El Salvador becomes the first nation state to officially mine bitcoin…the real story.
This headline isn’t true and this hasn’t happened…yet, but we will likely read it in 2022 if not this year. Consider this timeline: on June 5th El Salvador’s President Nayib Bukele announced that bitcoin would be legal tender in El Salvador. Just four days later, on June 9th, he tweeted a photo of a new, 95 Megawatt (‘MW’) geothermal well and announced plans to offer bitcoin mining facilities. The timeline for finding a site, mapping, prepping and clearing it, and then digging an 800 to 2,000 meter deep geothermal well is not four days — this mining plan was set in motion many, many months ago.
El Salvador’s first geothermal well was built in 1975 and the sector provides 25% of the country’s electricity. While geothermal provides nearly free power once operational, the capital required to build a geothermal plant can be as much as $2.5 million per MW ($240MM for the planned well) which is a lot of money for an infrastructure investment in El Salvador which normally would have a payback period measured in decades. But if the plant was mining bitcoin, at $35K, the investment could be paid back in approximately a year and generate around $300 million annually in high margin revenue. Should bitcoin increase in price, the revenue could be many multiples higher depending on hash rate growth. $300 million is over 6% of El Salvador’s 2020 tax receipts.
Without the context of bitcoin mining, the adoption of bitcoin as a currency for El Salvador was not obvious as 50% of the population does not have internet access which complicates using bitcoin to save the 5–10% remittance fees that 360,000 local households pay. But by making bitcoin a currency, El Salvador makes mining bitcoin in the national interest, legitimizing the best method for funding and monetizing its untapped energy resources.
When other countries with massive untapped and underfunded geothermal resources such as Indonesia, The Philippines and Turkey realize what El Salvador is doing, they too will attract capital to expand their geothermal programs. Genesis mining has been using geothermal in Iceland since 2013, but the island seems to have reached capacity for commercial mining. Perhaps moving even faster, countries with existing, underutilized power will realize that bitcoin mining is a way to monetize their untapped resources. Saudi Arabia’s Aramco flares — literally burns — about 50,000 MW annually. The two Inga dams in Congo currently operate at only 40% of capacity leaving an astonishing 1 million MW (10,500x the El Salvador geothermal well) unused. But fastest is Tanzania: on June 14th the president told the central bank to prepare for bitcoin and crypto currencies and, not surprisingly, the country is nearing completion of an enormous 2,110 MW dam.
And for countries that lack natural resources but have the economic need and political will, bitcoin mining could catalyze the deployment of Small Modular Reactors (nuclear power) which Bill Gates has been advocating for years and which likely costs approximately the same per MW as geothermal. For countries with strict capital controls like Tanzania and Turkey, state sponsored or licensed mining keeps control over the local currency and could be treated similarly to the production and export of any commodity. Countries with market exchange rates or that are pegged to the USD have more flexibility with private options.
For countries with available resources, mainly in emerging markets, it will soon be irresponsible not to incorporate bitcoin mining to generate valuable and transparent revenue. These countries will eventually dominate mining, and it will be very hard for rich, developed market countries to oppose this needed and green revenue source. El Salvador mining bitcoin is just the beginning.
