Best Bitcoin Card for Iceland

Little Iceland is turning into a hotspot for crypto currencies. The sparsely populated island offers perfect conditions for Bitcoin and Co. Can this go well?

Filming and photographing, says Philip Salter, is okay – but better only in this one direction. The young man from Munich stands at a metal fence on a draughty level of the Icelandic peninsula Reykjanes. Behind it lies a handful of lightweight halls. If the nearby control tower of Keflavik airport could also be seen in the pictures, Salter says, that would be rather impractical. You don’t want to attract thieves.

The man has an interesting job title: Head of Mining Operations. But the halls behind the fence are not the entrance to a mine. They are full of computers in endless rows of shelves.

The company Genesis Mining operates such farms worldwide. Thousands of processors are used to perform complicated mathematical calculations for crypto currencies such as Bitcoin. This is called digging. And whoever does this is paid in virtual currency. In the end, this was quite a lucrative business for many, despite all exchange rate fluctuations.

The computer farm where Genesis Mining’s computers are located

Bitcoin farms can be found in numerous countries, such as China, but also in Canada, Sweden and the USA. The area around Zug in Switzerland markets itself as “Crypto-Valley”. But the technology is booming in Iceland in particular.

For two reasons: The year-round cool, but not extremely frosty climate simplifies the cooling of computers – at least as long as it is possible to keep salt from the sea air and aggressive volcanic ash out with filters. And there is plenty of electricity in Iceland that is produced cleanly. 85 percent of the energy comes from renewable sources, geothermal energy (65 percent) and hydroelectric power (20 percent) – fantastic values compared to countries like China.

“There is quite a bit of hype about Iceland and Bitcoin,” says Eyjólfur Magnús Kristinsson. As head of Advania Data Centers, that can only make him happy. Magnús’ company operates several data centres on the island. According to him, the company has grown tenfold in recent years. “In 2018, we will generate 70 to 80 percent of our sales with crypto currencies,” says Magnus. Genesis has also rented from him.

But is what is happening with Bitcoin and Co. on Iceland just a bubble? Is it dangerous for the island’s economy, perhaps even for that of Europe and the world? Bad memories of the recent crash come back. At that time, Iceland’s speculative and laxly controlled banks had not only gambled away their customers’ capital, but also a lot of political trust – and also intensified the crisis in EU countries.

The Bank for International Settlements (BIS), a kind of “super-central bank” at the international level, recently warned that crypto currencies could threaten financial stability. Iceland’s central bank may not comment on the issue at this time in response to a request. A spokesman writes that nobody in the house is interested in talking about mining. The term is written in quotation marks. The mail ends with a reference to a four-year-old statement on the potential danger of crypto currencies for investors and users.

Since then certainly some has done itself. Iceland’s first Bitcoin ATM, which is located in the Hlemmur Square downtown hotel, is also a symbol of this. You can feed the device with banknotes and load crypto money onto the virtual purse of your mobile phone, for example. “Every day is bought here,” says hotelier Klaus Ortlieb. “We have many young guests. They can exchange the rest of their money for Bitcoins before they go.

The machine was installed by Bitcoin entrepreneur Jason Scott. He actually comes from the USA, but in the course of the WikiLeaks affair he ended up in Iceland for fear of prosecution and co-founded the Pirate Party there. He believes in crypto currencies, also because he doesn’t trust the state, he says. So not only the Icelandic, but generally not.

“I hope for the best and prepare myself for the worst,” Scott says. With Bitcoins, for example, capital controls such as those imposed on Iceland’s population after the crisis could be circumvented, he says. And it can also be used to earn money. Anyone who buys from a vending machine, for example, has to pay seven percent commission, one percent of which goes to the hotel.

We simply run a little faster than the others

But is there enough electricity at all for the computer parks that are set up at lightning speed? Over the past few weeks, it has been repeatedly reported that Bitcoin mining is likely to consume more electricity this year than all private households in Iceland put together. This forecast comes from Johann Snorri Sigurbergsson. He is the manager of HS Orka, the third largest electricity supplier and the only private electricity company in Iceland.

“We just run a little faster than the others,” says Johann Snorri. That’s why data centers are specifically approached as customers. Based on Advania’s growth targets alone, he then calculates that Iceland’s crypto prospectors could consume 840 gigawatt hours (GWh) of electricity this year. Household consumption in Iceland is only 700 gigawatt hours.

However, it should also be noted that Iceland’s three large electricity companies generate 12 times as much electricity each year as crypto prospecting and private households combined consume. Most of the country’s electricity goes to the three large aluminium smelters. One of them, the Straumsvik aluminium smelter, is directly opposite one of the Advania data centres. It alone consumes about 2650 GWh per year.

There’s no shortage of electricity in Iceland. The country produces nine times as much electricity per inhabitant as the EU average. This is mainly due to geothermal energy. This is so attractive in Iceland because the island is geologically highly active. It lies on the so-called Mid-Atlantic Ridge, where the Eurasian and North American plates drift about two centimeters apart every year. Hence all the volcanoes, earthquakes, hot springs and geysers.

One of the places where the fascination of geothermal energy can be seen is about 20 kilometers southeast of the airport. Anyone approaching the Svartsengi power station via the Reykjanes peninsula plain covered with lava boulders can see the mighty steam columns from a distance. Since 1976, electricity and heat have been extracted from the underground by means of power. Hot water and steam of about 240 degrees flow from 13 boreholes.

Svartsengi is known worldwide because the waste heat from the power plant is used to heat the swimming pools of the so-called Blue Lagoon, one of Iceland’s biggest tourist attractions. “So far, we haven’t invested anything in Bitcoin mining,” says Johann Snorri of HS Orka. “We only use surplus electricity.

Build a new power plant because of the crypto companies? Or just a new borehole for the geothermal power stations? No, they won’t do that for now, says energy manager Johann Snorri.

Renewable energies cannot be expanded at will in the country anyway. This also has to do with the fact that every year 2.1 million tourists want to see untouched landscapes – and not dams. For the Bitcoin industry, this means: “There is a limit to growth,” says Johann Snorri. Icelanders seem willing to live with this realization. That actually sounds quite grounded.

How prospecting works

By the way, the business with crypto currencies has two components: Like a gambler, you can bet on rising or falling prices on the countless trading exchanges. Or you can dig for money, like the customers of Genesis Mining do.

And that’s how it works: Payment systems such as Bitcoin or Etherneum are decentralized systems. Transactions between buyers and sellers are summarized in so-called blocks in the network, all blocks together result in the so-called block chain. And for these transactions, checksums have to be calculated constantly – with great computing effort. This allows fraud to be proven. The computers in the data centres in Iceland are thus a kind of auditor of the payment system.

Those who successfully check transactions also dig up new virtual coins. These are allocated to the computer owner as a reward for his services. Of course, this also increases the virtual money supply.

Genesis now rents halls and sets up computers there. Customers can then let these computers work for them. Only if they earn more virtual dough than they pay to Genesis, they make a profit. According to the company, they are paid daily.

Will this business work in the long run? You have “well over a million customers,” says Salter. And what about the massive price fluctuations? Don’t they endanger trust? “It doesn’t look that bad for Bitcoin,” says the Genesis man. If you look at the price development of the crypto currency over the years, you are currently at bubble number five. The Bitcoin will also survive this.

Does everyone in the Icelandic Bitcoin business share this view? In any case, you believe in the blockchain technology underlying the crypto currencies, says IT manager Magnús. But even if you’re wrong about this belief, it’s not a huge problem: “If Bitcoin ceased to exist tomorrow, we wouldn’t go broke.” This is how Johann Snorri of HS Orka describes it: “If all data centers closed down today, we would already feel it. But the influence wouldn’t be huge. That’s just one pillar of our business.”

Fischer to investment bankers?

Smári McCarthy sits for the Pirate Party in the Icelandic parliament, the Althing. He is one of the first Icelandic politicians to have looked more closely at the Bitcoin mining boom on the island. “I believe there are many opportunities for us. We should go along with it and benefit from it.

A tax on Bitcoin miners has been under discussion in Iceland for several weeks now. The problem is that the decision-makers lack the figures. How big is the value added by mining in the country? Nobody knows. Even such simple questions as the number of active companies cannot be answered at present. “Our insight into all this is zero,” complains MEP McCarthy. That sounds a bit like the recent crisis when Fischer suddenly became an investment banker.

Bitcoin mining in Iceland is a rather secretive business. McCarthy takes his mobile phone out of his pocket to prove it. He shows a photo of a shipping container. For some time he has been standing in the harbour of his hometown on the Westman Islands, a thick cable leads into it.

When the parliamentarian peered inside through a bent ventilation grille, he could see shelves full of computers apparently in use. He also shows a photo of them. Apparently, crypto coins are also being produced on the Westman Islands. Meanwhile even a second container stands there.