Life embodies evolution, change, adaptation, and the willingness to thrive. Throughout history, we have experienced countless changes that have forced society to evolve, adapt, and grow. From the dawn of commerce to the COVID-19 pandemic and beyond, we have witnessed events that have transformed 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 in the past 15 years has been the invention of Bitcoin and the rise of the crypto industry.
The crypto industry, although not yet accessible to everyone, has seen remarkable growth and evolution since the launch of Bitcoin in 2009. In the following years, the industry became a dynamic and influential force, attracting the attention of investors and enthusiasts around the world. In this article, I will share my thoughts on why crypto will become a very stable market, potentially replacing current financial or banking methods. This discussion will delve into important topics such as security, circular economy, and sustainability, which, combined with current high-potential businesses such as data centers, will shape the new future.
Crypto Infrastructure and Energy Consumption
The servers that support the cryptocurrency infrastructure are primarily used for cryptocurrency mining, transaction verification, smart contract execution, and hosting of decentralized applications (DApps). These servers typically have the following specifications:
• High-performance CPUs and GPUs
• Large memory and storage capacity
• Advanced networking capabilities
• Robust security features
These characteristics translate into expensive servers with high power consumption. Therefore, we need a robust and reliable space to store these servers and ensure that they function as expected.
Energy consumption
Data transmission currently consumes nearly 3% of the total electricity used worldwide. To ensure that data is not only transmitted correctly, but also stored and processed correctly, we rely on physical spaces called data centers. These data centers are considered mission-critical facilities. But why are data centers considered mission-critical? Mission-critical facilities are broadly defined as activities that, if interrupted, would have a negative impact on business operations, ranging from loss of revenue and regulatory 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 heavily regulated by various organizations and standards for both physical and data infrastructure. These strict regulations are crucial because data loss can have a huge impact on millions of people, given the sensitivity of the stored information. Gradually, the
Blockchain industry along with emerging markets such as AI (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 increasing significantly.
Are Current Data Centers Ready for Blockchain Technology?
Blockchain not only poses a challenge to Mechanical, Electrical and Plumbing (MEP) infrastructure, but also to enterprise infrastructure. To accommodate the demanding workloads
associated with blockchain technology, facilities need to improve both infrastructure security and MEP capabilities. Currently, the average power density in a data center is around 10 kW per rack. For comparison, according to various reports, the average power consumption of a U.S. home is that
uses electricity for heating and hot water is approximately 10,715 kWh per year. A single rack in a data center, by comparison, uses almost 9 times more power per year (8,760 kWh per year), with some facilities designed to deliver peak power in excess of 100 MW.
Building these facilities requires significant investment and sometimes the efficiency of the facility is not as desired, leading to higher data management costs. A problem with current data centers is partial load, which means that if the facility consumes a certain amount of watts, the original design was 1.5 times that watt. This results in lower performance and efficiency. The closer the facility is to its designed energy consumption, the easier it is to improve and control the overall efficiency.
The main difference between blockchain and traditional data processing is decentralization. In a decentralized system, the failure of a single node does not affect the performance of the entire digital infrastructure, while in traditional systems, a single node failure can cause significant and irreversible damage to many businesses. This need for high reliability and redundancy explains why data centers typically have high upfront costs (CAPEX), with multiple layers of security to ensure continued operation even in the event of equipment failure.
However, the decentralization inherent in blockchain technology offers a clear advantage: it reduces the need for expensive and redundant facilities to house all the crypto servers, because the failure of some nodes does not disrupt the entire system. This raises an important question: what is the solution for integrating traditional data transfer methods with new blockchain technology?
Combining current needs with new crypto needs
In the data center industry, the terminology of “Tiers” as defined by the Uptime Institute is widely used and accepted worldwide. This classification system is similar to the levels of redundancy specified by TIA or BICSI standards. While those familiar with the data center market are well versed in these Tiers, here is an explanation for crypto users who may be new to this terminology: There are four Tiers, each representing a different level of redundancy in a facility:
1. Level I: No redundancy.
2. Level II: Redundancy.
3. Level III: Simultaneously maintainable.
4. Level IV: Fault tolerant.
These Tiers also correlate to the initial investment required to create the facility. Moving from one Tier to another usually means doubling the capital expenditure (CAPEX). Most data centers are classified as Tier III, which indicates that they are designed to be serviced concurrently. This ensures that the facility can be kept in optimal condition to prevent failures at any time. It is crucial to note that some IT equipment hosted in a data center is essential to the daily operations of our lives; even traffic lights depend on these services.
For blockchain infrastructure, it is not necessary to significantly increase CAPEX to ensure the proper functioning of the equipment. It is essential to place the servers in an environment where they function properly with minimal downtime. Since the loss of individual servers does not affect the functionality of the entire blockchain, these operations do not require high availability. Although downtime can affect users who earn revenue from transaction validation, it is crucial to evaluate whether the cost of reducing downtime justifies the increased CAPEX.
Therefore, the Tier level of these facilities can be lowered. In some parts of the data center that are not critical to powering the crypto nodes, the Tier can be lowered to Tier II or even Tier I. This approach optimizes resources without compromising the overall blockchain infrastructure.
Cryptomining as a single business?
To support our previous discussions and stimulate new discussions, consider the following data: Following the Bitcoin halving on April 20, 2024, the return on investment (ROI) per miner has decreased by 50%, regardless of variations in total hashrate or Bitcoin price. This decrease worsens the overall financial outlook. For example, a miner that costs $2,000, produces 120 TH/s, and requires no additional capital expenditures (CAPEX) beyond the miner itself now faces this ROI decrease.
For a 100 miner facility, the total CAPEX investment for the entire facility (including land for one container, MEP infrastructure, and miners) is estimated to be around $503,000. The following analysis illustrates the estimated ROI over the next four years (until the next halving) for a facility with 100 miners, each consuming 3.3 kW and having a price per kilowatt hour of $0.08. To be more accurate, this analysis assumes a 50% annual hashrate growth rate and the use of traditional air cooling solutions. The expected future Bitcoin price used in this analysis is $250,000, based on various research and speculation.
The expected ROI over the next four years, taking into account a future Bitcoin price of $300,000, shows that crypto mining on its own may not be a very profitable business. This begs the question why companies continue to invest in crypto mining. The answer is speculation. In optimistic times, crypto facilities were very profitable, but now these facilities need additional revenue streams.
Heat reuse: a disruptive side job
An innovative side hustle is to convert these facilities into heating facilities. Most of the energy consumed by miners/servers is converted into heat. What if we could capture that heat and sell it as energy? For example, if we sell this energy to a nearby farm for greenhouses for $0.03/kWh, the business model becomes more viable. Given an assumed additional investment of $750,000 (note that the additional investment must be calculated based on the limitations of the facility and in this case an estimate was taken into account for the exercise).
At first analysis, the business model appears viable. The integration of a heat recovery 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. While the facilities may no longer be optimal for the same cryptocurrency activities after the halving, the infrastructure will remain valuable for the sale of the generated heat.
Furthermore, if we consider combining this model with the data center market, the ROI extends beyond the next four years. This represents a long-term investment where the efficient use of electricity could become increasingly important.
Conclusion
The crypto industry is becoming increasingly important in our lives. Several companies are adding stablecoins to their portfolios as financial assets, and new technologies are emerging on the blockchain that require specialized facilities like current data centers (such as BlockDAG architecture, Ordinals/NFTs, BRC20, and most importantly, Runes).
We are at the beginning of a market that will continue and change the current scenario. Combining legacy data centers with crypto-specific areas to facilitate additional businesses such as heat reuse is likely only a matter of time, a run to become sustainable. Those who lead this transformation will be the ones to benefit the most.
This is a guest post by Jose Farrona. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.