How hyperscalers will allay Musk's Bitcoin energy consumption worries

Elon Musk said Bitcoin needs to be more sustainable, but crypto mining is about to go commercial in a big way. Hyperscale providers will also bring energy efficiency to the mix.

Tesla CEO Elon Musk rattled cryptocurrency prices when he announced the electric vehicle maker won't accept bitcoin until mining becomes more environmentally friendly. But rest assured that crypto mining will become more efficient.

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We won't get into Musk's take, but there are environmental concerns with crypto mining. What's odd about Musk's proclamation on cryptocurrency is that the environmental concerns date back years before he put Bitcoin on the Tesla balance sheet and talked up Dogecoin. Sierra Club highlights how crypto miners move to countries with less environmental regulation and cheap power (like coal). China accounts for the majority of crypto mining. For more, this New Yorker story is handy, as is this University of Washington overview that has a bevy of footnotes. Musk cited Cambridge Bitcoin Electricity Consumption Index in his tweet on Bitcoin sustainability.

Does Musk have a point about cryptocurrency mining? Sure. Will many of those environmental concerns be resolved in a few years or sooner? You bet.

Enter hyperscale providers. The crypto game is a bit like the Wild West right now. As long as cryptocurrency prices are stable in a profitable range, mining operations are going to become commercial and efficient in a hurry. Don't be surprised if Google Cloud or AWS get into the game somehow. We'll let Microsoft Azure recover from its blockchain service closure.

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And if the cloud giants don't see crypto mining as a market, there will be specialized players. For instance, Cipher Mining, a unit of Bitfury, announced a merger with Good Works Acquisition Corp. to create an industrial-scale Bitcoin mining operation in the US.

I have no idea how Cipher Mining will fare as a public company, but I do know energy costs and efficient technologies dominate the investor presentation. Commercial crypto mining operations -- Marathon, Bitfarms, Hive, and Hut8 -- need low electricity costs but a lot of that efficiency will come from better technologies.

Here's the Cipher Mining business model:

ciper-mining-1.png

Cipher Mining will be US-focused and has sites planned in Texas and Ohio. Parent Bitfury has built crypto mining data centers in Iceland Canada, Norway, and elsewhere.

Just as cloud providers are automating data centers for energy savings and efficiency, crypto miners will do the same. Sustainability equates to profit margins and that means Musk's concerns are likely to be addressed sooner than you'd think.