Bitcoin
Why So Many Bitcoin Mining Companies Are Moving to AI
As AI companies work furiously to improve the intelligence and utility of their products, their demand for cheap and abundant energy has soared. This gold rush has been extremely profitable for an unlikely beneficiary: Bitcoin miners.
In recent months, major Bitcoin mining companies have begun swapping out some of their mining equipment for equipment used to run and train AI systems. These companies believe that AI training can provide a safer and more consistent source of income than the volatile cryptocurrency industry. And so far, these pivots have been warmly received by investors, leading the market cap of 14 major bitcoin mining companies to jump in value by 22%, or $4 billion, since the beginning of June, JP Morgan said. reported on June 24th.
This transition reflects several current trends: the AI hype cycle; dwindling access to energy and a tenuous bitcoin mining landscape following the bitcoin halving.
Read more: What’s the problem with Bitcoin halving?
The AI boom has led to huge demand for energy
Generative AI models like ChatGPT are powered by the raw computing power of data centers, which process massive data sets to find patterns and improve answers. But computing power is expensive, and for years it wasn’t a worthwhile investment for many data center operators. When IREN, a data center and bitcoin mining company, considered using its space for machine learning four years ago, “there just wasn’t enough volume from a business perspective for it to make sense,” says Kent Draper, IREN’s chief commercial officer.
But the huge success of ChatGPT starting in late 2021 changed the calculus, and other AI companies rushed to train and run their own models in hopes of overtaking OpenAI’s flagship model. This requires an enormous amount of power: a ChatGPT query, for example, uses 10 times more energy than a standard Google query.
That leaves AI companies scrambling for direct access to cheap power sources, large tracts of land to house warehouses filled with thousands of computers, and resources like water or giant fans to cool their machines. Their voracious activity means it’s becoming increasingly competitive to find sites that meet these criteria, especially in North America. Some jurisdictions have implemented long waiting lists for large data centers to connect to the grid. And once companies get initial approval, building a data center from scratch can take years, millions of dollars, and lengthy regulatory and bureaucratic slogs.
Read more: How AI is fueling the boom in data centers and energy demand
“If you go back five or 10 years, 80% of data center loads were located in six or seven primary markets,” says Nazar Khan, COO and CTO of bitcoin mining company Terawulf. “These markets are crowded, and some of them have already issued moratoriums on new data center construction. So these data center loads are now looking for new homes.”
Bitcoin Miners Face Headwinds
Some of these homes, it turns out, are located inside existing Bitcoin mining facilities. Bitcoin miners maintain and secure the Bitcoin network through complex computational processes, and they earn Bitcoin for doing so. In the early years of Bitcoin, miners discovered that increasing the size of their computing equipment greatly increased their profits, so they created huge server farms that tapped into cheap sources of energy and ran around the clock.
Large-scale bitcoin mining has historically been an immensely lucrative business. But it is also subject to the whims of the volatile cryptocurrency market. Following the 2022 cryptocurrency crash — which was precipitated by the risky ventures of entrepreneurs like Sam Bankman-Fried It is Do Kwon—many miners were driven into bankruptcy or closed down completely.
Mining companies that survived the crisis made profits in 2023 and early 2024. But a new challenge emerged in April: a technical upgrade to Bitcoin called halvingthat cut miner rewards in half. Bitcoin miners had hoped that the halving would lead to a dramatic increase in the price of bitcoin, as has happened in previous cryptocurrency cycles, to offset this reduction in rewards. But the price of bitcoin has remained more or less flat since April, squeezing profits and forcing some miners to look for ways to diversify their business models. AI training is at the top of the list.
“You saw a number of cryptocurrency miners who were struggling who ended up making a complete change, and that may have been a function of necessity,” says Draper.
The partnership between the AI and bitcoin mining industries makes sense, given the needs of both sides. AI companies need the space, access to cheap energy, and infrastructure that bitcoin miners already have. And bitcoin miners seek the stability of AI computing revenue and the huge potential profits flowing from the current AI hype cycle.
Some bitcoin mining companies are renting out their space to AI clients. In June, Core Scientific—which recently emerged from bankruptcy stemming from the 2022 crypto crash—announced it would host more than 200 megawatts of GPUs (graphics processing units, which power AI training and operations) for AI startup CoreWeave. Core Scientific CEO Adam Sullivan told TIME in April that AI companies were aggressively bidding for the use of Bitcoin mining facilities: “They started buying mining sites at higher prices than Bitcoin miners are willing to pay,” he said. He added that the number of requests from AI companies has been “extraordinarily high on our part and we are evaluating our best entry into the market here.”
Other bitcoin mining companies are operating GPUs themselves. On June 24, bitcoin miner Hut 8 received an investment of US$ 150 million Coatue Management to build AI infrastructure. And in some IREN facilities, GPUs for AI and ASICs (application-specific integrated circuits that power bitcoin mining) share the same walls. “We see them as mutually complementary: They’re very different business profiles,” Draper says. “Bitcoin is instant revenue, but a little more volatile. AI is customer-dependent — but once you have customers, it’s contracted and more stable.”
This increase in demand has climate repercussions
With bitcoin miners operating in both industries, a huge amount of energy is being used. Data centers use 10 to 50 times the energy of a typical commercial building, the U.S. Department of Energy it says. A recent report from Goldman Sachs predicted that data centers will use 8% of total U.S. energy by 2030, up from 3% in 2022. That level of electricity growth “has not been seen in a generation,” the report says. to read.
Some bitcoin companies, like Terawulf, say they’re focused on using green energy. But many of the new data centers are generally powered by fossil fuels. “Some of the smaller renewables don’t meet the demand for consistent, high-quality power that some of the high-speed computing folks require,” Khan says. “We’re seeing utilities proposing to add more large-scale gas-fired power plants, which we haven’t seen in several years. It’s going to take a portfolio of facilities: gas, nuclear, renewables to meet that need.”
All of this activity concerns climate activists. “Bitcoin miners are diversifying into traditional data centers and AI — and obviously they use different machines, but they still use voracious amounts of energy,” says Mandy DeRoche, deputy managing attorney for Earthjustice’s clean energy program. “This tremendous increase in energy demand has consequences for the grid, the cost of electricity and the climate.”
Andrew R. Chow’s book on cryptography, Cryptomania, will be published in August and is Available for pre-order.