Bans on cryptocurrencies in other countries have prompted a surge in crypto- and Bitcoin-related buildings in the United States, adding to the already burgeoning data center sector (1), according to industry sources.
“We are seeing a trend of more Bitcoin mining coming to the United States since it has been banned in other countries,” said Sean Mulligan, director of mission-critical at PCL Construction in Edmonton, Alberta (2). “It’s not going away anytime soon. There are far too many individuals who have put too much capital in it only to see it vanish.”
In January, Russia’s central bank suggested a ban on cryptocurrency use and mining on Russian soil (3), while China banned cryptocurrencies last year (4).
According to the Financial Times (5), Sweden is leading a European Union ban on cryptocurrency mining. It pushed up the development of Bitcoin-focused mining data center projects in the United States, which have gotten the lion’s share of investor attention in the cryptocurrency space.
Meanwhile, India, which could have taken this opportunity for digital currency enthusiasts, continues to struggle with a lack of infrastructure and uncertain policies.
In other words, although the cryptocurrency ecosystem is booming, when it comes to mining, India continues to lag (6).
“As a crypto-market, India has not yet advanced the way other nations because of the regulatory uncertainties. It is still at a nascent stage,” said Nischal Shetty, co-founder & CEO of India’s top cryptocurrency exchange WazirX (7).
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Crypto-Mining, Data Center Surge in the United States
The rise in Bitcoin mining centers is in line with the data center industry’s overall trend.
Since 2019, the $1.6 trillion expansion of e-commerce sales has fueled a surge in data center construction (8). In 2021, the globe generated and stored approximately 79 zettabytes of data, consuming 478 terawatt-hours of energy (9, 10).
According to CBRE, a Dallas-based commercial real estate services and investment firm, around 527.6 megawatts of data centers were under construction in 2021, a 42% increase year over year.
Bitcoin mining operations, according to Mulligan, can be classified as data centers, but they are not the same as data centers that operate Amazon Web Services or Microsoft. He asserts that a Bitcoin mining facility would not have the same level of security or the same number of generators or batteries as a typical data center.
A typical large wholesale data center might cost anywhere from 7 million USD to 10 million USD per megawatt to build out, according to Mikey Jaillet, an associate at CBRE’s data center business. He stressed that the cost of bitcoin per kilowatt ranges from 250k USD to 500k USD (11).
“It is a very different infrastructure design,” Jaillet explained, “and the mission essential uptime aspect is nowhere near as crucial. They can build out for a lot less money.”
According to Ryan Ferguson, vice president and project executive of mission-critical at McCarthy Building Cos. in St. Louis, a purpose-built bitcoin mining data center is a simpler project from a design and construction aspect (12). He agreed that limiting downtime is less important for a Bitcoin mining facility. Thus, backup power systems aren’t as important.
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Crypto Miners are Flocking to the US
In the past, China accounted for over 70% of the Bitcoin hashrate worldwide. However, it issued a crypto ban, driving miners into the US, Russia, and Kazakhstan (13).
Since then, Russia has also imposed a similar ban (14). Investors invested a record amount of money into crypto as an inflation hedge as global inflation increased by 4.3% in 2021. While Russia and other countries respond to the out-of-control inflation by attempting to stem the flow of funds into cryptocurrency, regulations are expected to tighten.
Elvira Nabiullina, the head of Russia’s central bank, advocated restricting crypto miners and transactions but not ownership. Despite industry insiders’ claims to the contrary, Russia is the world’s third-largest creator of cryptocurrency, accounting for around 11% of the global hashrate. Russia’s cryptocurrency owners are also responsible for around 5 billion USD in annual transactions.
Russia plans to run a test of its digital rouble to combat crypto-instability. Governments will continue these regulatory efforts when inflation is high to maintain control over traditional monetary policy.
Meanwhile, Kazakhstan, the second-largest Bitcoin producer with over 18% of hashrate, also repels miners. It is largely because of its high electricity prices, inconsistent internet connection amidst political turmoil, and rising fuel prices (15).
Because of their excessive electricity use, the European Union is considering banning crypto miners. Bitcoin consumes 0.6 percent of the world’s electricity. Notably, Kazakhstan, Russia, and the European Union collectively account for up to 40% of the worldwide hashrate.
If miners are forced out of major hubs like Russia and Kazakhstan, the United States might control more than half of the world’s data centers in five years, which would be worth more than 34 billion USD by 2025 (16).
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The US Government is Still Debating on Data Center Clamp Down
Of course, not everyone is enthralled with crypto construction in the US.
Senator Elizabeth Warren voiced alarm over Bitcoin mining centers’ electricity use and greenhouse gas emissions (17).
As per a report published Politico (18), Democrats in Congress are debating whether to investigate the Bitcoin industry’s effects on the environment and energy use in the United States (Suggested Reading: Bitcoin’s Environmental Concerns: Tesla Backs Out, Is There Still Hope For Cryptocurrency in India?).
According to Jaillet, Texas leads the United States as a preferred landing location for these projects because of its low power costs (Texas alone is on track to construct 1.8 billion USD worth of data centers by 2023).
In an interview with Bloomberg (19), Lee Bratcher, head of the Texas Blockchain Council (20), said the Lone Star State is on schedule to construct nearly 5,000 megawatts of cryptocurrency mining data centers by 2023.
It is around five times greater than the current rate, said Jaillet. The data from Cambridge Center for Alternative Finance (21) suggests that the United States already has more crypto mining capacity than any other country.
According to Ferguson, low-cost power, renewable energy, and fiber availability make Georgia and Wyoming desirable crypto construction destinations.
In short, although certain US lawmakers have made crypto mining a target because of its high energy costs (22), these trends show no indications of slowing down.
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India Too Should Seize this Massive Opportunity
In the past few years, there has been a surge in cryptocurrency mining in India. Companies like Easyfi Network in the country offer mining facilities and blockchain development.
WazirX’s Shetty believes that there may be other areas of small-scale mining operations pan India. There is, however, no formal information on the subject (23).
Mining in India, like most things related to cryptocurrencies in India, can be troublesome. Because there are no clear restrictions for cryptocurrencies in India, any investment in the field is risky.
Cryptocurrencies have a love-hate relationship with the Indian government and central bank. They have openly criticized the asset class in the past and have even temporarily stopped banks from supporting such transactions. Still, they have also hinted at developing their digital token (Suggested Reading: Can India’s CBDC Vision Prevent Bitcoin’s Ascend?).
For instance, India banned the import of ASCI machines intended expressly for crypto mining in 2017, forcing AB Nexus, a Bengaluru-based blockchain technology startup, to stop mining bitcoin and ethereum (24).
In other words, people investing in the Indian crypto market are always concerned about a government crackdown.
Besides regulatory uncertainties, as discussed, India also lacks the infrastructure needed to build a robust crypto mining industry.
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Challenges of Crypto Mining in India
Because bitcoin mining is an energy-intensive exercise, establishing blockchain pools in India could be time-consuming and costly. In India, the average annual cost of power is between 5.20-8.20 INR (7-11 cents) per kilowatt-hour, compared to 4-5 cents/kWh in Kazakhstan (25).
According to the Cambridge Bitcoin Electricity Consumption Index, cryptocurrency mining requires roughly 67.29 terawatt-hours per year. For the first time, on 10th May 2021, the global electricity consumption for bitcoin mining reached 141.28 terawatt-hours (26).
It is also worth noting that besides the US, Kazakhstan, Russia, and China, countries with top Bitcoin mining hashrate include Canada, Venezuela, Malaysia, Ireland, Switzerland, Germany, and Iran, and India is nowhere close.
While Bitcoin mining is profitable for some, many things need consideration. It is because Bitcoin is getting close to its maximum supply, meaning the algorithm now needs more and more processing power.
“Because of the high cost of electricity in India, mining may not be economical,” said WazirX’s Shetty. “It may be cost-effective to invest in renewable energy sources such as solar panels.”
He believes that the government can incentivize miners through subsidies to build a robust crypto ecosystem in India.