As Bitcoin Infrastructure Booms, Mining Heads to the Data Center

This is the first of a two-part series on the boom in Bitcoin computing infrastructure, and what it means for the data center industry. 

Emmanuel Abiodun once mined for Bitcoins on a desktop computer in his home. He’s now running 160 powerful computers in server space in Iceland, where the machines are cheap to power and cool. Later this year, Abiodun expects to have an empire of 4,000 bitcoin mining rigs spread across two continents, eventually filling nearly 5 megawatts of data center space.

“To be able to scale, you’re going to have to look at a data center,” said Abiodun, the founder and CEO of London-based CloudHashing, which leases server capacity to customers hoping to generate bitcoins. “We’re definitely seeing that trend.”

The journey of Abiodun and CloudHashing reflects the larger story of the Bitcoin network. After getting started in garages and server closets, bitcoin mining is moving into data centers and the cloud. Some traditional data center providers will benefit, but this transition also has the potential to enrich a new generation of entrepreneurs emerging from within the bitcoin community.

Over the past year, the computing power supporting the bitcoin network has soared, creating a powerful global network backed by 150,000 petaflops per second of computing power, roughly 600 times the combined power of the all the supercomputers in the Top500 list. Practitioners of Bitcoin mining – the term for using data-crunching computers to earn newly-issued virtually currency – are adopting more powerful hardware, pooling their efforts and seeking to slash their power bills.

An Opportunity for the Data Center Industry?

As this trend continues, “production capacity and operating efficiency will drive profit margins,” writes Jeff Schvey, a bitcoin analyst at The Genesis Block. “The natural evolution of this will be large data centers that can take advantage of economies of scale.”

The increasing industrialization of bitcoin infrastructure presents an opportunity for the data center industry. Large mining operations are beginning to follow the example of their forerunners in hyperscale computing, shifting compute capacity to remote areas with cheap power, including Iceland and central Washington.

But the bitcoin network may develop along several tracks, and not all of them involve traditional data centers. Some entrepreneurs in the bitcoin community are developing custom facilities to house high-density hardware, ranging from makeshift server farms in warehouses in the Pacific Northwest to futuristic racks of sleek, liquid-cooled immersion rigs in Hong Kong.

One thing is certain: Bitcoin infrastructure will need to become more energy efficiency. Recent estimates from Blockchain.info suggest that the global bitcoin network has been using between $12 million and $15 million of electricity each day, while generating $5 million to $6 million in new Bitcoins.

“Bitcoin mining is very energy intensive,” said Abiodun. “Power is key, because it affects your profitability.”

Bitcoin is sometime referred to as the “Internet of money” – a platform using cryptography and software to offer an alternative currency and payment-tracking system. At its heart is a huge distributed computing network that verifies each transaction. Participants in this online ledger – which includes individuals, corporations and mining collectives – are rewarded with new bitcoins, which are issued about every eight minutes. This ability to discover new coins has prompted the “mining” analogies, which some say are misleading.

“I hate the term,” said Josh Zerlan, Chief Operating Officer for Butterfly Labs, a Bitcoin hardware specialist. “We’re not mining. This is transaction processing.”

Cloud Hashing: Building Big

CloudHashing has been the first major bitcoin specialist to go public with its use of data centers. The UK-based company has set up shop near Reykjavik, Iceland in a data center operated by Verne Global. The company’s presence in Iceland was profiled in The New York Times, and is about to get a lot bigger.

“Our mission is to bring Bitcoin mining to everyone in an easy and affordable way,” said Abiodun, who said the service has grown from 800 customers in September to 5,000 in early January. To meet that surge in demand, he has ordered 1,500 custom mining rigs using ASICs (Application Specific Integrated Circuits) to crunch data for creating and tracking bitcoins, which he says will boost CloudHashing’s Iceland operation to 2.5 megawatts of power capacity.