Canada has always been defined by the vastness of its territory and its wealth of natural resources, especially in comparison to the small population. But today, the nation is in the first stages of a scramble for a new kind of digital resource. Drawn by Canada’s low electricity prices, cryptocurrency miners are rushing to set up shop.
While decentralized financial tokens like Bitcoin, Ethereum, Litecoin are abstract and intangible, they are also extremely power-intensive. Rising Bitcoin prices have led to a rapid scaling of the equipment and infrastructure which maintains the network, prompting criticism that the industry poses a serious climate threat.
The power sources behind Canada’s cheap electricity vary from province to province, with some areas running almost entirely on renewable energy while other parts draw heavily on fossil fuels. As virtual currencies make inroads across the country, we have to ask who is paying the environmental cost, and how to keep it to a minimum.
Math money
The Bitcoin network is global web of computers that together keep a record of who holds what amount of the virtual currency. Instead of a centralized authority like a bank being trusted to tell us how much everybody owns, the computers in the Bitcoin network collectively keep account balances up to date by maintaining a public record of who is sending what to whom.
In order that nobody can, say, send themselves a million dollars out of thin air, new transactions are monitored to make sure that they agree with previous account balances, and then written into the permanent record—the blockchain—by solving an equation that requires a massive amount of computer processing power. If your computer finds the magic number that locks a group of new transactions into the blockchain, then you win a bitcoin reward: at time of this writing just over $100,000, paid out every ten minutes. (This process is known as “mining.”)
Because finding the number involves a random element, the person with the most computers doesn’t always win; but over time, the more processing power you have, the more money you’ll make on average. That means the logical thing to do is to re-invest your earnings in buying more computers, and bigger and faster ones, in a kind of technological arms race. Which is how, in a nutshell, we’ve got to the point that the Bitcoin network consumes as much energy as entire countries, sparking a global race to find the cheapest electricity providers that can meet these huge power demands.
Exit the dragon
In past years, Chinese companies had more or less cornered the cryptocurrency mining market. Taking advantage of cheap power—sometimes as little as 2 cents per kWh, while the U.S. industrial average was 6.6 cents as of 2017—these mining operations have been able to operate at a scale and cost margin that has been difficult to challenge, resulting in Chinese miners accounting for two thirds of the Bitcoin network’s processing power.
But times are changing. Since the end of last year, the Chinese central government has instructed provincial authorities to ‘encourage an orderly exit’ from cryptocurrency mining as part of a larger clampdown on cryptocurrencies in the country, driven by concerns over high power consumption and risk of financial crimes.
This has sent companies in search of greener pastures, like Quebec. Thanks to a network of dams and hydroelectric power plants, the eastern Canadian province is able to tap nature’s own power to generate electricity which is sold at some of the lowest rates in North America, with minimal carbon emissions to boot—a stark contrast to China’s heavily coal dependent Bitcoin industry.
“I would say there has really been a gold rush for Quebec’s clean energy,” Louis-Olivier Batty, a spokesperson for Hydro-Québec, told Earther. “We’ve received, in the past few months, hundreds of requests from Bitcoin companies who would like to benefit from the clean energy we have...If we accepted all the requests we’ve received it would be for more than 10,000 Megawatts, which is a quarter of all the installed capacity we currently have in Quebec.”
The difficulty now, Batty says, is to create a framework for sorting and evaluating which requests should be accepted. It’s a tricky position for Hydro-Québec: On the one hand, taking on as much new business as possible benefits Quebec residents, since as a public utility, profits from the company are returned to the government and thus subsidize public services. On the other, fully accommodating demand would mean building new power stations, which would increase consumer energy bills in the short term—something Batty says the company is strongly against.
A task force within Hydro-Québec is currently deciding which companies to supply with power and which to refuse. Potential new customers will be waiting eagerly on this decision, but in the meantime one company is ahead of the curve: Bitfarms, which has been running cryptocurrency mining operations in Quebec since 2017, already owns six facilities in the province, and generates millions of dollars in revenue each month.
Oil country
The fact that Quebec’s energy is both cheap and clean is a big win for companies operating here, which are in theory able to compete in an energy-intensive industry without creating an outsized carbon footprint.
“In our opinion [clean] energy is very important not just for mining, but because we want to create a hub for blockchain technology in Quebec,” Bahador Zabihiyan, the director of public relations Bitfarms, told Earther. Earlier this month the company was mentioned positively by the Premier of Quebec for its engagement with local communities.
But not all of Canada’s energy comes from renewable resources. At the other end of the spectrum, the province of Alberta generates most of its power from coal and natural gas—and is now home to a company with ambitions to become Canada’s biggest cryptocurrency miner.
Hut8, a Toronto-based company which operates as the Canadian proxy for larger cryptocurrency mining corporation Bitfury, currently operates one datacenter in the Albertan town of Drumheller, and has also just inked a $100 million deal with another city in the province, Medicine Hat.
“Because electricity is our highest cost, we become energy hunters,” CEO Sean Clark told the National Post in January. “We find the cheapest sources of energy, put a container down, plug it in and start mining.”
The province of Alberta generates the vast majority of its power from coal and natural gas. (The latter is somewhat cleaner than coal, but still emits 50-60 percent of the amount of CO2, according to the Union of Concerned Scientists). At this point, it’s difficult to make exact calculations about the environmental impact of Hut8's activity, but suffice to say that siting any energy-intensive industry in a region that relies on fossil fuels should be met with serious criticism from environmentalists, especially in light of the company’s stated aim to build the “largest bitcoin mining operation in North America.” (Hut8 did not respond to a request for comment after being reached multiple times by phone and email).
Like extractive mining, the process of cryptocurrency mining can transform cities and towns, not always for the better. High power consumption is not inherently bad, but Canadian citizens and regulators should look carefully at the greater cost of allowing these new, energy-hungry startups to draw their power from environmentally damaging sources.
Corin Faife is a freelancer covering transport, infrastructure, technology, and more. Follow him @corintxt
Correction: An earlier version of this article referenced the Prime Minister of Quebec, when it should have been referring to the Premier of Quebec. The text has been corrected.