Life embodies evolution, change, adaptation, and the readiness to thrive. Throughout history, we have experienced numerous changes that have forced societies to evolve, adapt, and grow. From the birth 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 key events that have shaped the economy, impacted politics, and changed the course of global markets. One of the most exceptional events in the last 15 years is the invention of Bitcoin and the emergence of the crypto industry.
The crypto industry, while not yet accessible to everyone, has seen remarkable growth and evolution since the launch of Bitcoin in 2009. In the years since, the industry has become a dynamic and influential force, attracting the attention of investors and enthusiasts around the world. In this article, I will share my opinion on why cryptocurrency will become a very stable market, potentially replacing current financial or banking methods. This discussion will cover key topics such as security, circular economy, and sustainability, which, combined with current high-potential businesses such as data centers, will shape a new future.
Crypto infrastructure and energy consumption
Servers that support cryptocurrency infrastructure are primarily used to mine cryptocurrency, verify transactions, execute smart contracts, and host decentralized applications (DApps). These servers typically have the following characteristics:
• High-performance central and graphic processors
• Large memory and storage capacity
• Advanced networking capabilities
• Robust security features
These characteristics result in expensive servers with high power consumption. Therefore, we need a durable and reliable space to store these servers and ensure that they function as expected.
Energy consumption
Data transmission currently accounts for approximately 3% of the total electricity used worldwide. To ensure that data is not only transmitted correctly, but also stored and processed properly, we rely on physical spaces known as data centers. These data centers are considered critical facilities. But why are data centers considered critical? Critical facilities are broadly defined as operations whose interruption could negatively impact business operations, ranging from loss of revenue and non-compliance with legal regulations 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 strictly regulated by various organizations and standards for both physical and information infrastructure. This strict regulation is critical because data loss can have huge consequences for millions of people, given the sensitivity of the information stored. 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 objects to store nodes that verify crypto transactions and execute smart contracts is growing significantly.
Are existing data centers ready for blockchain technology?
Blockchain poses challenges not only to mechanical, electrical, and plumbing (MEP) infrastructure, but also to enterprise infrastructure. To meet high workloads
related to blockchain technology, facilities will 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 context, according to several reports, the average power consumed by a home in the United States, which
uses electricity for heating and hot water, is about 10,715 kWh per year. By comparison, a single rack in a data center consumes almost 9 times that amount of energy per year (8,760 kWh per year), with some facilities designed for peak power in excess of 100 MW.
Building such facilities requires significant investment, and sometimes the facility’s efficiency is not what it should be, leading to higher data management costs. One of the challenges of modern data centers is partial loads, meaning that if a facility consumes a certain amount of watts, the original design was for 1.5 watts. This leads to decreased performance and efficiency. The closer a facility’s consumption is to its design power consumption, the easier it is to improve it and control overall efficiency.
The key difference between blockchain 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 enterprises. This need for high reliability and redundancy explains why data centers typically have high initial costs (CAPEX) with multiple layers of security to ensure continuous operation even in the event of equipment failure.
However, the decentralization inherent in blockchain technology offers a distinct advantage: it reduces the need for expensive and redundant capacity to host all the crypto servers, since 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 the new blockchain technology?
Combining Current Needs with New Needs in the Cryptocurrency Field
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 redundancy levels specified by the 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: Possibility of simultaneous service.
4. Level IV: Fault Tolerant.
These levels also correlate with the initial investment required to build the facility. Moving from one level to another typically means doubling the capital expenditure (CAPEX). Most data centers are Tier III, which means they are designed to be serviced at all times. This ensures that the facility can be maintained in optimal condition to prevent failures at any time. It is important to note that some of the IT equipment housed in a data center is essential to the daily operation of our lives; even traffic lights rely on these services.
Blockchain infrastructure does not require a significant increase in CAPEX to ensure proper hardware operation. It is important to place servers in an environment where they will 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. While downtime may impact users who earn income from verifying transactions, it is critical to evaluate whether the cost of reducing downtime justifies the increase in CAPEX.
Therefore, the Tier level of these objects can be reduced. In some areas of the data center that are not critical to powering crypto nodes, the Tier can be reduced to Tier II or even Tier I. This approach optimizes resources without compromising the overall blockchain infrastructure.
Cryptocurrency mining as a separate business?
To support our previous discussions and stimulate new ones, consider the following data: Since the Bitcoin halving on April 20, 2024, the return on investment (ROI) per miner has declined by 50%, regardless of fluctuations in the overall hashrate or Bitcoin price. This decline tightens the overall financial outlook. For example, a $2,000 miner producing 120 TH/s and requiring no additional capital expenditure (CAPEX) beyond the miner itself now faces this decline in ROI.
For a setup consisting of 100 miners, the total CAPEX investment for the entire facility (including land for one container, MEP infrastructure, and miners) is estimated to be approximately $503,000. The following analysis illustrates the approximate return on investment over the next four years (before the next halving) for a facility operating with 100 miners, each consuming 3.3 kW, and with a price per kWh of $0.08. To try to make it more accurate, this analysis assumes that the hashrate increases by 50% per year and uses traditional air cooling solutions. The projected future price of Bitcoin used in this analysis is $250,000, based on various studies and assumptions.
The projected ROI for the next four years, assuming a future Bitcoin price of $300,000, shows that cryptocurrency mining itself may not be a very profitable business. This raises the question of why companies continue to invest in cryptocurrency mining. The answer is speculation. Crypto businesses were very profitable during the bullish times, but now these businesses need additional sources of income.
Heat Reuse: A Revolutionary Side Earning
One innovative direction is to convert these facilities into heat supply facilities. 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 greenhouse farm at $0.03/kWh makes the business model more viable. Given the estimated additional investment of $750,000 (keep in mind that the additional investment should be calculated according to the constraints of the facility, and in this case, an approximate number was used for the exercise).
After initial analysis, the business model appears viable. The integration of the heat recycling side business effectively doubled the return on investment (ROI). It is important to note that the ROI calculation is based on a four-year period coinciding with the next Bitcoin halving event. While the capacity may no longer be optimal for the same cryptocurrency operations after the halving, the infrastructure will remain valuable for selling the heat generated.
Moreover, if we consider the integration of this model with the data center market, the ROI will extend beyond the next four years. This represents a long-term investment where energy efficiency may 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 will require specialized facilities like current data centers (e.g. BlockDAG architecture, Ordinals/NFT, 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 with crypto-specific areas to facilitate additional businesses such as heat recovery is probably only a matter of time, a race to sustainability. Those who lead this transformation will reap the greatest benefits.
This is a guest post by Jose Farrona. The opinions expressed are solely their own and do not necessarily reflect the views of BTC Inc or Bitcoin Magazine.
