Bitcoin Miners Are Looking To Africa For Their Next Low-Cost Energy Hub | ZeroHedge


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Bitcoin Miners Are Looking To Africa For Their Next Low-Cost Energy Hub | ZeroHedge

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Much of the media talk on Bitcoin mining tends to be centered on regions such as Iceland, known for its abundant, low-cost geothermal energy, the U.S., which has long been a powerhouse in the industry, and more recently the Middle East, which is investing millions of dollars into the sector. 

But there's another, somewhat more unexpected region that's also showing a strong interest in Bitcoin mining. Africa is becoming an increasingly viable area of operations for Bitcoin miners, thanks to a combination of unique factors such as its copious amounts of renewable energy sources and a lack of energy infrastructure that has forced entrepreneurs to get creative. 

The International Energy Agency notes that Africa's under-developed electricity infrastructure is being increasingly propped up by a growing number of independent mini-grid providers and standalone systems, most of which are reliant on renewable energy. With more than 500 million people on the continent lacking access to a reliable source of power, many African communities have invested in so-called "mini-grids" that generate their power from renewable energy sources in rural communities outside of the traditional power grid. 

The challenge faced by these mini-grids is that many of them are inefficient due to the unpredictability of demand for electricity in the isolated African regions they serve. They waste a lot of energy, and that makes them an ideal bedfellow for power-hungry Bitcoin miners.

Bitcoin Miners Expand Into Africa

Bitcoin mining refers to the process through which cryptocurrency transactions are processed and added to the underlying blockchain -- the distributed ledger that records every transfer for all eternity. The industry that has sprung up around Bitcoin mining is known for its insatiable appetite for electricity, and it's offering African energy providers a way to scale demand in lockstep with the growing communities they support. That's because they're uniquely able to take up the slack and consume whatever excess energy electricity producers might generate. 

This symbiotic relationship between communities and Bitcoin miners has attracted a growing number of companies and entrepreneurs who have come to recognize Africa's vast potential to become a major player in the industry. 

A shining example is the Kenyan firm Gridless, which relies on hydroelectric mini-grids and raised $2 million from Block, Stillmark and other investors in a seed funding round earlier this year. The company plans to use part of that funding to expand its Bitcoin mining activities to feed on the excess energy of yet more mini-grids in rural areas of Kenya. 

Its mining rigs are exclusively powered by these mini-grids, which tap both solar and geothermal power. For instance, one of its suppliers generates electricity from an inactive volcano located on the shore of Lake Naivasha, in Hell's Gate National Park. Gridless currently operates six Bitcoin mining farms spread across Kenya, Malawi and Zambia.

Several other players are eying the potential of Africa's cheap energy sources too. They include the decentralized mining project GoMining, which tokenizes its mining rigs through NFTs so anyone can participate in its operations. Having raised $3 million in funding from Bitscale Capital earlier this month, it announced plans to build new facilities in North Africa and the Middle East later this year, where it can set up solar panels to take advantage of the region's relentless blazing sun.

"With our nine data centers already operational on a global scale, we prioritize infrastructure logistics in our strategic planning process. This involves careful consideration of several key factors when evaluating potential locations, namely the cost of electricity, logistical convenience, and the local legal framework, says GoMining CEO Mark Zalan.

"The legal framework is particularly significant, as regulations in certain North Africa and MENA countries offer advantages compared to regions like Iceland, where increasingly stringent rules have led to a significant decrease in mining capacity."

Zalan continues, "The MENA region aligns well with our strategy and additionally offers advantageous equipment import taxes, which are vital for data center construction. The convergence of these factors enables us to provide our GoMining clients with the lowest electricity prices on the market while ensuring 99% uptime for our mining infrastructure."

Meanwhile, Bloomberg reported this year that Chinese Bitcoin mining firms are honing in on Ethiopia, which has become one of the region's biggest generators of hydroelectric power since its Grand Ethiopian Renaissance Dam's plant came online earlier this decade. Its renewable energy is the most affordable in the world aside from Iran's oil-derived electricity, and it has reportedly already struck energy-supply deals with 19 Chinese Bitcoin mining companies. 

Cheap, Wasted Energy

The attraction for Bitcoin miners is Africa's cheap and plentiful supply of energy, and there are tons of places where they cab get it. A 2022 study by the International Hydropower Association found that African countries are home to the world's biggest untapped potential for hydroelectric power, which is already the main source of clean energy on the continent. In addition, much of Africa basks in sunshine, making it an ideal location for solar energy farms. The potential for solar energy in Africa is massive, with an older, 2007 study by MED-CSP finding if someone built enough solar panels to cover 0.3% of North Africa, they would be able to provide enough electricity for the entire European Union.  

In addition, Africa has yet more potential in flare gas, a natural waste product in oil production. Angola, the second-biggest crude oil producer in Africa, has previously said it's looking at ways to utilize this energy to increase its revenues from the energy sector. 

Africa's problem is the steep investment required to tap into this abundance of energy sources. Governments simply don't have the cash to splash on new, multi-million dollar power facilities, which has led to the rise of numerous mini-grids, or small projects such as solar farms set up by local communities and individual entrepreneurs. But these small time energy suppliers face a challenge when it comes to finding reliable buyers. 

It's here where Bitcoin miners are coming to the rescue. By co-locating with renewable energy providers in Africa, mining operators give them a big incentive to maximize production and bolster the efficiency of their operations. 

Gridless CEO Erik Hersman told CNBC that for many African mini-grids and renewable energy suppliers, their chief problem is unpredictable demand. Oftentimes, there's nobody to buy the electricity they generate, which means a lot of excess energy goes to waste. Gridless is uniquely able to "take up whatever is extra throughout the day," Hersman said. 

The demand from Bitcoin miners like Gridless is dramatically enhancing the viability of renewable energy generation across Africa, as it's a win-win for both partners. The energy supplier gains a customer who's always willing to buy up the excess power they generate, while the miner benefits from lower costs from bulk buying. 

A Bright Future 

Last month, Deutsche Bank analysts said that the recent Bitcoin "halving" event, which saw mining rewards slashed in half, could result in a dramatic geographic shift in the Bitcoin mining industry, as operators seek out more affordable and reliable energy sources. It noted that the U.S. still accounts for more than 40% of the world's Bitcoin mining activity, despite having much higher energy costs than in most other regions.

"Latin America, Africa and the Middle East have caught the attention of crypto miners due to their lower energy costs," the analysts said in a note to clients in April. 

Other factors also make Africa an enticing prospect for miners. African countries have shown a strong interest in cryptocurrencies in recent years. For instance, Kenya has one of the highest per capita levels of Bitcoin ownership in the world, according to UN data. That appears to have compelled its government to take a more open approach to crypto, and in a recent development, it has reportedly obtained the services of another Bitcoin mining firm, called Marathon Digital, to advise it on crypto policy. Like Gridless and GoMining, Marathon has an established presence in Africa already. 

Meanwhile, Forbes reported in 2023 that a growing number of Nigerians are turning to Bitcoin as a safe haven for their savings, due to high interest rates and the volatility of its local currency, the naira.  

Prominent names in the crypto industry have cited Africa's potential too. For instance, Paxful CEO Ray Youssef said in 2021 that Africa is leading the world in terms of crypto adoption, and Square CEO Jack Dorsey famously stated his belief that African will "define the future" of Bitcoin. Moreover, the Central African Republic became the second country in the world to recognize Bitcoin as legal tender in 2022.

For now, Africa remains a relatively minor player in Bitcoin mining, and it remains to be seen if it can grow to rival traditional powerhouses such as the U.S., Kazakhstan, Russia and Iceland. But as adoption of Bitcoin in Africa grows and more people become aware of the advantages of "digital gold" it only makes sense that some will seek to leverage its unique advantages, and obtain that gold directly from the source.

Contributor posts published on Zero Hedge do not necessarily represent the views and opinions of Zero Hedge, and are not selected, edited or screened by Zero Hedge editors.


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