Inside the race for Bitcoin mining capacity, which increased by about 30,000 percent in 2013
Into the Bitcoin Mines — On the flat lava plain of Reykjanesbaer, Iceland, near the Arctic Circle, you can find the mines of Bitcoin. — To get there, you pass through a fortified gate and enter a featureless yellow building.
Context & Ripple Effects
The mining story has been building all year: back in April 2013, TechCrunch tallied $150,000 a day in power consumption alone across the network, and by November Businessweek was tracking several companies racing to build specialized mining chips. DealBook's visit to the Reykjanesbaer facility puts a physical face on that chip race — purpose-built halls behind a fortified gate on Icelandic lava, sited near the Arctic Circle for cheap cooling and power.
The timing matters: the piece lands a week after BTC China halted deposits and Bitcoin lost almost half its value overnight, following an earlier drop below $700 on BPI exchanges. The 30,000 percent capacity surge means miners are holding fast-depreciating hardware against a falling coin price, which is why the syndicated pickup was broad — Business Insider, VentureBeat, and investors including Chris Dixon, Chris Sacca, and Kevin Rose all amplified it within a day.
First-order effects
- Miners who ordered ASICs at 2013 peak prices now hold equipment whose payoff window is shrinking twice over — difficulty rising with each new chip shipment while the coin trades down from its December highs.
- Icelandic hosts like the Reykjanesbaer operation gain leverage as the scarce asset shifts from mining rigs themselves to access to cheap, cool power to run them.
Second-order effects
- Specialized-chip makers are forced into ever-shorter product cycles, since each generation obsoletes the last and customers' payback math depends on shipping before the next wave lands.
- Regions with abundant low-cost electricity — Iceland first among them — start courting mining operators the way they once courted heavy industry, turning power contracts into a competitive input for the currency's infrastructure.
Third-order effects
- If the arms-race logic holds, Bitcoin mining consolidates from distributed hobbyists toward capital-intensive, datacenter-style operators clustered where power is cheapest — a structural concentration of what was designed to be a decentralized network.
- The pattern establishes a template other compute industries will copy: treat electricity, not silicon, as the binding constraint on capacity siting.
The trend: Bitcoin mining is industrializing from garage rigs into power-hungry data centers sited for cheap electricity, with chip cycles and coin volatility setting the pace of consolidation.