The Challenges of Site Selection for Cryptocurrency Data Centers in North America

Cryptocurrency site selection in North America has been a hot topic as digital currencies such as bitcoin have seen their prices surge by thousands of dollars per coin since the start of 2017. As bitcoin has emerged from the underground world of geeks and criminal elements to become a mainstream investment, its continued adoption by payment services and the global community has helped it proliferate. A 2017 study by the University of Cambridge notes the change: “Cryptocurrencies such as bitcoin have been seen by some as merely a passing fad or insignificant, but that view is increasingly at odds with the data we are observing. As of April 2017, the combined market value of all cryptocurrencies is $27 billion, which represents a level of value creation on the order of Silicon Valley success stories like AirBnB.”

Many data center and colocation operators consider cryptocurrency mining as a subset of data center site selection. These cryptocurrency operations require huge amounts of electricity at the same (or higher) power density as a highly secure environment such as a colocation operation. However, they don’t require substantial redundant infrastructure such as N+1 designs, extra generators or robust connectivity. [[Is this correct ? See original version off to the side.]] 

What’s influencing North American demand for crypto data centers 

Current prices for bitcoin and other cryptocurrencies such as Ethereum and Ripple have made the mining of these digital currencies potentially very profitable. Many new global players are jumping in the market to take advantage of this price hike. The price jump has been widely reported and dramatic, with Bitcoin prices trading in June at $6,000 to $7,000.  

Bitcoin prices were under $250 per coin in early 2015 and stayed in the range of $250-$500 through the end of second quarter of 2016, according to CoinDesk. By the end of 2016 Bitcoin was trading closer to $1,000 per coin. Significant upward swings began in 2017 when Bitcoin traded at more than $17,000 before settling into its current range.

Last year’s dramatic upswing in prices was driven by China’s hard line against cryptocurrency mining exchanges and operations. According to the Cambridge study, about 60% of all cryptocurrency mining was occurring in China where land, facilities and power are very cheap. But in 2017, China’s government deemed such operations illegal and forced all mainland-based cryptocurrency exchanges to close.

Many of these Chinese digital currency operators, along with dozens of other global players, are now scouring the globe, and their site selection matrix requires inexpensive power, operational efficiency and government stability. The massive power required to power the specialized IT mining equipment for a major operation can exceed 100 megawatts (MWs) — similar to what a large 1 million-square-foot Google or Facebook data center may require. 

The cost of power cost presents an additional hurdle, where the mining operator needs cheap power at least less than $0.06/kilowatt hour and preferably less than $0.04/kwh on a fully loaded basis. 

Operational efficiency is also an important consideration. The local climate can be an important draw as the digital currency operator can take advantage of “free cooling” during colder months as mining machines put off a tremendous amount of heat that must be addressed.

North America has been a logical market to consider as it has the potential to fulfill these requirements. Taking into account all of these imperatives on the cryptocurrency site selection checklist significantly narrows the field of potential candidates, yet several small regional areas are fulfilling many of the requirements on the checklist.

Recent North American cryptocurrency mining headwinds

The digital currency mining operators are finding that securing new sites can be a challenge for many reasons. The fastest way for a bitcoin mining company to get operational could be in a data center colocation facility, which has the power, space and cooling ready to go. However, the price per kilowatt charged by a colocation operator is typically too high due to the redundancies built into the colocation operator’s facilities.

Local utilities known for cheap power and cool climates have been inundated with massive power requests. Many utilities are simply not willing to dedicate their infrastructure toward these digital currency mining operations and continue to be skeptical of the long-term viability. The government of Quebec – a highly desirable region given its inexpensive hydroelectric power source – announced in May 2018 that they are “not interested” in any bitcoin mining. The Eastern Washington region, with its five hydroelectric dams, is another popular region but several counties in the region have placed a moratorium for any new mining operations.

Nevertheless, while Eastern Washington and Quebec are currently closed for cryto mining, there are still some public utilities that are embracing the cryptocurrency demand that can deliver huge power loads below $0.05/kwh price points.

Conclusions

Blockchain has enjoyed a significant amount of analyst and press attention over the last few years as this emerging technology holds significant potential from programmable cryptocurrencies to property deeds management to provenance tracking to voting records. Cryptocurrencies were the first application of blockchain technology.

But the fact remains that bitcoin takes an astonishing amount of power. By one estimate, the power now needed to mine a single bitcoin would run the average household for 10 days. So these mining operators face many challenges to securing new sites although we believe cryptocurrencies are here to stay.