Bitcoin mining started out as a hobby for tech geeks using their home computers in the early years of the virtual currency, but has become more specialized as bitcoin usage expands.
As the bitcoin price has risen, as transaction numbers have grown and as the computers have become so specialised that they can only perform the function of bitcoin mining, a whole industry has emerged.
It can be profitable if firms are able to keep their expenses low. But the costs of running these machines, which cost around $1,800 each, and keeping them cool are fiendishly high.
Streng reckons that, on average, it costs about $200 in electricity, including cooling power, to mine one bitcoin. Equipment, rent, wages and business running costs are on top.
On Saturday, all else being equal, the halving of the reward will double that cost, to $400, leaving a small margin for profit at the current exchange rate of around $640 per bitcoin.
In the same remote region of Iceland as the Genesis mining farm, on a former Cold War U.S. military base lies a bitcoin mining facility belonging to U.S. firm Bitfury. A nearby sub-station means electricity transmission costs are minimal.
In the farm’s two vast buildings, tens of thousands of mining machines whir away, producing a huge amount of heat, so the buildings are open to the cold Icelandic air at either side, save for particle filters to trap dust.
Fans in the ceiling allow hot air to escape, but spin so fast that no rain or snow can enter during the winter. The noise produced by computers and fans is deafening.
It is no coincidence that so many mining companies have chosen to build farms in Iceland—Chinese giant Bitmain also has a huge farm there. The volcanic island’s cheap, bountiful, renewable energy supply, good internet connectivity, and cool temperatures make it an ideal location.
The Icelandic authorities welcome the boost to the economy that the bitcoin miners have brought—Bitmain opened its farm after an approach by the Icelandic embassy in Beijing. Genesis’s Streng says he is such a valued client that the Icelandic energy companies fly him around in helicopters.
Bitfury CEO Valery Vavilov, who estimates electricity makes up between 90 and 95 percent of bitcoin mining costs, says one way his firm stays competitive is by making its own hardware.
He also says the company, founded in 2011, is prepared for the mining reward cut. “We’re prepared – we already went through one halving event in 2012,” he said. “You can forecast this…so you have time to prepare, and if you’re prepared you can live quite easily.”
Vavilov, and other miners, say the prospect of new supply halving has already helped drive bitcoin up over 50 percent this year, which should help ease the pain.