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Inside the Kingdom of Bhutan’s Secret Bitcoin Mining Operation
The era of countries and kingdoms mining bitcoin has officially begun. Although, we now know that it began a little earlier than we expected. The Kingdom of Bhutan has been secretly mining bitcoin for around three years.
The news broke in an article published by Forbes Magazine, but the article seemed to be hypercritical of the decision made by Bhutanese leadership. The article criticizes the allocation of resources as well as the secrecy around the mining operation. Other opinions are warranted in this story to balance the narrative about what exactly is going on.
The Early Days of Bitcoin Mining
The early days of bitcoin mining is an exercise in game theory so there are real tradeoffs being made with respect to actors as large as countries deciding to mine bitcoin. The theory is that once a few small countries start to mine bitcoin, it will be a risk for larger and larger countries NOT to mine bitcoin. This will trigger a digital arms race in mining equipment as more countries scramble to mine a diminishing supply of bitcoin.
Countries that are mining bitcoin early, like Bhutan and El Salvador may gain a competitive edge by being trail blazers. It is in their best interest to keep certain details of their mining operation secret. The longer other countries wait to mine bitcoin, the larger the share earlier adopters will get. So there is a bit of incentive to keep things secret, but despite the secrecy, what can we say for sure about Bhutan’s mining operation?
Inside Bhutan’s Mining Operation
One point that is often overlooked when talking about bitcoin mining is where the energy comes from. Bhutan receives most of its power from renewable sources including hydroelectric dams.
One of the caveats of adopting renewables is their intermittency. May it be solar, wind, or even hydro, renewables produce a fluctuating amount of energy. It is always necessary to build facilities and reserve the capability of producing much more power than what is demanded by the public.
This serves up a nice opportunity for whoever is running the power plants. They can monetize the excess, unused, or otherwise stranded energy. There is the upfront cost of actually buying the miners, but the cost of running them is far underneath the revenue they produce. This can be an essential bottom line booster for the energy industry. A relevant example of this is Congo’s Virunga National Park; they’ve monetized excess energy from a hydroelectric plant and used it to preserve the surrounding area.
El Salvador Also Mines Bitcoin
El Salvador also began mining in 2021 with their volcano powered mining facility. Again, there is no energy being wasted here, just a country making use of energy that wouldn’t have otherwise been harnessed.
The countries get a boost to their GDP whilst gaining monetary sovereignty by selling energy to a borderless buyer, bitcoin. The bitcoin may be sold, or kept. In either case, the money may be reinvested back into the expansion of bitcoin mining and energy, or used to strengthen societal infrastructure.
The Race is On
Depending on how you count it, at least 2 countries are actively, and somewhat openly, mining bitcoin. Now that the race has begun, we can expect more to join the game. Rest assured, other countries are taking notice and making plans to build their own operations.
However, the early days may be coming to a close. More than 90% of all bitcoin has already been mined. All future miners will be fighting over the remaining ~9% plus whatever fees accrue on each block. This begs the question, will mining even be around as the incentive to mine decreases?
The Future of Mining
Built on the assumption that there will be mining in the future, is the assumption that the value of block rewards will exceed the cost to mine those rewards. This necessitates either an increase in the USD/fiat value of BTC or unprofitable miners to stop mining.
The only entities mining in the future, will be the ones that can remain profitable despite significantly diminished rewards.
The next bitcoin halvening is coming in May 2024 and will reduce block rewards from 6.25 to 3.125 BTC per block. This is why it is crucial for companies and countries to begin mining sooner rather than later.
So with all of this in mind, in the event that bitcoin rises in price to compensate for its drop in price, what does that look like for those of us who are already mining?
What Will Bhutan Do With Their Bitcoin?
We might be looking at a significantly different world if bitcoin actually makes a tangible jump up in price every time its inflation rate is cut in half. While it is hard to imagine bitcoin going any higher, there is some cause to believe that there is still significant room for bitcoin to grow.
Bitcoin can rise to the level of gold, a 20x increase from current prices. Beyond that, bitcoin will have to become global money. So what will Bhutan do in either of these scenarios?
We hope that Bhutan will use bitcoin to enhance the quality of life for its citizens. We hope that Bhutan will be next to declare bitcoin legal tender and begin to deploy their bitcoin throughout the country.
The price rise in bitcoin we’re talking about would be an unprecedented surplus in GDP for a country like Bhutan. What Bhutan, or any country for that matter does with their bitcoin is for history to decide. The world waits in anticipation.
