Hell’s Gate, Kenya — A tiny group of bitcoin miners set up shop at an extinct volcano at Hell’s Gate National Park, some 2.5 hours northwest of Nairobi by automobile.
The mine, located on the outskirts of Lake Naivasha, is run by a startup called Gridless and consists of a single 500-kilowatt movable container that, from the outside, appears to be a small residential trailer.
Gridless, backed by Jack Dorsey’s Block, uses solar and geothermal energy to power its equipment. It’s one of six mines run by the company in Kenya, Malawi, and Zambia, powered by a combination of renewable inputs and working toward a larger purpose of safeguarding and decentralizing bitcoin network.
“Most people think about bitcoin and its price, and how they can save or spend it,” Gridless CEO Erik Hersman told CNBC during a visit to the Kenyan mine earlier this year. “That doesn’t happen without the bitcoin miners and us being globally distributed.”
Decentralization is an important element of bitcoin since it means that the network is not controlled by any institution and cannot be shut down, even if a government objects.
Bitcoin and other cryptocurrencies are formed using a technique known as proof-of-work, in which miners around the world run powerful computers that collectively validate transactions while also creating new coins. The process demands a lot of electricity, therefore miners look for the lowest sources of power.
While there are over a dozen publicly traded miners, thousands of smaller, privately held enterprises compete to process transactions and receive payment in fresh bitcoin. Individual miners in nations ranging from Venezuela to Lebanon may use a single mining rig in their kitchen or several hundred thousand in an industrial-grade datacenter.
Bitcoin mining, no matter where it takes place, is a risky business because so much of the economics are dependent on the cryptocurrency price. Bitcoin has risen sharply since losing 60% of its value in 2022, reaching a high of over $73,000 in March before retreating slightly in recent weeks.
Much of the increase has been attributed to the opening of spot bitcoin exchange-traded funds in the United States, as well as optimism over the so-called halving, which occurred late Friday. That event occurs every four years and is designed to reduce the incentive for bitcoin miners by half, slowing the rate at which new bitcoins reach the market. Prior halving occasions have resulted in significant cryptocurrency price increases.
“Bitcoin is effectively unbreakable at this point,” said Adam Sullivan, CEO of Core Scientific, a Texas-based bitcoin miner. “Bitcoin is at a point where it is more profitable to continue supporting the network than to try and break it.”
Deutsche Bank analysts stated in a note on April 18 that they expect the geography of crypto mining to alter following the halving, as thinner profit margins compel miners to seek cheaper and more reliable sources of electricity. According to the researchers, the United States presently accounts for 40% of mining, followed by Russia (20%) and China (15%).
“Latin America, Africa and the Middle East have caught the attention of crypto miners due to their lower energy costs,” they said in a statement.
Bitfarms, based in Toronto, now operates in Argentina, while Marathon Digital, headquartered in Florida, has expanded into the UAE and Paraguay.
Hersman, 48, grew up in Kenya and Sudan, where his parents were linguists. Before venturing into bitcoin mining, he and his two co-founders, Philip Walton and Janet Maingi, spent years developing internet access infrastructure in both rural and urban Africa.
In early 2022, the trio began thinking inventive solutions to Africa’s power generating and capacity gaps, as well as its lack of access to electricity. They came up with the notion of bitcoin mining, which has the potential to solve a major problem for renewable energy companies by redistributing stranded power across the continent. In Africa, 43% of the population, or around 600 million people, do not have access to electricity.
Gridless today employs eight full-time employees and controls much of its operations remotely via software.
Converting lava into Bitcoin
Hell’s Gate is a steep and winding canyon home to cheetahs, zebras, and giraffes, surrounded by rocks, volcanoes, and dense shrubbery.
The land is blanketed with ash, and sulfuric plumes of steam may occasionally emerge from the ground, a reminder of the nearby, burning volcanic craters that wiped out some of the original Maasai tribe in the mid-19th century and threatened others who dared to live there.
Gone are the days of deadly eruptions and lava flows. Multiple geothermal power stations are made up of an intricate, labyrinthine piping system and volcanic plugs, rather than one.
Volcano-powered bitcoin mining is nothing new.
Iceland, El Salvador, and other countries are using geothermal energy to mine bitcoin. To make the conditions work for miners, businesses require a combination of local government buy-in, cheap and abundant power, and some infrastructure, according to Nic Carter, founding partner of Castle Island Ventures, a blockchain investment firm.
“If you have those three ingredients, it can work, but sometimes, it’s the nation state, or a national, state energy company doing it,” Carter went on to say. He cited the Middle East as an example of state-level entities entering the flare gas mining industry.
“In some cases, it’s with the explicit blessing of the nation state like Bhutan, and then in Texas, it’s just with very favorable local regulators and local conditions,” he went on to say.
Africa has an estimated 10 terawatts of solar capacity, 350 gigawatts of hydro, and 110 gigawatts of wind.
Some of this renewable energy is currently being used, but a large portion of it is not because the specialized infrastructure required to capture it is costly. Despite having 60% of the world’s finest solar resources, Africa accounts for only 1% of installed solar PV capacity.
Enter bitcoin miners.
Bitcoin has a terrible reputation for consuming a lot of energy, but it can also help unlock these underutilized renewable energy resources. Miners are fundamentally energy buyers, and colocating with renewables provides a financial incentive to increase output.
“As often happens, you’ll have an overage of power during the day or even at night, and there’s nobody to soak that power up,” Hersman said. He said that his company’s 50-kilowatt mining container could “take up whatever is extra throughout the day.”
“Within any second or minute, we are going up and down on a certain number of miners that are running,” Hersman went on to say. “It might be down to 50 kilowatts, then up to 300 kilowatts, then down to 200 kilowatts, and then up to another level — and that will happen all day and all night.”
According to the International Energy Agency, in Africa’s rural areas, “where over 80% of the electricity-deprived live, mini-grids and stand-alone systems, mostly solar-based, are the most viable solutions.”
Bitcoin miners’ need for these semi-stranded assets is making renewables in Africa commercially viable. The power supplier profited from selling previously discarded energy, while energy plants occasionally reduced consumer expenses. At one of Kenya’s Gridless test sites, the hydro plant reduced the cost of power from 35 cents per kilowatt hour to 25 cents per kWh.
The expansion of capacity is also electrifying homes.
Gridless reports that its installations have powered 1,200 homes in Zambia, 1,800 in Malawi, and 5,000 in Kenya. The company’s mines have also provided power for containerized cold storage for local farmers, battery charging stations for electric motorcyclists, and public WiFi access points.
“It’s not really sexy,” Hersman explained. “It is a mining container constructed from a cargo container. It has a slew of dumb machines that repeatedly run the same equation, yet it is actually what secures the network.”
