Bitcoin mining company Gridless, backed by Block, is building a site in a Kenyan volcano

Hell's Gate, Kenya – Two and a half hours northwest of Nairobi by car, a small group of… Bitcoin Miners have set up shop at the site of an extinct volcano near Hell's Gate National Park.

The mine, located on the edge of Lake Naivasha, is operated by a startup called Gridless, and consists of a single 500-kilowatt mobile container that looks from the outside like a small residential trailer.

Supported by Jack Dorsey roadblockGridless powers its machines with a combination of solar energy and waste energy from a nearby geothermal site. It is one of six mines the company operates in Kenya, Malawi and Zambia, powered by a mix of renewable inputs and working towards a broader mission of securing and decentralizing the Bitcoin network.

“Most people think about bitcoin and the price of bitcoin and how they can save value in it or maybe spend it,” Gridless CEO Eric Hersman told CNBC during a visit to a Kenyan mine earlier this year. “This does not happen without Bitcoin miners and us being distributed globally.”

Decentralization is a key feature of Bitcoin, because it means that the network is not controlled by any entity and cannot be shut down – even if the government refuses to do so.

Bitcoin and some other cryptocurrencies are created through a process known as proof-of-work, in which miners around the world run high-powered computers that collectively validate transactions and create new tokens at the same time. This process requires large amounts of electricity, which prompts miners to search for the cheapest sources of energy.

While there are more than a dozen publicly traded miners, thousands of smaller private operations are also competing to process transactions and get paid in new bitcoin. This includes individual miners in countries from Venezuela to Lebanon, and could include a single mining rig in a kitchen or several hundred thousand of them in an industrial data center.

Wherever the process takes place, Bitcoin mining is a volatile business, because much of the economy depends on the price of the cryptocurrency. Since losing 60% of its value in 2022, Bitcoin has been on the rise, reaching a record high above $73,000 in March, before retreating slightly in recent weeks.

Much of the rally has been tied to the launch of spot bitcoin exchange-traded funds in the United States, as well as optimism surrounding the so-called halving that occurred late Friday. This event occurs every four years and aims to halve the reward for bitcoin miners, reducing the pace at which new bitcoins enter the market. Previous halving events were followed by significant rises in the cryptocurrency.

“Bitcoin is virtually unbreakable at this point,” Bitcoin CEO Adam Sullivan said. Basic scientific, a Bitcoin mining company based in Texas. “Bitcoin has reached a point where continuing to support the network is more profitable than trying to break it.”

Analysts at Deutsche Bank wrote in an April 18 note that they expect the geography of cryptocurrency mining to change after the halving, as lower profit margins force miners to look for cheaper and more reliable forms of energy. The United States currently accounts for 40% of mining, Russia 20% and China 15%, analysts wrote.

“Latin America, Africa, and the Middle East have attracted the attention of cryptocurrency miners due to lower energy costs,” they wrote.

Bitfarms, based in Toronto, now operates in Argentina Digital Marathonheadquartered in Florida, has expanded into the United Arab Emirates and Paraguay.

Hersman, 48, grew up in Kenya and Sudan, where his parents were linguists. Before getting into Bitcoin mining, he and two of his co-founders, Philip Walton and Janet Mainji, spent years building internet connectivity infrastructure in rural and urban Africa.

In early 2022, the trio began brainstorming innovative solutions to the gap between power generation and capacity, and the lack of access to electricity in Africa. They came up with the idea of ​​Bitcoin mining, which could potentially solve a big problem for renewable energy developers by taking their stranded power and spreading it to other parts of the continent. In Africa, 43% of the population, or nearly 600 million people, lack access to electricity.

Gridless now has eight full-time employees and manages much of its operations remotely using its software.

Hell's Gate is a deep, winding valley, home to cheetahs, zebras and giraffes, surrounded by cliffs, volcanoes and dense jungle.

The area is covered in ash, and plumes of sulfurous vapor will periodically emerge from the ground, a reminder of the surrounding smoldering volcanic craters that wiped out some indigenous Maasai in the mid-19th century and threatened others who dared to take over the area. Even living there.

Gone are the days of deadly explosions and lava spewing. Instead, an elaborate system of labyrinthine pipes and volcanic plugs houses several geothermal power plants.

Bitcoin mining using a volcano is nothing new.

Iceland, El Salvador and other countries are harnessing geothermal energy to mine Bitcoin. To make conditions right for miners, companies need a combination of buying from local authorities, cheap and abundant energy and some infrastructure, said Nick Carter, co-founder of Castle Island Ventures, which focuses on blockchain investments.

“If you have those three components, it can work, but sometimes a nation state, or a national state energy company, does it,” Carter said. He pointed to the Middle East region, which is involved in the field of flaring gas mining, as an example of state-level actors entering this field.

“In some cases, it's done with the explicit blessing of the nation state like Bhutan, and then in Texas, it's done with the blessing of local regulators and very favorable local conditions,” he said.

Africa is home to an estimated 10 TW of solar power, 350 GW of hydropower, and another 110 GW of wind power.

Some of this renewable energy is already being harnessed, but much of it is not because building the specialized infrastructure to take advantage of it is expensive. Even with 60% of the world's best solar resources, Africa only has 1% of installed solar PV capacity.

Enter Bitcoin miners.

Bitcoin gets a bad rap for the amount of energy it consumes, but it could also help unleash beleaguered renewable energy sources. Miners are essentially buyers of energy, and being co-located with renewable energy sources creates a financial incentive to boost production.

“As often happens, you will have excess energy during the day or even at night, and there is no one to absorb that energy,” Hersman said. His company's 50-kilowatt mining container can “hold anything extra throughout the day,” he said.

“At any given second or minute, we're going up and down a certain number of miners that are working,” Hersman said. “It might go down to 50 kilowatts, then up to 300 kilowatts, then down to 200 kilowatts, then up to another level – and it will happen all day and all night.”

According to the International Energy Agency, in rural Africa, “where more than 80% of people without electricity live, mini-grids and stand-alone systems, mostly based on solar energy, are the most feasible solutions.”

Demand from Bitcoin miners for these nearly stranded assets makes renewables in Africa economically viable. The energy supplier benefits from selling previously disposed energy, while power plants sometimes reduce costs for the customer. At one off-grid pilot site in Kenya, a hydropower plant reduced the price of power from 35 cents per kilowatt-hour to 25 cents per kilowatt-hour.

Capacity building also works to electrify families.

Gridless says its sites have powered 1,200 homes in Zambia, 1,800 in Malawi, and 5,000 in Kenya. The company's mines have also provided energy for containerized cold storage for local farmers, battery charging stations for electric motorcycles and public WiFi points.

“It's not really exciting,” Hersman said. “It's a mining container made out of a shipping container. It's got a bunch of stupid machines running the same formula over and over, but it's actually what secures the network.”