Geothermal powerplant in Iceland.

Iceland may hit a milestone in 2018 because of bitcoin

Miners love cheap electricity and Icelanders know a thing or two about volatility

A remote nation with a small population, shaky politics, a hard left government, and economic turmoil in its recent past is finding that mining is taking up a huge chunk of one of its biggest resources.

Sound familiar? No, not Venezuela or Congo or let’s face it, too much of the developing world.

Nope, we’re talking Iceland, the country that gave the world… um… Bjork. Yeah, that’s one big export. Let’s see… What else… whale meat? C’mon. Work with us here.

Anyway, the natural resource we’re talking about is geothermal-generated electricity and they’re used for mining bitcoin.

According to a U.K.-based news site Metro, 2018 may see more Icelandic electricity used in cryptocurrency mining than in providing power for the country’s homes. Let’s remember that Iceland is a country of just 343,000, according to Statics Iceland. So imagine if Anaheim, California, were an independent nation; perhaps not a bad idea itself.

As noted by Metro:

“Johann Snorri Sigurbergsson, business development manager at the energy company Hitaveita Sudurnesja, said he expected Iceland’s virtual currency mining to double its energy consumption to around 100 megawatts this year.”

As every American obviously knows, Iceland is full of volcanoes and in some places looks like the background scenery in a kid’s book about dinosaurs. All those volcanoes help give the country cheap and easy access to renewable energy at a level reached only in the wildest fantasies of an Oberlin undergrad.

One quarter of the country’s energy production is from geothermal sources, according to Orkustofnun, the National Energy Authority of Iceland and geothermal provides 85 percent of the heat to all homes. It’s also rich in hydroelectricity production.

If there’s one thing bitcoin miners love, it’s cheap electricity. And if there’s one thing Icelanders know, it’s how to get mixed up in a volatile financial asset. The country had maybe one of the most bizarre experiences during the global crisis a decade ago. Its financial system just about collapsed after its banks had leveraged several times the country’s GDP in mostly foreign assets. Iceland’s currency, the krona, plummeted 61 percent from October 2007 to January 2009.

The krona currently trades at under a penny now but was once close to a couple of cents before the crisis. That may not sound like a lot for Americans or Europeans but for Icelanders, watching one’s net worth crumble to nearly half its worth because of a currency devaluation is traumatic.

Ten years later and Iceland’s politics still look like that of a banana republic in that it’s a republic and their parliament is bananas. There’s even a Pirate Party with members sitting in the Althing because if there’s one party its voters want to stand behind, it’s one named after a group of criminals who enslaved thousands of Africans, murdered innocent people, and used violence to settle their differences.

And it’s indeed the Pirate Party that’s up in arms about all this bitcoin mining. They want to tax bitcoin miners. From the same Metro piece:

“‘Under normal circumstances, companies that are creating value in Iceland pay a certain amount of tax to the government,’ [Pirate Party MP Smari] McCarthy said. ‘These companies are not doing that and we might want to ask ourselves whether they should.’”

So, yeah, bitcoin isn’t the worst thing for Iceland.

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Lawrence Lewitinn, CFA was the founding editor in chief of Modern Consensus. Disclosure: Lewitinn owns no cryptocurrencies in his portfolio.