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While Toronto Gears Up to Become A Smart City, Quebec is Being Killed By Bitcoin

It’s like a tale of two Canadas. On one end, Toronto is getting ready to be the country’s first smart city as Alphabet’s subsidiary Sidewalk Labs begins to plan out its timeline for building a smart complex. On the other end, Quebec is being overrun by Bitcoin miners and has seen better days.

The country as a whole can’t seem to get it together when it comes to new and exciting technology. While one side flourishes, the other diminishes.

A Quebec Bitcoin Farm

In a small industrial part of the city sits an old warehouse that was once a factory for diapers, and then a storage space for soup. It is now home to a construction site and a few company cars, which are joined by a few computers that give off a loud humming noise all day and night.

Source: HD Tecnología

The company behind these computers — thousand of them, by the way — is called Bitfarms. It is one of North America’s largest cryptocurrency mining operations. Inside the warehouse, about 7,000 of these machines (a number that is expected to grow to over 14,000 by July) work repetitively, day in and day out, completing the same task over and over and over.

On one side of the room the machines line up perfectly against the wall as their wires stretch across to the other side. A series of fans line the other wall to keep the machines cool enough to continue their jobs as workers run back and forth keeping everything in tip-top shape. It’s hot, so jeans and t-shirts are acceptable attire. It’s like working in a IT sauna.

These machines also cost a lot to maintain and take up way more energy than one would expect. The 7,000 in this one warehouse alone use more energy than the nearby Montreal Canadiens’ hockey arena, even on a sold-out game night.

Source: World Bank and Digiconomist

All over the world there are more of these machines completing the same tasks for other companies. In fact there are millions of them. Since 2016, when Hydro-Québec, the city’s utility company that manages all of the transmission and distribution of electricity, began working on a plan to attract more data centers to the area, companies like Bitfarms have been flocking to the area.

How Quebec Bit Off More Than It Could Chew

As Hydro-Québec was trying to appeal to data companies, more and more Bitcoin mining firms began throwing their hats into the ring for consideration. Once the number of interested parties reached way higher than anyone ever expected, the province began to wonder if it had made the right decision.

If it allowed just a fraction of these mining operations into the area, Quebec could become the new global hub of cryptocurrency mining. However, if it gave them access to its power supply, the entire process could be too much for Hydro-Québec to handle and it could crush under pressure.

Energy-Intensive Mining

Mining for cryptocurrency is no easy task. While miners don’t find themselves miles deep in a mine covered in coal and dust at the end of the day, the process is still very debilitating on a technological level.

Source: SCMP

Every ten minutes or so, Bitcoin releases new currency in exchange for solving a puzzle. These puzzles aren’t easy to find the answer to and they can’t be solved with basic math. Solving these computational problems unlocks a “block” of transactions. This is done by converting the data representing those transactions into a sequence of code known as a “hash.” The process has been compared to guessing lottery numbers. Like the lottery, it’s not only a game of chance, but also a game of guessing a sequence of digits correctly. That’s why the process consumes so much energy.

“You’re essentially solving worthless puzzles that we cannot solve mathematically,” says Christian Catalini, associate professor of technological innovation at MIT and founder of the university’s Crypto­economics Lab. “You can only brute-force your way into it.”

Mining Bitcoin is also very labor intensive because of its decentralized characterization. Rather than depending on banks of the government to regulate it, these puzzles are put in place. It’s essentially based on a trust system — or lack thereof, actually. The transaction is seen as a fight between a user and an attacker. These puzzles make it impossible to steal from other miners or to make fraudulent transactions because both parties must verify what is taking place before it can be completed.

“Basically, you’re placing an economic cost between a user and an attacker,” says Catalini. “If someone wants to subvert the system by faking a transaction, or revert a legitimate transaction, they would have to expend a tremendously high amount of energy and computation — to the point that no rational economic actor would do that, because the cost of doing an attack would be far greater than the benefit.”

A Smaller Carbon Footprint Could Be the Problem

Bitcoin mining companies pride themselves in using clean energy to perform their tasks around the clock. In countries like China and the United States, a lot of energy comes from fossil fuels. This makes these destinations less ideal to work in, although the U.S. is still the second most popular country for cryptocurrency miners.

Source: World Finance Markets

“We use a lot of energy,” says Pierre-Luc Quimper, the founder of Bitfarms. “It has to be clean. If we have a footprint on the environment, that’s bad.”

Hydro-Québec stands by its promise that is uses hydroelectric power to run its systems. The company claims that the power used for the mining companies is “surplus” — an extra 100 terawatts of low-impact energy. The problem: as demand grows and more energy is needed to power these machines, the power supply available will not be able to sustain much longer.


Originally published at sanvada.com on April 19, 2018.