Mining rigs of a supercomputer inside the Genesis Farming bitcoin factory near Reykjavik, Iceland HALLDOR KOLBEINS/AFP/Getty Images

Iceland's government worries that cryptocurrencies could severely damage its economy if their boom ends in a bust. It would be especially devastating for a country that is still recovering from the huge financial crash that crippled its economy just a decade ago. Despite being a remote volcanic island with just 334,252 inhabitants, the crypto threat “cannot be excluded as a risk factor”, says finance minister Bjarni Benediktsson.

When you think of Iceland, it’s most likely that a rugged landscape or the Blue Lagoon springs to mind. Cryptocurrency miners, however, think of a data centre haven, thanks to Iceland’s cheap and plentiful renewable hydro and geothermal power and relatively stable temperatures, which on most days provide natural cooling for the hosted equipment. In fact, most of Iceland’s energy – transport excepted – comes from renewable sources powered by the island’s volcanoes.


As the digital ‘mining’ of cryptocurrencies like bitcoin and Ethereum is extremely energy-intensive, Iceland’s cheap and green energy is a natural asset.

Little wonder the interest from crypto miners is growing by the day. “We receive multiple requests per week from them,” says Styrmir Hafliðason, security and quality manager at Verne Global data centre, about an hour’s drive from the capital Reykjavík. He has to ignore many of the requests, as his data centre simply doesn’t have the capacity to scale its server farms at the speed required.

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But with regulators, bankers and politicians pondering whether the highly volatile world of cryptocurrencies needs to be tamed, Iceland is wondering whether its crypto bonanza could in fact be the next systemic risk.

Unsurprisingly, Hafliðason is bullish. Even if European or other regulators were to suddenly crack down on cryptocurrencies, it wouldn’t impact the country as a whole, because all the crypto assets are not part of the real economy, but held as zeros and ones in private data centres instead. But with so much of these volatile digital currencies stored in the country, are there any reasons to worry?


According to a recent report by KPMG, about 90 per cent of the power consumption of Iceland’s data centres last year was dedicated to the mining of cryptocurrencies; this year, it’s expected to surge further. That is “a huge risk factor for the local industry” according to KPMG, because the volatility of cryptocurrencies makes the market vulnerable to disruption.

The soaring demand for cryptocurrencies was the result of the speculative rise in their value, argues the report, which goes on to warn that the market outlook can “best be described as fragile”.

This fragility reaches way beyond the digital world. In March, Icelandic police arrested 11 people sought in connection with break-ins at four of the country’s data centers. The robbers had stolen 600 servers that had been busy with crypto mining, with a hardware value of almost $2 million in the burglaries in December and January.

For most data centres in Iceland, crypto miners are one of many industries using their hosting services. Quite a number, however, are dedicated to crypto mining. Take the Moonlite Project, which is due to come online later this summer, supporting a new data centre that will host servers for crypto miners who want to mine bitcoin, bitcoin cash, DASH and litecoin on an industrial scale. It will have an initial capacity of 15 megawatts and will aim to produce about $8 million per month in mined currency.

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Projects like this are a boon for Iceland’s energy providers, but also a huge risk. The electricity consumption of Iceland’s crypto mining industry may soon exceed that of all homes in Iceland - gobbling up some 840 gigawatt hours of electricity a year to support its server farms and cooling equipment, according to Johann Snorri Sigurbergsson, a spokesperson for Icelandic energy firm HS Orka. To compare, Iceland’s homes require a mere 700 gigawatt hours a year, he says.

The boss of another big data centre on Iceland, Magnus Eyjolfur of Advania, puts these numbers into context. The real risk, he says, is the country’s dependence on aluminium smelters, which use about 70 per cent of its energy supply. Crypto, he claims, accounts for just two to three per cent.

That may well be, but for an island that – financially - has been badly burned before, it’s still a risk that few finance ministers will want to see without giving it some scrutiny.