aAs AI companies frantically work to make their products smarter and more useful, demand for cheap, abundant energy is skyrocketing, and this gold rush is bringing huge benefits to an unlikely beneficiary: bitcoin miners.
In recent months, major bitcoin mining companies have begun replacing some of their mining equipment with gear used to run and train AI systems, which the companies believe will provide a safer and more stable source of income than the volatile cryptocurrency industry. And so far, the shift has been well received by investors, with the market capitalization of the 14 largest bitcoin mining companies increasing by 22%, or $4 billion, since the beginning of June, JPMorgan reported on June 24.
This shift reflects several current trends, including the frenzied AI hype cycle, diminishing access to electricity, and a volatile bitcoin mining environment following the Bitcoin halving.
read more: What exactly is the Bitcoin halving?
The AI boom has created huge energy demand
Generative AI models like ChatGPT are improved by the powerful computing power of data centers, which crunch huge datasets to find patterns and improve responses. But computing power is expensive, and for years it hasn't been a worthwhile investment for many data center operators. When IREN, a data center and bitcoin mining company, looked at using its space for machine learning four years ago, “there just wasn't enough volume for it to make sense from a commercial perspective,” says Kent Draper, IREN's chief commercial officer.
But the massive success of ChatGPT starting in late 2022 changed the calculus, with other AI companies racing to train and run their own models in hopes of overtaking OpenAI's flagship model, which requires massive amounts of energy: a ChatGPT query, for example, uses 10 times more energy than a standard Google query.
That has left AI companies scrambling for resources like direct access to cheap power, vast tracts of land to house warehouses housing thousands of computers, and water and giant fans to cool the machines. Their activity has made it increasingly competitive to find locations that meet these criteria, especially in North America, where some jurisdictions have long waiting lists for large data centers to connect to the grid. And even after a company gets initial approval, building a data center from scratch can take years, cost millions of dollars, and require a lengthy slog through regulations and bureaucracy.
read more: AI Powers Explosive Data Center and Energy Demand
“If you look back five or 10 years ago, 80% of data center load was concentrated in six or seven major markets,” said Nazar Khan, COO and CTO at bitcoin mining company Terrawolf. “Those markets are full, and some of them have already issued moratoriums on further data center construction, so those data center loads are now looking for new locations.”
Bitcoin miners face headwinds
As it turns out, some of these homes are located inside existing facilities for Bitcoin miners, who maintain and secure the Bitcoin network through complex computational processes, and earn Bitcoin for doing so. In Bitcoin's early days, miners realized that increasing the size of their computer rigs would significantly increase their profits, so they created giant server farms that took advantage of cheap energy sources to run around the clock.
Large-scale bitcoin mining has historically been an incredibly profitable business, but it is subject to the vagaries of a volatile cryptocurrency market, with many miners forced into bankruptcy or shutting down altogether after the 2022 crypto crash sparked by risky endeavors by entrepreneurs like Sam Bankman-Fried and Do Kwon.
Mining companies that survived the crash reaped profits in 2023 and early 2024. But a new challenge emerged in April of this year: a technology update known as the Bitcoin halving cut miners' rewards in half. Bitcoin miners had hoped that the halving would dramatically increase the price of Bitcoin and offset this reduction in rewards, as has happened in previous cryptocurrency cycles. However, Bitcoin prices have remained almost flat since April, putting pressure on revenues and forcing some miners to look for ways to diversify their business models. AI training is a prime example of this.
“We've seen a lot of struggling crypto miners actually completely pivot, and maybe it was out of necessity,” Draper said.
A partnership between the AI and Bitcoin mining industries makes sense when you consider the needs of both sides: AI companies need the space, access to cheap energy, and infrastructure that Bitcoin miners already have, while Bitcoin miners want the stability of AI computing revenue and the huge potential profits that come from the current AI hype cycle.
Some bitcoin mining companies are renting out space to AI clients. Core Scientific, which recently emerged from bankruptcy following the 2022 cryptocurrency crash, said in June it would host more than 200 megawatts of GPUs (graphics processing units that help train and operate AI) for AI startup CoreWeave. Core Scientific CEO Adam Sullivan told TIME in April that AI companies were aggressively offering to use its bitcoin mining facilities. “They're starting to buy up mining sites at prices higher than what bitcoin miners are willing to pay,” he said. He added that the number of requests from AI companies has been “very high on our side, and we're trying to figure out the best way to go to market here.”
Other bitcoin mining companies also operate their own GPUs. On June 24, bitcoin mining company Hut 8 received a $150 million investment from Coatue Management to build out its artificial intelligence 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 complementary. They're very different business profiles,” Draper said. “Bitcoin is quick to earn but a little volatile. AI relies on customers, but once you have a customer, the contracts are in place and it's more stable.”
This increased demand has climate implications
Both industries consume huge amounts of energy as bitcoin miners operate. According to the U.S. Department of Energy, data centers consume 10 to 50 times more energy than a typical commercial office building. A recent Goldman Sachs report predicted that data centers will consume 8% of the U.S.'s total electricity, up from 3% in 2022. This level of electricity growth is “not seen in a generation,” the report said.
Some bitcoin companies, like Terrawolf, say they are focusing on using green energy. But overall, many of the new data centers run on fossil fuels. “Some small-scale renewables can't meet the demand for stable, high-quality energy that high-speed computing requires,” Kahn said. “We're seeing utilities proposing the addition of large gas-fired power plants, something we haven't seen in years. We're going to need a portfolio of gas, nuclear, and renewable energy facilities to meet this demand.”
All of this activity is cause for concern for environmental activists. “Bitcoin miners are diversifying into traditional data centers and AI, and while they use different machines, of course, they still consume a lot of energy,” said Mandy Desroches, deputy managing attorney for Earthjustice's clean energy program. “A massive increase in energy demand will have implications for the power grid, for our electric bills, and for the environment.”
Andrew R. Chou's book on cryptography, Cryptomaniawas published in August, Pre-order available.
