Is bitcoin a long-term investment? Inside a mine in Norway that also dries wood

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Noise insulation at Kryptovault’s warehouse in Hønefoss

A 5,000 square metre warehouse on the outskirts of Hnefoss, a little hamlet 40 miles west of Oslo, is home to Norway’s largest bitcoin mining operation, a line of giant blue skips filled with chopped wood.

Through bendy corrugated pipes snaking out from the warehouse, hot air is pushed into the 12 skips. Despite the snow, the logs will need to be dried off for a few days before being taken away for sale by a local lumberjack who is appreciative for the free service.

The wood is being warmed by some of the so-called waste heat released by the warehouse’s thousands of stacked-high computer systems, often known as miners. It’s one of two such sites owned by Kryptovault, a Norwegian firm. By the end of the year, the business anticipates its mining to represent for slightly under 1% of the worldwide bitcoin network’s computational and processing capacity.

The process of generating cryptocurrencies by solving complicated computational arithmetic puzzles and validating transactions, known as bitcoin mining, is notoriously energy-intensive. According to the most recent estimate from Cambridge University’s bitcoin electricity consumption index, the sector consumes more energy per year than numerous countries, including Argentina, Pakistan, and Poland.

Heat is an unavoidable consequence of the manufacturing process. Despite the fact that noise from ventilation fans is so loud that the firm had to spend £1.5 million on soundproofing after complaints from neighbours, the Hnefoss warehouse can reach temperatures of 55 degrees.

Noise insulation at Kryptovault’s warehouse in Hønefoss
Noise insulation at Kryptovault’s warehouse in Hønefoss. Photograph: Elin Høyland/The Guardian

For many, this may be further evidence of the unsustainable nature of a business that Robert McCauley, a senior fellow at Boston University’s global development policy centre, has described as “worse than a Madoff-style Ponzi scam.”

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Critics are circling incessantly. Russia’s central bank has suggested, and China has already implemented, a ban on all cryptocurrency operations in the country. In Europe, Swedish regulators have called for something similar. Bjrn Arild Gram, Norway’s regional development minister, told the Guardian that his administration was considering its options.

“While crypto-mining and its underlying technology may have some long-term benefits, it is difficult to justify the widespread usage of renewable energy today,” Gram stated. “The ministry of local government and regional development is presently considering potential policy measures to address the issues posed by crypto-extensive mining’s energy demand.”

However, there is a fightback forming in the sector, which includes Kryptovault, which only uses renewable energy. This week, Michael Novogratz, the founder of Galaxy Digital, a digital assets firm aiming to become “the Goldman Sachs of crypto,” announced the launch of a sustainability programme focused on energy use and social responsibility, claiming that the industry needed to address a “false narrative” that it was bad for the environment.

Some opponents have called it “greenwashing,” but it was a significant shift in a world that had previously been less than forthright about its activities, preferring concealment above compassion.

Kjetil Hove Pettersen, the chief executive of Kryptovault, who launched the company with friends after deciding to transform a passion into a business, believes it is also time for the industry to strike back against the dominant narrative.

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“If you look at the whole energy cost for any particular thing, it’s always going to be tremendous – I think we can always compare to a tiny European country,” he remarked. “This includes traditional gold mining, which consumes more than four times the energy that bitcoin mining consumes.”

Old bitcoin miners
Old bitcoin miners. Kryptovault is transitioning to new ones from China that are said to be three times more efficient. Photograph: Elin Høyland/The Guardian

Bitcoin proponents believe that it allows people to exchange value with one another quickly, without the need for a third party such as a bank, and effectively for free. They claim it is gaining traction quicker than the internet did in the 1990s, with El Salvador becoming the first government to accept it as legal cash alongside the US dollar, despite reservations from the IMF.

People desired bitcoin, according to Pettersen, and mining activities gave economic benefits in the form of revenue and employment. Mining is also stated to provide a means for countries with extra renewable energy supply from hydro, wind, or solar electricity at specific periods and seasons to capitalise on it both within and outside their boundaries.

“Mining is not polluting in and of itself,” Pettersen explained. “If you’re mining with coal, that’s a different situation, and that’s what you don’t want.” Mining should be done in more places than just Norway, and it can help conserve trapped energy. For example, in northern Norway, where there is a surplus, or in El Salvador, where energy from volcanoes is currently being used to start up production where it previously did not exist.”

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By the autumn, Kryptovault hopes to have 15,000 miners on the job. The Hnefoss mine’s managers, Otto Him, 37, and Martin Mikalsen, 26, have dubbed one location between two massive walls, or pods, containing 6,500 computers “the cathedral” because of its massive scale.

According to the corporation, it is replacing its older bitcoin miners with new ones imported from China that are three times more productive. Waste heat will be available in sufficient quantities in the future. To dry seaweed, the company is in preliminary discussions with a local business. According to Pettersen, the story will change.

“Country after country will adopt bitcoin as legal cash at some time, and it will be evident that it will revolutionise the globe,” he predicted. “Right around the time it became clear that the internet was here to stay.”

Top 10 countries for bitcoin mining activity

  • 1) Kazakhstan
  • 2) Russia
  • 3) Ireland*
  • 4) Germany*
  • 5) Sweden
  • 6) Norway
  • 7) Iceland
  • 8) UK
  • 9) France
  • 10) Georgia

*Activity evidence was likely overstated as a result of diverted IP addresses via VPN or proxy services.

Based on information from the Cambridge Centre for Alternative Finance, the Cambridge bitcoin electricity consumption index was created.