Life is all about evolution, change, adaptation, and the willingness to thrive. Throughout history, we have witnessed many changes that have forced societies to evolve, adapt, and grow. From the beginning of commerce to the COVID-19 pandemic and beyond, we have witnessed events that have changed the world. One of the most important and influential sectors in the world is finance. The world of finance has been shaped by pivotal events that have impacted economies, influenced policies, and changed the course of global markets. One of the most extraordinary developments of the past 15 years has been the invention of Bitcoin and the rise of the crypto industry.
The cryptocurrency industry, while not yet accessible to everyone, has seen significant growth and development since the launch of Bitcoin in 2009. In the years since, the industry has become a dynamic and influential force, capturing the attention of investors and enthusiasts around the world. In this article, I will share my opinion on why cryptocurrencies are becoming a highly stable market, and may even replace current financial or banking methods. This discussion will cover key topics such as safety, the circular economy, and sustainability, which will shape the new future alongside current high-potential businesses such as data centers.
Cryptocurrency Infrastructure and Energy Consumption
Servers that support cryptocurrency infrastructure are primarily used for mining cryptocurrencies, verifying transactions, executing smart contracts, and hosting decentralized applications (DApps). These servers typically have the following specifications:
• High-performance CPUs and GPUs
• Large storage and memory capacity
• Advanced networking capabilities
• Strong security features
These characteristics translate into expensive and power-hungry servers. Therefore, we need a robust and reliable space to store these servers and ensure they operate as expected.
Energy consumption
Data transmission currently consumes nearly 3% of all electricity used worldwide. To ensure that data is not only transmitted properly, but also stored and processed properly, we rely on physical spaces known as data centers. These data centers are critical facilities. But why are data centers critical? Critical facilities are broadly defined as operations that, if disrupted, would negatively impact business activities, ranging from lost revenue and non-compliance to, in extreme cases, loss of life. Data centers, hospitals, laboratories, and military installations are just a few examples of such facilities.
Data center facilities are subject to strict regulations by many organizations and standards for both physical infrastructure and data. This strict regulation is critical because data loss can have serious consequences for millions of people, given the sensitivity of the information stored. Gradually,
The blockchain industry, along with emerging markets such as artificial intelligence, is playing an increasingly important role in the modern world. The demand for distributed facilities to store nodes that validate crypto transactions and execute smart contracts is rising dramatically.
Are Existing Data Centers Ready for Blockchain Technology?
Blockchain technology poses challenges not only to mechanical, electrical and plumbing (MEP) infrastructure but also to enterprise infrastructure. To accommodate demanding workloads
In terms of blockchain technology, utilities will need to enhance both infrastructure security and MEP capabilities. Currently, the average power density in a data center is around 10 kilowatts per rack. For context, according to several reports, the average U.S. home consumes
Electricity consumption for heating and hot water is approximately 10,715 kWh per year. By comparison, a single rack in a data center consumes nearly 9 times as much energy per year (8,760 kWh per year), with some facilities designed to provide peak power of over 100 MW.
Building these facilities requires a significant investment, and sometimes the facility’s efficiency is not as high as desired, leading to high data management costs. One problem with current data centers is partial load, which means that if a facility consumes a certain amount of watts, it was originally designed for 1.5 times those watts. This results in lower performance and efficiency. The closer a facility’s power consumption is to its designed power consumption, the easier it is to improve and control overall efficiency.
The main difference between blockchain technology and traditional data computing is decentralization. In a decentralized system, the failure of a single node does not affect the performance of the entire digital infrastructure, whereas in traditional systems, the failure of a node can cause significant and irreversible damage to many businesses. This need for high reliability and redundancy explains why primary data centers (CAPEX) are so expensive, with multiple layers of security to ensure continued operation even in the event of equipment failure.
However, the inherent decentralization of blockchain technology offers a clear advantage: it reduces the need for expensive, duplicate facilities to accommodate all the crypto servers, since the failure of a few nodes does not bring down the entire system. This raises an important question: What is the solution to integrating traditional data transfer methods with the new blockchain technology?
Combining current needs with new encryption needs
In the data center industry, the term “tiers” as defined by the Uptime Institute is widely used and accepted worldwide. This classification system is similar to the redundancy levels defined by the TIA or BICSI standards. While those familiar with the data center market are well aware of these levels, here’s an explanation for crypto users who may be new to these terms: There are four tiers, each representing a different level of redundancy in a facility:
1. Level 1: No repetition.
2. Level two: repetition.
3. Level 3: Maintainable at the same time.
4. Level 4: Fault Tolerant.
These levels are also related to the initial investment required to set up the facility. Moving from one level to another typically involves doubling the capital expenditure (CAPEX). Most data centers are rated as Tier III, which indicates that they are designed to be maintainable at all times. This ensures that the facility can be kept in optimal condition to prevent breakdowns at any time. It is important to note that some of the IT equipment hosted in a data center is essential to the day-to-day operations of our lives; even traffic lights rely on these services.
For blockchain infrastructure, there is no need to significantly increase CAPEX to ensure proper operation of the equipment. It is necessary to accommodate servers in an environment where they operate properly with minimal downtime. Since the loss of individual servers does not impact the functionality of the entire blockchain, these operations do not require high availability. Although downtime may impact users who earn revenue from validating transactions, it is important to evaluate whether the cost of reducing downtime justifies the increased CAPEX.
Therefore, the level of these facilities can be downgraded. In some data center areas that are not critical to the operation of crypto nodes, the level can be downgraded to level two or even level one. This approach optimizes resources without compromising the overall blockchain infrastructure.
Crypto mining as a single business?
To support our previous discussions and to fuel new ones, consider the following data: After the Bitcoin halving on April 20, 2024, the return on investment (ROI) for each miner dropped by 50%, regardless of differences in total hash rate or Bitcoin price. This drop tightens the overall financial outlook. For example, a mine that costs $2,000, produces 120 TH/s, and requires no additional capital expenditure (CAPEX) other than the mine itself, now faces this drop in ROI.
For a facility with 100 mines, the total CAPEX investment for the entire facility (including land for one container, MEP infrastructure, and two mines) is estimated to be around $503,000. The following analysis shows the approximate ROI over the next four years (until the next halving) for a facility with 100 mines, each consuming 3.3 kW and with a price per kWh of $0.08. To try to be more accurate, this analysis assumes that the hash rate increases by 50% per year, and uses conventional air-cooling solutions. The expected future Bitcoin price used in this analysis is $250,000, based on various studies and speculations.
The projected return on investment over the next four years, taking into account a future Bitcoin price of $300,000, shows that cryptocurrency mining alone may not be a very profitable business. This raises the question of why companies continue to invest in cryptocurrency mining. The answer is speculation. In the good times, cryptocurrency facilities were very profitable, but now these facilities need additional revenue streams.
Heat Reuse: A Controversial Side Project
Converting these facilities into thermal power plants is an innovative side hustle. Most of the energy consumed by miners/servers is converted into heat. What if we could capture this heat and sell it as energy? For example, selling this energy to a nearby farm for use in greenhouses at $0.03/kWh would make the business model more viable. Considering an assumed additional investment of $750,000 (please note that the additional investment should be calculated according to the constraints of the facilities and in this case an approximate number has been taken into account for the exercise).
Upon initial analysis, the business model appears to be viable. The integration of the heat reuse side business has effectively doubled the return on investment (ROI). It is important to note that the ROI calculation is based on a four-year period, which coincides with the next Bitcoin halving event. While the facilities may not be ideal for the same cryptocurrency operations after the halving, the infrastructure will still be valuable for selling the generated heat.
Furthermore, if we consider the integration of this model with the data center market, the return on investment extends beyond the next four years. This represents a long-term investment where efficient use of electricity can become increasingly important.
conclusion
The crypto industry is gaining more and more importance in our lives. Many companies are adding stablecoins to their portfolios as financial assets, and new technologies are emerging on the blockchain that will require specialized facilities like existing data centers (such as BlockDAG architecture, Ordinals/NFTs, BRC20, and most importantly, Runes).
We are at the beginning of a market that will remain and change the current scenario. The combination of legacy data centers and cryptocurrency zones to facilitate additional work such as heat reuse is likely only a matter of time, and it will require efforts to achieve sustainability. Those who lead this transformation will be the ones who benefit the most.
This is a blog post written by our guest Jose Varona. The opinions expressed here are entirely his own and do not necessarily reflect the views of BTC Inc or Bitcoin Magazine.