds once envisioned, perhaps, by the hobby miners of four years ago.

The landscape is much different now. Many large-scale mines are shifting from warehouse set-ups to data centers better equipped to deliver the massive power and cooling resources necessary to compete in a steadily accelerating industry.

CoinDesk spoke with executives from some of the biggest hardware companies in the mining space. During those discussions a picture emerged of an industry undergoing a rapid level of investment, development, and most importantly, competition.

KnCMiner director of marketing and public relations Nanok Bie put it simply:

“It’s an arms race. Absolutely.”

As both he and Spondoolies Tech CEO Guy Corem explained to CoinDesk, the next stage of industrial-scale bitcoin mining will focus on squeezing every ounce of operational efficiency out of both the hardware itself and the facilities that house it.

The search for these capabilities has led bitcoin companies to the Arctic Circle, focusing on data center space in Norway, Iceland and Sweden in particular, where sub-zero temperatures make an ideal environment for mining.

Arctic push

As Bie explained, the industrialization of bitcoin mining has led companies to seek out the lowest resource costs possible. While many areas of the globe offer competitive costs and infrastructure, the Arctic is unique because the nations there actively seek business from bitcoin companies.

Bie told CoinDesk:

“It has to do a lot with access to cheap cooling and cheap energy. The energy costs and the energy taxes are interesting in [the Arctic], and there are several countries in the region that are well positioned. These countries are also very keen on getting this business. In general, the Arctic Circle will be the center of these developments going forward.”

These cultural and political opportunities – as well as the promise of low-cost bitcoin mining – are bringing companies to the region. At the same time, bitcoin mining in the region isn’t exactly new.

A report by The New York Times from December 2013 shined the spotlight on an Iceland-based mine. Based on conversations with those in the mining space, that company’s early approach could become the standard in the months and years ahead.

The issue of centralization

The push for Arctic-based facilities capable of delivering greater hash rates raises a key issue in the bitcoin network: centralization. Many in the community feel that putting control of the transaction process into the hands of a powerful few is dangerous, and for Corem, represents a problem not only facing the bitcoin community but the hardware companies themselves.

He explained:

“We think that too much centralization and too much industrial mining is not a good thing. Too much centralization is hurtful for bitcoin and for the ecosystem.”

Corem continued by saying that the market seems to be moving in favor of centralization, but argued that other players in the space, including Spondoolies, are actively moving to keep the network as decentralized as possible. This can be seen in efforts like MegaBigPower’s franchisee program, which begun explicitly as a means of expanding the network’s capacity in a decentralized manner.

Ultimately, it may be too early to say in which direction the industry will shift. While larger companies in the space, like KnCMiner, favor large investments in centralized operations, other mining firms like Spondoolies are pushing for broader decentralization. The next year, no doubt, will show how these opposing forces will interact with one another as the industry develops further.

Image via Shutterstock

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