Someone is wrong on the Internet! A recent article on a website called NFT Evening has been circulating, claiming that it costs $1,986.20 to mine 1 Bitcoin in Ethiopia. This information is outrageously wrong, by more than 2000%. Normally I would just ignore such nonsense. But unfortunately, it is spreading, and many people are getting misled. The misinformation is potentially harmful, so I feel compelled to respond.
Disclosure: My company QRB Labs is the first Bitcoin mining company in Ethiopia, and to date the only Ethiopian company. I believe this business is very good for the country, as explained before here and here.
First misconception: price of energy
So here are the facts (see the footnote at the end of this post for details on the units).
- The global hashrate, i.e. total computing power of all Bitcoin miners in the world, is currently around 800EH/s.
- All together miners earn about 3.2 BTC total every ten minutes. This is the sum of the block subsidy and transaction fees.
- Thus to get 1BTC , it takes about 800x10^18*600/3.2 = 1.48 x 10^23 Hashes.
- Mining is done by ASIC computers which use from about 17 J/TH for the most efficient machines to 35 J/TH for the less efficient ones. Let's take the mid-point of 26 J/TH.
- Therefore to get 1BTC it takes about 1.48 x 10^23 x 26 / 10^12 Joules of energy. Converting to kWh, 1.48 x 10^23 x 26/10^12/ 3,600,000 = 1.07 Million kWh.
- The price of energy from Ethiopian Electric Power for Bitcoin miners is US$0.0314 per kWh. With Value Added Tax, the total cost of energy is a bit over $0.036 per kWh
- Multiplying the last two, the answer is $38,480 dollars of electric energy per BTC.
Note that the global hashrate and the transaction fees change continuously but this snapshot gives you an idea of the situation for the last few months. For a more in-depth explanation of how it evolves, see the paper entitled "Dynamics of Bitcoin Mining".
Hopefully now you understand just how ridiculously incorrect $1,986.20 is. The real number is around $38,000 -- about 2000% more.
Second: energy is not the only cost
A lot of people who have never mined think energy is the whole cost. This is very incorrect. The price of electric energy is indeed a big variable for miners, but it's only half of the total cost. You need to add infrastructure and the machines and the operating costs. To take some nice round numbers, let's assume we have 1GW of mining.
- First you need to put in transformers, electrical distribution switchboards, breakers, cables, routers, switches, shelves, containers or buildings, air or water cooling systems, etc. This will be about $200M to $300M in capital expense. Depending on your power supply and demand in your area, and the overall environment, this investment may last 5 years, so as an amortized expense it would be about $5M per month.
- Second you have to buy the ASIC computers. At today's price, for 1GW that will be about $400M to $500M of capex on the computers. These machines will typically have a lifespan of about 4 years. So, amortized, an expense of about $10M/month
- Third you have to actually run the facility, including internet access, employees salaries etc. For 1GW, you can assume about $1M-$2M/month.
Put it all together, throw in taxes, repairs, spare parts, logistics costs etc, and you get that 1GW of mining incurs costs about $26M per month in energy and $20M per month in other expenses. With revenues of about $50M to $55M per month. That makes the profit margin 10% to 20%.
Of course, if the price of Bitcoin drops by 20%, as it just did in the last week, the mining margin can quickly turn negative. Conversely, if the price shoots up, then profits go up, but eventually the global competition increases and profits shrink right back. For a more technical explanation, I refer you again to "Dynamics of Bitcoin Mining". Bottom line: mining is a ruthlessly competitive, risky, low margin global commodity business.
These numbers give you a range of what might be the total of the industry in Ethiopia. Bitcoin mining in the country involves a couple of dozen companies, and it reached ~600MW in October 2024, just 9 months after it started. So 1GW gives a rough order of magnitude for the near future. It may sound like easy money. But what it really is: invest $600M-$800M of capital into a country which is risky and difficult to work in, even by African standards. And then pray that you can survive risks. If you do, after a couple of years, you will recoup your initial investment, and then for another 2-3 years you will maybe achieve a low double digits return on investment per year. It's a pretty tough proposition. The average tech startup is low risk by comparison. Most Western investors can generate that rate of return at much lower risk in traditional areas. To go for it you have to have a very strong dedication to a mission, or an extraordinary level of risk tolerance.
For comparison, Core Scientific, a publicly traded American miner put out their earnings report just a few days ago. Their electricity cost is $0.024 per kWh and operating costs are $0.009 per kWh. So Ethiopia is actually more expensive than the best places in the US. Considering all the other handicaps of Ethiopia (like extreme import difficulties and high taxes as discussed here), mining in Ethiopia is no walk in the park.
So it's a bit annoying to have ill-informed people with no skin in the game calling for bans, confiscations, price increases or whatnot. If they succeed, not only will our investment be burned, setting a very negative precedent for future investment, but also the country would lose its fastest growing major source of foreign currency. Most importantly, the opportunity to accelerate the electrification of the country could be squandered. This is why it's important to fight this bad information, as stupid as it seems.
Enshittificafion
As Bitcoin miners, turning waste into useful things is kind of our ethos. So besides correcting the facts as we have just done, it's worth taking a moment to examine how we got here. This is a good case study of enshittification, the gradual degradation of quality in online content.
Consider the timeline
- On February 3, 2025, a website called NFT Evening posted a typical content-farm article. Full of incorrect data, nonsensical comparisons and flashy tasteless infographics. Some red flags that should alert the reader immediately. Half way down the article it says the current price of Bitcoin is $57,909.16. First of all, that week, the price of Bitcoin was in the mid ninety thousands range, briefly spiking above $100k. The price hasn't been anywhere near $57k in months. Second, why use 7 digits of precision on the price when it changes continuously? Unless you are talking about the real time price at a specific moment in time, like citing a transaction, that makes no sense. One reason could be that the author is, or thinks the reader is, impressed by the false precision of more meaningless digits. Another explanation is that the article was generated by an AI language model which accidentally regurgitated six month old data. Even the electricity prices are pretty random. They cite a petroleum website as the source. But for all we know, they were harvested from local prices published long ago, multiplied by exchange rates from a different time frame; confusing rates which vary by quantity and industry; or maybe just made up. Another red flag is the author's bio: full of the most cliché keywords like crypto, NFT, DeFi, Web3, AI... Ugh. That string is not a sign of high quality to put it mildly.
- On February 20, 2025, BitCluster (a foreign company mining in Ethiopia) posted the story highlighting the number $1,986.20 for Ethiopia. Why? This is a mystery. First of all, again going down to the cent is ridiculous as the precise number would be changing continuously. Second, more importantly, anyone even remotely connected to the real business operations would know the number is ridiculously wrong. Third, to the extent that this number is believed, it could lead to calls for massive increases in electricity price, suspicion from the tax authorities looking for hidden profits, and outright ban. Fourth, if this was true, it would mean BitCluster is gouging their own hosting customers. All things that presumably BitCluster doesn't want. I have reached out to the CEO of BitCluster for an explanation but haven't heard yet. For now, I'm going to assume a drunk marketing intern is in charge of the BitCluster X/Twitter account.
- On February 24, 2025, the X/Twitter account called Project Mano reposted the BitCluster tweet and went on an unhinged rant about how foreigners are bad for Ethiopia, how this is a national humiliation etc. When we QRB Labs corrected their number publicly, they reached out privately with long justifications for their attack. I asked the person simply if they believe the number $1,986.20. They said of course not. Literally the only data point which underpins the entire rant is false, and they know it! This was actually a shock. Honest disagreement is no problem. Ignorance and innocent mistakes are forgivable. Holding strong opinions without having skin in the game is not great but understandable. But deliberate falsehood, I did not expect. Of course it's normal in politics people lie and convince themselves the ends justify unethical means. But in this context, it may sound naive or strange to outsiders who only hear about "cryptocurrency" and "blockchain" nonsense, but there's a certain idealistic ethos among Bitcoiners. Things like honest money, proof of work, low time preference etc. are taken seriously. So to see Project Mano engage in pure falsehood and propaganda was a deep disappointment.
- On February 27, 2025, the website Addis Insight posted the same article. They literally copy-pasted the entire article from NFT Evening without attribution. I guess there's no honor among content farms. No research, no credit, no attribution, just a mindless relentless race to the bottom. It's almost a perfect case study of enshittification. The only thing missing is 2010-style "listicles" about "Ten easy steps for you to profit from this today!"
- Shortly after that it started circulating on Whatsapp. The blast radius is expanding. More and more innocent people are being fooled.
It's an amazing example of how bad information can start on one website trying to make money in a quick and lazy way, and then quickly flow downhill from there. As the saying goes, a lie can travel halfway around the world before the truth puts on its shoes.
Notes
1. Units used in calculation:
- H stands for hash, the calculation miners do.
- E stands for Exa, which means a quintillion, 1 followed by 18 zeros.
- T stands for Tera, a trillion, 1 followed by 12 zeros.
- J is a Joule, the standard unit of energy. Power is in Watts. 1W = 1J/s. And 1kWh = 3,600,000J.
- Power is energy divided by time.
2. A quick note on the related topic of asking the Ethiopian government to mine Bitcoin itself. I think it's a bad idea. My reasons are explained in this talk https://youtu.be/sHiN0yTz4BE?si=zMBa7-fL4JteiNYp&t=998 starting at the 16:30 mark. But that is a longer topic which I will maybe cover separately.
3. EEP pricing is not quite optimal in my opinion. To fully align the incentives of the industry and the energy provider with the benefit to the country, it should be dynamic, with strong differentiation based on supply and demand at different locations and times. But that's another larger topic to address separately.
4. Shout out to Gridless for the Bitcoin dung beetle metaphor and image.
5. In case they get deleted, here are the achive links for
Addis Insight article: https://archive.is/1dLTW
Project Mano tweet: https://archive.is/bMROv
NFT Evening article: https://archive.is/2HDMC
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