Top–of–Mind for Digital Infrastructure Leaders

This is the final in a series of five blog posts reflecting the top-of-mind issues discussed during the most recent Infrastructure Masons Advisory Council meeting, held in London in November. The Advisory Council is made up of end users and partners from across the digital infrastructure ecosystem.

According to World Bank data, Georgia – the former Soviet republic, with a population of less than 4 million people – is the world’s second largest miner of cryptocurrencies. (China is the largest.) Surveys indicate that up to 5% of households in Georgia are engaged in cryptocurrency mining or investments of some sort.

Bitfury, a U.S.-based company that positions itself as a one-stop shop for all aspects of the cryptocurrency business, and other companies responding to the digital gold rush to this small country, are benefitting from an attack on the region’s oldest industry. In 2006, Russia imposed a ban on imports of Georgian and Moldovan wines. Wine exports to Russia had been responsible for 80-90% of total wine exports for both countries and the ban, which lasted nearly eight years, was considered a huge blow to the Georgian economy.

As Georgia looked for ways to improve its economic standing, tech companies were attracted to the region’s cheap hydropower and lack of regulations.

“Bitfury and other companies responding to the digital gold rush to Georgia are benefitting from an attack on the region’s oldest industry.” – Click to tweet

Bitfury accounts for much of the cryptocurrency activity in two data centers in Georgia: a 20MW data center in Goriand 100MW data center in the capital city of Tbilisi. According to its own data, the company uses around 28 million kilowatt-hours of electricity per month for its mining operations there – equal to the average consumption of 120,000 Georgian households.

Concerns about cryptocurrency

As with most discussions about mining cryptocurrencies, this is where the story turns to concerns. The iMasons Advisory Council meeting in London was no exception. Members expressed worries about how the cryptocurrency business will impact data centers and what leaders in the digital infrastructure sector should be thinking about to avoid adverse impacts from such a volatile business.

The volatility of cryptocurrency values raises doubt about its viability as an alternative to legal tender. Other challenges include ensuring financial oversight, combatting money laundering, tax evasion and illicit transactions, and ensuring security in the data centers hosting the mining technology. Another key concern is the amount of electricity used.

“We’re seeing a very big problem because cryptocurrencies are coming into the area and chewing up a lot of power,” one member said.

Indeed, cryptocurrency mining has had a major impact on electricity consumption in Georgia, turning the country from a net exporter to a net importer of electricity. The World Bank estimates that the 10-15% of Georgia’s electricity demand is devoted to cryptocurrency mining. Per capita electricity consumption in Georgia in 2016 was almost three times higher than in countries with similar levels of per capita income.

“We’re seeing a very big problem because cryptocurrencies are coming into the area and chewing up a lot of power.” – Click to tweet

A risky business

One Advisory Council member equated cryptocurrency miners to fly-by-night businesses. “The way that cryptocurrency developers build today they almost deserve government oversight. Because it’s very risky business. If you look at the way they contract, you’ll get a 12-month or 24-month contract with them. That’s all they can do because that’s all they’ve got for their customers. So it’s very risky from an investment standpoint and then what you’re left with, once they fail, is a facility that you have a very hard time converting to something else.”

Another member concurred. “Cryptocurrency is often in Tier 1 data centers. They are generally not built to mission critical design standards. They are built to really cheap basic infrastructure. If it fails, it fails. That’s usually good enough for what they are trying to do.” Good enough for mining cryptocurrency, but not, typically, for customers that might take over a data center once the miners are gone.

“The way that cryptocurrency developers build today they almost deserve government oversight. Because it’s very risky business.” – Click to tweet

One Advisory Council member was even more definitive: “I don’t want cryptocurrency on my site. They don’t leave anything behind for the rest of the market. Banks have excluded cryptocurrency from financing because you can’t tell who’s behind it. It leaves a big question mark about the data center industry overall because you can’t differentiate what’s the cryptocurrency guys and what’s the real industry.”

“I don’t want cryptocurrency on my site. They don’t leave anything behind for the rest of the market.” – Click to tweet

Continuing to be good corporate citizens

The problems brought about by cryptocurrency businesses can give the public a negative impression of digital infrastructure as a whole. One Advisory Council member explained that local authorities don’t necessarily understand the difference between data centers created for cryptocurrency mining and the rest of the industry. “The collateral problem is when you talk about wanting to be a high performance computing data center, then the communities don’t like it. They say you are guzzling all the power and you are releasing heat. And then we get bad press.”

Not all high density data centers are created equal, of course. Beyond mining for cryptocurrency, high performance computing is also used for genomic sequencing, seismic modeling, and other applications unequivocally making the world a better place.

One Advisory Council member, who represents a community looking at ways to enhance their economic development, talked about the hard work already done to build solid partnerships with digital infrastructure players. “We have prepared for the data center industry. We have improved the taxes, done a lot of right things to create an environment for the data center industry. And this is the industry we want because it also creates infrastructure that the rest of the economy will use. So it leaves more behind than just sucking up power.”

“Beyond mining for cryptocurrency, high performance computing is also used for genomic sequencing, seismic modeling, and other applications unequivocally making the world a better place.” – Click to tweet

There were no final answers to all the questions about how to cope with issues brought about by cryptocurrency business, but the Advisory Council members concurred that they do not want the gains made in the digital infrastructure industry to be whittled away. They agreed that they need to be aware and vigilant. As one member put it, “The [power] grids are very much under pressure. Cryptocurrency is coming and it’s going to affect us. It’s here to stay.”