The Canadian firm Bitfarms is returning to its cradle.
Created in 2017 by two Argentines, its market value tops US$1.2 billion, approximating other giants such as Mercadolibre, OLX, Globant and Despegar.
What they do, in short, is to validate the transactions in the Bitcoin market, the world’s most expensive cryptocurrency. Or “mining” in the jargon.
They are considered a “farm” because they possess sufficient equipment, computer capacity, energy and infrastructure to “mine” on a vast scale. And according to an announcement via a communiqué, they are already installing themselves in Argentina.
They wouldn’t be the only ones – subsidies, a favourable climate and duty-free zone benefits are some of the keys to placing this country in the sights of “farms” worldwide.
Anybody with knowhow and a good computer can mine cryptocurrencies at home. From there on, as in any business, everything depends on investment.
Mining means “validating transactions for the network of a determined blockchain, in this case Bitcoin. The more computers processing these data, the safer the network,” businessman Sebastián Nill, who heads up Aeternam Brokers, explains to Noticias.
What the computers do, then, is to take care of the transaction not being fraudulent, “via the resolution of a mathematical problem concretely linked to previous transactions in the same blockchain.”
That’s how it’s possible to earn bitcoins by investing money – mining also has its economic rewards. And the computer firepower which the companies dedicate not only brings security to the currency but is also valued with a market price.
Increasingly more firms are dedicated exclusively to mining cryptocurrencies. But lacking Central Bank regulations, the work is difficult (or almost impossible) to catalogue as such.
It is in that context in which Bitfarms has announced its arrival in Patagonia, and although geographic clues have been avoided, it’s an open secret within the sector that the place will be Tierra del Fuego.
If they install and build their farm next year, it will be the biggest running nationwide.
Bitfarms CEO Emiliano Grodzki has announced in a communiqué that they will use energy “at the attractive rate of only US$0.022 kw/h [kilowatt/hour], which substantially reduces our already low costs of mining bitcoin.”
On the international market, the value of electric energy is around US$0.06, almost treble.
The company’s aim is to use up to 210 megawatts and towards that they plan to instal over 55,000 machines early next year, which will add to the 21,500 already operating in Québec and the 8,000 projected for Paraguay.
Bitfarms President Geoff Morphy explained that the arrangements for purchasing electricity “comprehend an eight-year contract with a fixed cost during the first four.”
He also assured that “neither the national nor any provincial government will be participating in the enterprise,” although they are in dialogue with local government over the requisites for building and operating the plant.
One incipient criticism of this business is that it is taking advantage of the huge subsidies which the government grants CAMESSA, which are then transferred to private regional services.
Although Bitfarms has still not revealed its location nor the company with which it has worked out an agreement, it has clarified that “over 99 percent” of its production will be carried out with renewable energy.
For Nill, the political and economic cycle in Argentina makes it increasingly profitable to invest in mining cryptocurrencies. He highlights the cheap electric energy but also the exchange rate gap.
“We’re obtaining an asset, the cryptocurrency, which can be liquidated on the market for the price of a blue dollar, with which we will be paying for the electricity with pesos from exchanging money at a rate of 184 pesos per dollar. That translates into an almost 50 percent discount on your electricity bill,” expands the bitcoiner.
On the other hand, he points out that the duty-free zones (like Tierra del Fuego) offer tax benefits for numerous services, rents and even salaries. No less important, they do not restrict economic activities so that the “farms” would be functioning legally within the realms of possibility.
“We miners aren’t doing anything wrong but we are still in a grey legal area and that complicates us in having the transparency to pay the services involved in farming cryptocurrencies,” explains Nill.
Yet at the legislative level the motor seems only now to be kicking into gear. A Juntos por el Cambio deputy has presented a bill inquiring into the situation, but has still met with no response and confusion reigns.
In the midst of the announcement of the arrival of Bitfarms, Tierra del Fuego Energy Secretary Moisés Solorza stepped in assuring that “there are not 210 megawatts of energy available or to spare” in the province.
He further said that he had no knowledge of any negotiations between the Canadian firm and private electricity companies.
The official recognised that “illegal” installations of this type were on the increase in the province and that they are being analysed. One of the reasons is the temperature – the cold weather minimises the expense in ventilation and helps to maintain the computers without overload.
“We’re in the process of reviewing these enterprises, which create very few jobs and consume vast amounts of energy,” said a reticent Solorza.
A recent University of Cambridge study has determined that Bitcoin consumes more electric energy annually worldwide than Argentina. Yet the NGO Bitcoin Argentina alleges that the consumption required to mine in national territory is 70 watts per user and that between 35 and 70 percent of that energy comes from renewable sources.
“At the level of profitability there’s no company as efficient as a cryptocurrency mine,” assures Nill.
There are currently two bills in Congress to regulate these assets. While Argentine bitcoiners have expressed themselves in favour of regulation, they ask to be taken into account and to participate actively in future debate.
Regulating the "crypto" economy
Radical deputy Martín Berhongaray has presented a bill in Congress asking for a government report on the installation of Bitfarms via the Science & Technology, Environment and Economy Ministries.
He has asked to ascertain “if the total national grid currently or potentially has that kind of capacity available and if the consumption of electric energy will be subsidised by public funds” and, if so, what would be the source of funding for the subsidy and the criteria for assigning it.
In Berhongaray’s view, “even if the company provides energy from clean sources, there will be less available for the rest of the country.”
There still seem to be more doubts than certainties in this issue and nor had the Tierra del Fuego government been able to provide any data on the presumed agreement when this article was written.
Two more bills to regulate cryptocurrencies have been presented from either side of the house floor to join Berhongaray’s.