Why So Many Bitcoin Mining Companies Are Turning To AI

As AI companies work frantically to improve the intelligence and usability of their products, their demand for cheap, abundant energy has soared. This gold rush has been extremely profitable for an unlikely beneficiary: Bitcoin miners.

In recent months, major Bitcoin mining companies have begun to swap out some of their mining equipment in favor of rigs used to manage and train AI systems. These companies believe that AI training can provide a safer and more consistent source of income than the volatile crypto industry. And so far, these pivots have been warmly received by investors, leading the market capitalization of 14 major bitcoin mining companies to jump 22%, or $4 billion, since the start of June, JP Morgan reported on June 24.

This transition reflects several trends of the moment: the roaring hype cycle of AI; the shrinking access to power, and a lean bitcoin mining landscape after the bitcoin halving.

Read more: What’s the deal with the Bitcoin halving?

The AI ​​boom has led to an enormous demand for energy

Generative AI models like ChatGPT leverage the brute computing power of data centers, processing massive data sets to find patterns and improve responses. But computing power is expensive and for years has not been a worthwhile investment for many data center operators. When IREN, a data center and bitcoin mining company, looked at using their spaces for machine learning four years ago, “there just wasn’t enough volume from a commercial perspective to make sense,” says Kent Draper, IREN’s chief commercial officer. .

But the massive success of ChatGPT, which launched in late 2022, changed the calculus, and other AI companies rushed to train and run their own models in hopes of surpassing OpenAI’s flagship model. This requires a tremendous amount of energy: a ChatGPT query, for example, uses 10 times more energy than a standard Google query.

This leaves AI companies looking for direct access to cheap power sources, large tracts of land to keep warehouses full of thousands of computers, and resources like water or giant fans to cool their machines. Their frenetic activity means that it is becoming increasingly competitive to find sites that meet these criteria, especially in North America. Some jurisdictions have implemented long waiting lists for large data centers to connect to the network. And once companies get initial approval, building a data center from scratch can take years, millions of dollars, and require long slogs through regulation and bureaucracy.

Read more: How AI is driving a boom in data centers and energy demand

“If you go back five or 10 years, 80% of data center loads were located in six or seven primary markets,” said Nazar Khan, the COO and CTO of bitcoin mining company Terawulf. “Those markets are full, and a few of them have already issued moratoriums on further data center construction. So those data center loads are now looking for new homes.”

Bitcoin miners face headwinds

Some of those homes, it turns out, lie within the existing facilities of bitcoin miners. Bitcoin miners maintain and protect the bitcoin network through a complex computational process, and earn bitcoin for doing so. In the early years of bitcoin, miners found that increasing the size of their computer installations greatly increased their profits, so they created enormous server farms that utilized cheap energy sources and ran day and night.

Large-scale bitcoin mining has historically been an extremely profitable business. But it is also subject to the vagaries of the volatile crypto market. After the 2022 crypto crash – caused by the risky efforts of entrepreneurs like Sam Bankman-Fried and Do Kwon – many miners were forced into bankruptcy or closed their doors entirely.

Mining companies that survived the collapse posted profits in 2023 and early 2024. But a new challenge emerged in April: a technical update to Bitcoin called the halving, which cut miners’ rewards in half. Bitcoin miners hoped that the halving would lead to a dramatic increase in the price of bitcoin, as has happened in previous crypto cycles, to offset this reward decrease. But bitcoin’s price has remained more or less even since April, weighing on results and forcing some miners to look for ways to diversify their business models. AI training tops the list.

“You’ve seen a number of crypto miners that have kind of struggled that have actually made a full turn away, and that may have been a function of necessity,” Draper says.

The partnership between the AI ​​and bitcoin mining industry is a logical one, given the needs of both sides. AI companies need the space, access to cheap energy and infrastructure that bitcoin miners already have. And bitcoin miners seek the stability of AI account revenue, and the enormous potential profits flowing from the current AI hype cycle.

Some bitcoin mining companies rent out their space to AI clients. In June, Core Scientific — which recently emerged from bankruptcy as a result of the 2022 crypto crash — announced that it would purchase more than 200 megawatts of GPUs (graphics processing units, which power AI training and operation) for the AI ​​startup CoreWeave will host. Adam Sullivan, CEO of Core Scientific, told TIME in April that AI companies are making aggressive bids for the use of bitcoin mining facilities: “They have started to buy up mining sites for higher prices than Bitcoin miners are willing to pay. paid,” he said. He added that the number of requests from AI companies “has been extraordinarily high on our end, and we are evaluating our best go-to-market here.”

Other bitcoin mining companies operate the GPUs themselves. On June 24, bitcoin miner Hut 8 received a $150 million investment from Coatue Management to build 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 mutually complementary: They are completely different business profiles,” says Draper. “Bitcoin is instant income, but somewhat more volatile. AI is customer dependent – ​​but once you have customers, it’s contracted and more stable.”

This increase in demand has climate consequences

With bitcoin miners working in both industries, an enormous amount of energy is used. Data centers use 10 to 50 times the energy of a typical commercial office building, says the US Department of Energy. A recent Goldman Sachs report predicted that data centers will use 8% of total US power by 2030, up from 3% in 2022. This level of electricity growth “has not been seen in a generation,” the report said.

Some bitcoin companies, such as Terawulf, say they are focused on using green energy. But many of the new data centers are generally powered by fossil fuels. “Some of the smaller renewables don’t meet the demand for consistent and high-quality energy that some of the high-speed computing people need,” says Khan. “You’re seeing utilities proposing to add more large-scale gas-fired power plants, which we haven’t seen for a number of years. It will require a portfolio of facilities: gas, nuclear, renewable energy to meet this need.”

All these activities relate to climate activists. “Bitcoin miners are diversifying into traditional data centers and AI — and of course they’re using different machines, but they’re still using huge amounts of energy,” said Mandy DeRoche, a deputy managing attorney at Earthjustice’s clean energy program. “That tremendous increase in energy demand has consequences for the grid, for the cost of electricity and the climate.”

Andrew R. Chow’s book on crypto, Cryptomania, will be published in August and is available for pre-order.