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Originally published December 24, 2013 at 4:58 PM | Page modified December 24, 2013 at 8:35 PM

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In chilly Iceland, a peek inside the hot bitcoin-mining world

A rare look at a bitcoin-mining operation in Iceland, where security is tight and the computers are fast and powerful and being used as tools to cash in on the gold rush surrounding the bitcoin.


The New York Times

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On the flat lava plain of Reykjanesbaer, Iceland, near the Arctic Circle, you can find the mines of bitcoin.

To get there, you pass through a fortified gate and enter a featureless yellow building. After checking in with a guard behind bulletproof glass, you face four more security checkpoints, including a so-called man trap that allows passage only after the door behind you has shut.

This brings you to the center of the operation, a fluorescent-lit room with more than 100 whirring silver computers, each in a locked cabinet and each cooled by blasts of Arctic air shot up from vents in the floor.

These computers are the laborers of the virtual mines where bitcoins are unearthed. Instead of swinging pickaxes, these custom-built machines, which are running an open-source bitcoin program, perform complex algorithms 24 hours a day.

If they come up with the right answers before competitors around the world do, they win a block of 25 new bitcoins from the virtual currency’s decentralized network.

The network is programmed to eventually release 21 million coins. A little more than half are already out in the world, but because the system will release bitcoins at a progressively slower rate, the work of mining could take more than 100 years.

The scarcity — along with a speculative mania that has grown up around digital money — has made each new bitcoin worth as much as $1,100 in recent weeks.

Bitcoins are invisible money, backed by no government, useful only as a speculative investment or online currency, but creating them commands a surprisingly hefty real-world infrastructure.

“What we have here are money-printing machines,” said Emmanuel Abiodun, 31, founder of the company that built the Iceland installation, shouting above the din of the computers. “We cannot risk that anyone will get to them.”

Abiodun is one of a number of entrepreneurs who have rushed, gold-fever style, into large-scale bitcoin mining operations in just the last few months. All of these people are making enormous bets that bitcoin will not collapse, as it has threatened to do several times.

Recent moves by Chinese authorities caused the price of a bitcoin to drop briefly below $500. If the system did crash, the new computers would be essentially useless because they are custom-built for bitcoin mining.

Miners, though, are among the virtual-currency faithful, believing that bitcoin will turn into a new, cheaper way of sending money around the world, leaving behind its current status as a largely speculative commodity.

Most of the new operations popping up guard their secrecy closely, but Abiodun agreed to show his installation for the first time.

An earnest young Briton, with the casual fashion taste of the tech cognoscenti, he was a computer programmer at HSBC in London when he decided to invest in specialized computers that would carry out constant bitcoin mining. The computers that do the work eat up so much energy that electricity costs can be the deciding factor in profitability. Abiodun chose to locate in Iceland, where geothermal and hydroelectric energy are plentiful and cheap.

And the Arctic air is free and piped in to cool the machines, which often overheat when they are pushed to the outer limits of their computing capacity.

Until just a few months ago, most bitcoin mining was done on the home computers of digital-money fanatics. But as the value of a single bitcoin skyrocketed over the last few months, the competition for new coins set off a race that quickly turned mining into an industrial enterprise.

“Even if you had hardware earlier this year, that is becoming obsolete,” said Greg Schvey, a co-founder of Genesis Block, a virtual-currency research firm. “You are talking about order-of-magnitude jumps.”

The work the computers do is akin to guessing at a lottery number. The faster the computers run, the better chance of guessing that right number and winning valuable coins. So mining entrepreneurs are buying chips and computers designed specifically — and only — for this work. The machines in Iceland are worth about $20,000 each on the open market.

The energy required to run these computers is huge, and has led to criticism that bitcoin mining is wasteful, not to mention socially useless. But Abiodun prides himself on using renewable power, at least in Iceland.

When Abiodun first heard about bitcoin mining in 2010, he thought it was a scam. Begun in 2009 as the imaginative creation of an anonymous programmer (or group of programmers) known as Satoshi Nakamoto, it was initially little more than a tech-world curiosity.

As early users connected their computers into the network, they became a part of the decentralized infrastructure that hosts bitcoin’s open-source program. The computers joining the network immediately began capturing virtual coins.

The network’s protocol was designed to release a new block of bitcoins every 10 minutes until all 21 million were released, with the blocks getting smaller as time goes on. If the miners in the network take more than 10 minutes to guess the correct code, the bitcoin program adapts to make the puzzle easier. If they solve the problems in less than 10 minutes, the code becomes harder.

Abiodun’s opinion of bitcoin changed in January, when he saw the price rising. He installed a free application on his home computer that linked him into the bitcoin network and set it to mining. As he started to make money, friends asked if they could invest in his mining operation.

In February, Abiodun used the investors’ money to buy machines from a startup dedicated solely to manufacturing specialized mining computers. The competition for those computers is so intense that he had to pay for them and wait for delivery.

When the delays became lengthy, however, he went on eBay and paid $130,000 for two high-powered machines, which he set up in June in a data center in Kansas City, Kan.

This was the beginning of Abiodun’s company, Cloud Hashing, which rents out computing power to people who want to mine without buying computers themselves. The term hashing refers to the repetitive code guessing that miners do.

Even before Abiodun’s machines in Kansas City were up and running, it was clear that they wouldn’t be enough. So he ordered about 100 machines from a startup in Sweden and, in October, had them moved to the facility in Iceland. In just a few months, that installation has generated more than $4 million worth of bitcoins, at the current value, according to the company’s account on the public bitcoin network.

At the end of each day, the spoils are divided up and sent to Cloud Hashing’s customers. Recently, for example, the entire operation unlocked 225 bitcoins, valued at around $160,000 at recent prices. Cloud Hashing keeps about 20 percent of the capacity for its own mining.



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