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Bitcoin mining and Icelandic bananas

Icelandic Prime Minister Katrín Jakobsdóttir during a meeting in Reykjavik. 2021

In a throwaway line of green marketing for her country, Icelandic Prime Minister Katrín Jakobsdóttir told the Financial times at the end of March that her island in the middle of the Atlantic Ocean should use its abundant energy not for mining bitcoins, but for… growth corn(!).

Praising food sovereignty in a world of energy crises, supply chains and wars, she expanded her current talking point by saying that “bitcoin is a problem worldwide,” that “data centers in Iceland use a significant portion of our green energy.” ”, and that bitcoin would not play a role in it under a new energy plan for the future.

We can learn a lot about trade, energy, agriculture, bitcoin mining and political grandeur from Ms. Jakobsdóttir’s statements, so let’s delve into them.

First, if you haven’t understood what bitcoin does, how bitcoin mining machines (“ASICs”) secure the network, or why it matters to the world: each The energy consumed by the computers, mining machines or hardware wallets will seem wasteful to you. But that doesn’t matter: Western liberal democracies do not distribute electricity based on the uses that current officials find useful, but instead make individuals pay for the needs they need. she valuable – think of all those Netflix binging, gaming or Christmas decorations, all of which use similar amounts of electricity as global bitcoin mining.

Second, total electricity consumption by data centers in Iceland (only some of which use bitcoin) was 1,169 GWh in 2021, about six percent of the country’s total consumption, or slightly more than all households combined. That use falls completely in the shadow of the energy elephant in the room: the aluminum industry. Something like two-thirds of the country’s electricity (or 12,454 GWh, or eleven times all data centers, or about 20 percent of all energy consumption (the latter is a measure that also includes heating and gasoline) is spent converting imported bauxite ore into aluminum for export. It’s quite lucrative. The country’s three aluminum smelters contribute about as much to the Icelandic economy as the much better known and much talked about tourism sector.

That is also why Daníel Jónsson, CEO of GreenBlocks, a bitcoin miner, opened his op-ed in the Icelandic news outlet Visitor who criticized Jakobsdóttir with the proposal of a (highly overbuilt) hydroelectric power station in Ethiopia. Stranded energy and unused electricity are magnets for bitcoin miners, as they convert electricity that cannot easily be used for other purposes into one of the world’s most liquid and globally transferable assets.

Jónsson notes that the principle “is not much different at all from the path Iceland took in the 1960s, when (Icelanders) decided to build power plants and export electricity… for the aluminum industry.” While Icelanders have a lot to say about geothermal power plants and river damming, there’s no denying that Iceland’s people live so well in part because of their successful export of electricity.

Bitcoin mining is just another way of doing the same thing: turning captured energy, with few alternative uses, into something the rest of the world wants.

Third, corn?! The central planning mentality involved is astonishing. At 64 degrees north latitude, in a rugged landscape with few flat surfaces or arable land, like the endless corn fields of the Midwest; where for eight months of the year nothing grows but glaciers and piles of snow; where the most natural resources are fish, waterfalls and geothermal heat, do you want to grow corn?

Granted, just as endless money printers can make any business, organization, or government survive, endless electricity can make most things happen. Consequently you can growing everything in Iceland, including local tomatoes – which are available in Reykjavík’s shops – And figs, oranges and bananas – which don’t grow and are instead grown in a university-run greenhouse an hour outside the city. (It turns out that Iceland has been growing bananas since the 1950s, although they never became commercially viable, because the scarce sunlight, even supplemented with artificial light, ripens a banana plant in about two years, compared to a few months in South America or Africa. )

Fourth, the economic value of trade. In his book The myth of the rational voterEconomist Bryan Caplan of George Mason University documents how a distinction between the public and those trained in economics is the level of hesitancy toward interacting with foreigners—particularly the value of foreign trade. While economists, blackboard style, start yapping about Ricardo or comparative advantage, ordinary citizens often think about localism, job losses and offshoring.

Perhaps a country’s banana-hungry population can be better supplied by growing them using abundant local electricity, even if the climate and scarce winter sunshine are not suitable for that. Or perhaps one can get more, cheaper, and better fruit by shipping bauxite ore from abroad, throwing two-thirds of the country’s electricity at it, shipping the resulting aluminum abroad, and eventually having other ships and planes return with fresh bananas and tomatoes. .

The Financial times journalists matter-of-factly added that “Iceland produces most of the animal products it consumes, but only 1 percent of grains and 43 percent of vegetables,” as if these were in any way relevant statistics. The same can be said about a city or a household (“…produces only about 1 percent of food consumption and 5 percent of vegetables, largely from the summer garden”); they have no economic significance whatsoever.

Take New York City. Despite the many community gardens and significant efforts by officials in recent years to support locally grown produce in the city, it’s safe to assume that only a pittance of the food consumed every day in Manhattan is grown there as well. No right-thinking person thinks this is a problem. In integrated, monetary economies with easy access to transportation and international trade, these things no longer matter.

The economic system is counter-intuitive in that respect: what is allowed corpses to a casual observer, total madness may make perfect sense. Is it better to grow apples locally or have them shipped from New Zealand? Should Iceland grow bananas, figs and corn, or use the energy to supply about 2 percent of the world’s aluminum?

Despite Iceland’s “disastrous” shortage of agricultural production, the country is well supplied with grains and vegetables year-round – just as New Yorkers have no shortage of fresh fruits and vegetables. The idea harkens back to the Corn Laws debates of the 19th century, and after the triumph of free trade, Britannia has explicitly relied on foreigners to feed her. Big problem.

Using economic calculations and the profits and losses that result from the price system, we can find out the answer to these questions: Whether a company or operation makes a profit is confirmation that its output was valued by consumers more than what went into making of it happened. .

But maybe we can do both? An ASIC machine is little more than a noisy space heater with a number of hashing processes, converting almost all the electricity it consumes into heat. If Icelandic officials wanted to grow more tomatoes, bananas or corn using the green electricity their country is so blessed with, they could simply put a few ASICs in their greenhouses.

Imagine: you get locally grown Icelandic vegetables And secure the largest digital monetary network in the world. Perhaps the block grant these bitcoin miners earn could pay for a Bitcoin research staff in the Prime Minister’s office.

Joakim book

Joakim bookJoakim book

Joakim Book is a writer, researcher and editor on all things money, finance and financial history. He holds a master’s degree from the University of Oxford and was a visiting scholar at the American Institute for Economic Research in 2018 and 2019.

His work has been featured in the Financial Times, FT Alphaville, Neue Zürcher Zeitung, Svenska Dagbladet, Zero Hedge, The Property Chronicle and many other media. He is a regular contributor and co-founder of the Swedish freedom site, and writes regularly for CapX, NotesOnLiberty and

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