Can Bitcoin miners transform into artificial intelligence to perfectly hit the next trend?

Author: Colin Harper, Head of Content, Luxor Technologies Compiled by: Luffy, Foresight News

The Bitcoin industry, especially the mining industry, is no stranger to hype. And now, a new technology has emerged: artificial intelligence.

ChatGPT and other large language model programs, commonly referred to as artificial intelligence, have made waves in the workplace and online world this year. So, naturally, references to artificial intelligence pop up in the cryptocurrency news.

For example, some Bitcoin miners have publicly stated that they are seizing opportunities in artificial intelligence in an attempt to make outdated hardware useful. But that doesn’t mean every company is performing the same functions or reaching the same scale as an AI data center. In fact, the tasks performed by these outdated hardware are very different from what is usually said to be required for artificial intelligence services, and some miners are just trying to profit from the pursuit of the craze.

Can Bitcoin miners provide artificial intelligence services? it's complicated

Over the past few months, HIVE, Hut 8, and other bitcoin mining companies have unveiled new high-performance computing (HPC)/AI strategies. Most of them had computer hardware that was obsolete due to Ethereum's transition to a proof-of-stake consensus mechanism, the PoS mechanism that ended the era of Ethereum mining. Some miners claim they will be able to rent out their computing power for high-performance computing (although Hut 8 has been doing so since 2022).

High performance computing is an umbrella term for any number of data center tasks. However, when miners talk about HPC, they are referring specifically to things like cloud computing or graphics rendering. Hut 8 earned $4.5 million from such services in the first quarter and $4.3 million in the second, while HIVE's pilot project made $0.2 million in the first quarter, but the miner has yet to make a profit in its The SEC filing did not mention any HPC revenue for the second quarter. Hut 8 has a contract with Interior Health, British Columbia to provide high-performance computing services through 2028. The company purchased the 6-megawatt facility that provides these services when it acquires the TeraGo data center business in Toronto in 2022.

These are distinct from the types of computations that train AI models or power ChatGPT. Miners do not have the appropriate computing equipment to support such work, nor the appropriate power and network infrastructure (AI computing requires at least 1 terabyte per second of network bandwidth, industrial-scale mining facilities fall far short of this requirement, and their bandwidth Typically 1 GB per second).

A true AI data center could cost 10 to 20 times the price per megawatt of a bitcoin mining farm (one megawatt powers about 200 homes in Texas, according to electricity bureau ERCOT). Additionally, electricity costs for such a facility would be double what miners currently pay, potentially as much as 15 cents per kW/hour. Electricity rates used by Bitcoin miners in the United States are typically 5-8 cents.

The cost of running an HPC facility is much higher than the cost of a Bitcoin miner

Riot Platforms estimates that its upcoming Bitcoin mining farm near Corsicana, Texas, will cost $833,000 per megawatt of power capacity, with a first phase of 400 megawatts.

By comparison, the average cost of HPC data centers in North America is $9.5 million per megawatt (based on Turner & Townsend's 2022 Data Center Index Cost Calculations).

The high cost stems from the complexity of these data centers. They require higher quality power infrastructure and network equipment, not to mention they require more space, better cooling and more powerful backup generators to ensure 99.99% uptime in the event of a power outage. In short, these miners don't have the capital or market power to build AI systems, or even build a traditional data center.

This cost is only applicable to traditional high-performance data centers, not necessarily applicable to data centers with driving engine functions such as Open AI's ChatGPT and Microsoft's Bard.

Miners may try HPC, but not AI

Many Bitcoin mining companies were born out of sudden shifts in business lines, but at this stage of development, these companies should be careful when trying to curb technology hype in areas such as HPC/AI.

Riot Platforms and Marathon Digital, the two largest listed bitcoin miners, announced bitcoin mining operations in 2017, but those companies went public long before they ventured into cryptocurrencies. Marathon Digital, formerly known as Marathon Patent Co., makes money by buying and selling various technology patents, while Riot is a pharmaceutical company.

Both companies have become among the largest bitcoin miners in the world, so the transition has paid off.

But it would be extremely difficult and expensive for a major Bitcoin miner to convert its mines into AI data centers. It’s also important to note that in the traditional data center market, miners will compete with Google, Amazon, and Microsoft, some of the most powerful technology companies in the world.

Applied Digital is a special case: It is a data center company that also hosts Bitcoin mining equipment for clients. This distinction is important because it is easier for traditional data center operators to deploy bitcoin mining equipment on-site than it is for miners to build a data center from scratch. The wave of AI hype in 2023 pushed Applied Digital's stock price to $10.24, and the stock has fallen sharply back to $5.68 at the time of writing. As the chart below shows, Applied Digital and mining stocks in general are on fire right now, so we advise investors who are considering these stocks to proceed with caution.

Bitcoin mining stocks have surged along with related assets this year, but many are hoping artificial intelligence can recapture the bullish momentum.

Summary

Once the hype dies down, the market will tell us which companies are well positioned to ride the AI wave.

For miners, they can provide graphics rendering services, but they will not use their mining hardware for ChatGPT. So don't be fooled when you see AI in a press release, it might not be what you think it is.