300 computers work in a trailer at a geothermal power station near El Salvador’s Tecapa volcano to verify transactions for cryptocurrency bitcoin.
The pilot project has sparked a series of volcano emojis by President Nayib Bikele, who declared bitcoin legal tender in September and promised cheap, renewable energy to “mine” bitcoins. These operations have been widely criticized for their large amounts of electricity and carbon footprint.
Bukele and others believe El Salvador’s geothermal resources, which generate electricity from the high-pressure steam generated by the volcano’s subterranean warmth, could be a solution. The picture in this tiny Central American country is a bit more complicated.
During a Friday tour, Daniel Alvarez (president of the Rio Lempa Hydroelectric Executive Commission), stated that the company does not use resources that could contaminate the environment.
According to Brandon Arvanaghi (a bitcoin mining consultant), the two most important factors in attracting bitcoin mining operations are cheap power and a supportive state.
China supplied about three quarters of the electricity required for crypto mining two years ago. This was because it had cheap hydroelectric energy. However, the government started to restrict mining and declared illegal all transactions involving bitcoin or other cryptocurrencies in September.
This has led to an increase in the number of mining operations being set up in other countries.
Bukele’s announcement last summer that bitcoin would be legal tender in El Salvador would seem to have been a stroke of luck. In part, the president sold the plan to Salvadorans who live overseas (mostly in the U.S.) to be able to send more money home to their families. He was also a beloved figure in the bitcoin world.
The launch was not smooth. It was expected that Salvadorans would use the digital wallet to make basic transactions. However, it had a slow rollout. Some users claimed they only wanted the $30 government offered as an incentive. The concern that the digital currency which claims to be controlled by no government will encourage criminal activity continues to exist.
The United States has so far been a major winner in attracting more Bitcoin mining operations, particularly Texas which has abundant renewable energy and a deregulated market.
Bitcoin mining in El Salvador would seem to be supported by a government in Bukele. However, cheap electricity is still a promise.