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Why so many Bitcoin mining companies are banking on artificial intelligence
As AI companies work furiously to improve the intelligence and utility of their products, their demand for cheap, abundant energy has skyrocketed. This gold rush has been extremely profitable for an unlikely beneficiary: Bitcoin miners.
In recent months, major Bitcoin mining companies have begun replacing some of their mining equipment with rigs used to operate and train artificial intelligence systems. These companies believe that AI training could provide a safer and more consistent source of revenue than the volatile cryptocurrency sector. And so far, these changes have been warmly welcomed by investors, leading the market capitalization of 14 major Bitcoin mining companies to rise in value by 22%, or $4 billion, since the beginning of June, JP Morgan reported June 24th.
This transition reflects several current trends: the roaring AI hype cycle; diminishing access to power and a tenuous bitcoin mining landscape following the bitcoin halving.
To know more: What’s the problem with Bitcoin halving?
The boom in artificial intelligence has led to a huge demand for energy
Generative AI models like ChatGPT thrive on the raw computational power of data centers, which process massive data sets to find patterns and improve responses. But computing power is expensive and hasn’t been a worthwhile investment for many data center operators for years. When IREN, a data center and bitcoin mining company, looked into using its space for machine learning four years ago, “there wasn’t enough volume from a commercial perspective for it to make sense,” says Kent Draper, IREN’s chief commercial officer.
But the gargantuan success of ChatGPT that began in late 2022 has changed computing, and other AI companies have rushed to train and run their own models in hopes of surpassing OpenAI’s flagship model. This requires an incredible amount of energy: a ChatGPT query, for example, uses 10 times more energy compared to a standard Google query.
That leaves AI companies scrambling for direct access to cheap energy sources, large plots of land to house warehouses filled with thousands of computers, and resources like water or giant fans to cool their machines. Their voracious activity means it’s becoming increasingly competitive to find sites that meet those criteria, especially in North America. Some jurisdictions have implemented long waiting lists for large data centers to connect to the grid. And once companies get initial approval, building a data center from scratch can take years, cost millions of dollars, and require a lengthy slog through regulation and bureaucracy.
To know more: How AI is fueling the data center boom and energy demand
“If you go back five or 10 years, 80% of data center loads were in six or seven primary markets,” says Nazar Khan, COO and CTO of bitcoin mining company Terawulf. “Those markets are full and a couple of them have already issued moratoriums on building additional data centers. So those data center loads are now looking for new homes.”
Bitcoin miners face headwinds
Some of these homes, it turns out, are inside existing bitcoin miners’ facilities. Bitcoin miners maintain and safeguard the bitcoin network through a complex computational process, and they earn bitcoins for doing so. In the early years of bitcoin, miners found that increasing the size of their computers greatly increased their profits, so they built massive server farms that drew on cheap energy sources and ran day and night.
Large-scale bitcoin mining has always been an immensely profitable business. But it is also subject to the whims of the volatile cryptocurrency market. After the cryptocurrency crash of 2022, precipitated by the risky ventures of entrepreneurs like Sam Bankman-Fritto AND Do Kwon– many miners have gone bankrupt or closed down entirely.
Mining companies that survived the crash reaped profits in 2023 and early 2024. But in April, a new challenge emerged: a technical upgrade to Bitcoin called halvingwhich halved the miners’ rewards. Bitcoin miners hoped that the halving would lead to a dramatic increase in the price of Bitcoin, as has happened in previous cryptocurrency cycles, to offset this decrease in rewards. But Bitcoin’s price has remained more or less unchanged since April, squeezing profits and forcing some miners to look for ways to diversify their business models. AI training is at the top of the list.
“You’ve seen a number of cryptocurrency miners who were struggling and actually completely pivoted, and that may have been out of necessity,” Draper says.
The partnership between AI and the bitcoin mining industry is logical, given the needs of both parties. AI companies need the space, access to cheap energy, and infrastructure that bitcoin miners already have. And bitcoin miners want the stability of AI computation revenue and the huge potential profits that come with the current AI hype cycle.
Some bitcoin mining companies are renting their space to AI clients. In June, Core Scientific, which recently emerged from bankruptcy stemming from the 2022 cryptocurrency crash,announced would house more than 200 megawatts of GPUs (graphics processing units, which power the training and operation of AI) for AI startup CoreWeave. Adam Sullivan, CEO of Core Scientific, told TIME in April that AI companies were aggressively bidding for use of Bitcoin mining facilities: “They’ve started buying up mining sites at prices that are higher than Bitcoin miners are willing to pay,” he said. He added that the number of inquiries from AI companies has been “extraordinarily high on our end, and we’re looking at our best go-to-market here.”
Other bitcoin mining companies are running GPUs on their own. On June 24, bitcoin miner Hut 8 received an investment of 150 million dollars by Coatue Management to build an AI infrastructure. And at some IREN facilities, AI GPUs and ASICs (application-specific integrated circuits that power bitcoin mining) share the same walls. “We see them as complementary to each other—they’re quite different business profiles,” Draper says. “Bitcoin is instant revenue but a little more volatile. AI is customer dependent, but once you have customers, it’s contracted and more stable.”
This increase in demand has repercussions on the climate
With bitcoin miners operating in both industries, a huge amount of energy is used. Data centers use 10 to 50 times the energy of a typical commercial office building, says the U.S. Department of Energy He says. A recent Goldman Sachs report predicts that data centers will use 8% of total U.S. energy by 2030, up from 3% in 2022. This level of electricity growth “hasn’t been seen in a generation,” the report says. Light.
Some bitcoin companies, such as Terawulf, say they are focused on using green energy. But many new data centers in general are powered by fossil fuels. “Some of the smaller renewables don’t meet the demand for consistent, high-quality power that some of the high-speed computing professionals need,” Khan says. “You see utilities proposing to add more large-scale gas-fired power plants, which we haven’t seen in several years. It’s going to take a portfolio of facilities: gas, nuclear, renewables to meet that need.”
All this activity concerns climate activists. “Bitcoin miners are diversifying into traditional data centers and AI, and they’re obviously using different machines, but they’re still using massive amounts of energy,” says Mandy DeRoche, deputy general counsel for Earthjustice’s clean energy program. “This massive increase in energy demand has implications for the grid, the cost of electricity, and the climate.”
Andrew R. Chow’s book on cryptography, Cryptomania, will be published in August and is available for pre-order.