Can Bitcoin Miners ‘Do’ AI? Not Really

Bitcoin miners are trying to pivot to artificial intelligence with varying results

The bitcoin industry–particularly its niche mining sector–is no stranger to hype trains. Now, a new one has rolled up: artificial intelligence.

Chat-GPT and other large language-model programs (often dubbed AI, even if that is technically not the correct term) are making waves across workplaces and online spaces this year. So naturally AI references are popping up in crypto press releases and headlines.

For example, some miners have publicized that they are seizing opportunities in AI to put obsolete hardware to work. But that does not mean that each firm is performing the same functions or at the same level or scale as AI data centers. In fact, they are performing much different tasks than those needed to power the services that people commonly refer to as AI, but some miners may be throwing the term just around to cash in on the craze.

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Over the past few months, HIVE, Hut 8, and other Bitcoin miners have publicized new high-performance computing (HPC) / AI strategies. Most of these miners have computer hardware that was rendered obsolete by Ethereum’s change to a proof-of-stake network consensus mechanism, which ended ether mining, and some have advertised the ability to now rent out their computing power for high-performance computing (though Hut 8 has been doing so since 2022).

High-performance computing is a catchall for any number of data-center tasks. When miners talk about HPC, however, they are specifically referring to things like cloud computing or graphics rendering. Hut 8 earned $4.5 million from such services in Q1 and $4.3 million in Q2, while a pilot program for HIVE generated $200,000 during Q1, but the miner did not mention any HPC revenue for Q2 in its SEC filings. Hut 8 has a contract with British Columbia’s Interior Health agency to provide high-performance computing services until 2028. The company purchased the 6 megawatt facility that provides these services when it acquired the data-center operations of Toronto-based TeraGo in 2022. HIVE did not respond to a request to specify exactly what type of high-performance computing its GPUs conducted during the Q1 pilot program.

These are not the same types of computations that train AI models or power Chat GPT. Miners don’t have the proper computing equipment to support this kind of work, nor do they have the right electrical and network infrastructure (AI computing needs a network bandwidth of at least 1 terabyte per second, a tremendous step up from industrial-scale mining farms, which usually have speeds of 1 gigabyte per second).

The cost of building a true AI data center can be anywhere from 10 to 20 times the price per megawatt of a new bitcoin mining site (a megawatt can power about 200 Texas homes, according to electricity authority ERCOT). Additionally, the power cost for such a facility would be double what miners pay now, perhaps as high as 15 cents per kilowatt/hour. Bitcoin miners in the U.S. typically pay 5-8 cents.

Riot Platforms estimates that its forthcoming top-of-the-line bitcoin mining facility near Corsicana, Texas, will cost $833,000 per megawatt of power capacity to construct the first phase of 400 megawatts.

The costs of running a HPC facility dwarf those of a bitcoin miner

Compare this cost to an average for HPC data centers in North America calculated from Turner & Townsend’s 2022 data center index cost: $9.5 million/MW.

The cost comes from the complexity of these data centers. They require a much higher caliber of electrical infrastructure and networking gear, not to mention that they need significantly more space, superior cooling and more powerful backup generators in case of power outages to ensure 99.99% uptime. Simply put, these miners don’t have the funds or the market prowess to build or retrofit an AI or even a traditional data center (case in point: Microsoft invested $10 billion in OpenAI).

This cost is just for a traditional high-performance datacenter, not necessarily one that is souped up with the capabilities that drive engines like Open AI’s Chat-GPT and Microsoft’s Bard.

Bitcoin mining companies were born from sudden-pivots to the business line, but at this stage in their development, these companies should be careful when trying to bottle technological hype in sectors like HPC/AI.

Two of the largest public bitcoin miners today, Riot Platforms and Marathon Digital, announced bitcoin mining business lines in 2017, but the companies were public long before they got involved with cryptocurrencies. Marathon Digital was formerly Marathon Patent Co., making its dollars from buying and selling various technological patents. Riot was a pharmaceutical company.

Both companies have grown to rank among the largest bitcoin miners in the world, so the pivot’s paid off.

But it would be extremely difficult and expensive for a major bitcoin miner to retrofit its mining farms to become AI data centers (which is why Hut 8 purchased data centers for its healthcare sector operations). It is also worth noting that, in the traditional data-center market, miners would be competing with the most powerful tech companies in the world: Google, Amazon and Microsoft.

Applied Digital is a special case: it’s a data-center company that also hosts bitcoin mining equipment on behalf of clients. That distinction is important, because it's easier for traditional data-center operators to slap a container of bitcoin mining rigs on-site than for a miner to build a center from scratch. The AI Hype Wave of 2023 lifted Applied Digital's stock price to as high as $10.24, although the stock has retraced significantly to $5.68 at the time of writing. Applied Digital and mining stocks in general are on a hot run right now, as evidenced by the chart below, so we advise caution to investors who are considering these equities.

Bitcoin mining stocks have surged along with the underlying asset this year, but many were looking to AI to recapture their bullish momentum

We would wait until the hype dies off and the market figures out which companies are well positioned to capture and profit from the AI wave.

For the miners, those that can offer graphics rendering services will, but none of these companies will be employing their mining hardware for Chat-GPT. So don’t drink the Kool-Aid when you see AI in a headline or press release – it’s not what you think.