The last few years have seen unprecedented growth in the bitcoin and blockchain spaces. First introduced roughly 10 years ago as a trustless, transparent, fair, and secure way to record transactions and exchanges of value, blockchain has slowly yet surely gained acceptance in the mainstream. Consistent innovation, coupled with increased adoption, have led to an influx of new cryptocurrency players and blockchain projects, and we now see blockchain being used to revolutionize everything from agriculture and finance to transportation and healthcare.
One of the biggest issues facing bitcoin mining, however, is that of energy costs. With bitcoin mining, miners have to compete with one another to be the first to calculate the answer to specific mathematical and cryptographic puzzles that are used to link each successive block of data in the bitcoin blockchain. This is necessary to ensure the integrity – as well as the immutability – of the data and the blocks being added to the chain. Doing this requires the use of specialized hardware, which is not only costly by itself but also consumes vast amounts of electricity. Current estimates place the annual electricity consumption of bitcoin mining at over 70 terawatt hours – equal to the entire energy consumption of Chile, or over 6.5 million U.S. homes. In dollar terms, that comes down to over $3.5 billion.
Striking the right balance
Not all the news is bad, however, even though it does take a very precise balance for mining to be profitable. Because miners are rewarded with bitcoin for each successful answer they calculate for the bitcoin blockchain, there is a lot of money to be made when the price of bitcoin is high. In fact, at the time of this writing, at the current price of about $7,600 per bitcoin, annual mining revenues come to over $5.7 billion – a cool $2.2 billion more than the cost of mining. This certainly makes this a market worth participating in! However, participation only makes sense when the cost of mining is low, or the rewards of mining are high.
Costs to consider
This brings us to the crux of the matter: mining costs. Mining costs, although they include the cost of hardware (as this report describes in detail), the majority of mining costs are power costs. Fluctuations in hardware costs may speed up or delay a miner’s decision to enter or exit the market, but their ultimate profitability will depend on the cost at which they can run their hardware (and run requisite HVAC and cooling systems to maintain optimal temperatures, of course). It, therefore, is obvious to the most novice of businesspersons that the single most critical factor that needs to be taken into account when deciding where to set up a mining operation is the power costs of running the operation.
This is what brings us to Sweden as a very favorable destination for any sort of mining operation, whether for bitcoin or otherwise.
The cost of energy in Sweden
Now that we have a simple formula for making the decision of where to set up a mining operation, all we need to do is look at power costs across the different places under consideration for mining and pick the geographic location with the lowest cost. The price of energy (per kilowatt hour) in Sweden is about 6.5 cents, roughly 30% lower than the average of other European countries. Together with readily available green and renewable energy sources (specifically, a lot of hydroelectric energy), along with formal investment by the dominant utility company in Sweden (Vattenfall) towards expanding energy sources, there is a great deal of price stability in Sweden.
A final factor that works in favor of Sweden in terms of energy consumption is the fact that low average temperatures in the country mean cooling costs for mining already start off at a very low level. The average temperature in Sweden during the summer is between 13 and 17 degrees centigrade, with winter temperatures well below for several months of the year. This point alone gives Sweden the edge over other mining hubs such as China, South Korea, and the United States when it comes to energy costs.
No technology, however innovative or beneficial, can really have a global impact unless it has the right supporting environment and ecosystem in which to thrive and grow. Furthermore, if a cutting-edge innovation cannot gain user traction, it will soon fall into obsolescence.
Bitcoin and blockchain are no different. The sudden influx of new funds, both institutional as well as private, into the bitcoin space over the last few years has prompted governments and financial watchdogs to scrutinize bitcoin and implement regulatory restrictions to prevent fraud in the crypto space, in all its shapes and forms. While this may come at the cost of growth and acceptance of bitcoin globally, it is necessary to ensure the safety of investor funds as the world moves towards a more interconnected and blockchain-powered future.
With this in mind, it is worth noting that not only is the EU as a whole very privacy and consumer-safety conscious (as is evident from the recent implementation of the GDPR) but Sweden, in particular, has very friendly regulatory frameworks when it comes to blockchain and bitcoin investment. Sweden is already the second-biggest financial technologies hub in Europe and is already well on its way towards becoming a truly cashless society, with over 50% of banks no longer storing cash and not accepting cash deposits. This will help further accelerate the widespread use and penetration of innovative payment technologies in the country, including bitcoin, which can act as digital stores of value.
Finally, many political parties such as Folkpartiet (the Swedish liberal party), and a number of political forums exclusively use bitcoin for payments and donations, a sure sign of further positive developments to come as far as bitcoin regulation and acceptance are concerned.
Sweden provides just the right mix of low-cost energy, weather, supportive economic and political environment, technology traction, and a healthy user base to establish the country as a bitcoin hub and mining powerhouse.
At Blockbase, we provide unparalleled bitcoin mining services, including 95% uptime, 100% mining awards to our clients, zero setup fees, 100% green energy usage, and competitive energy rates well below the market average.