Bitcoin miners turn to AI to 'survive' after halving
Artificial intelligence (AI) and the business behind it are opening up new opportunities for Bitcoin miners.
New source of profit from AI
Previously, Bitcoin block rewards were the most important source of income for miners. However, after the halving event last month, the main revenue of Bitcoin mining companies was cut in half. According to Bloomberg, the estimated loss in miners' annual revenue is about $10 billion, based on the initial price of Bitcoin at the time.
In the short term, Runes Protocol is generating significant fees for miners, but no one is sure how long this will continue. As a result, recently some mining companies are allocating resources to build their own AI systems to create new income streams.
Specifically, by renting their computing power to technology companies developing AI tools, miners can make sizable profits. More importantly, this income is predictable, as it does not depend on Bitcoin price fluctuations.
“Miners will have great opportunities with AI. Most of them can redirect a significant amount of their computing power to the basic services of large companies like Google, Microsoft, Amazon,” said Brian Dixon - CEO of crypto hedge fund Off The Chain Capital said. “We will see some of these big tech companies working closely with Bitcoin miners.”
Currently, Bitcoin mining company Core Scientific is converting part of its infrastructure, including 16 megawatts of data center capacity, to AI startup CoreWeave, and has plans to convert more in the future.
“We are in regular discussions with our customers about this area and look forward to growing this business further during the year,” said Core Scientific CEO Adam Sullivan. “We aim to be the market leader and provide the digital infrastructure for high-performance computing.”
Completely converting 500 megawatts of Bitcoin mining infrastructure to high-performance computing storage will likely take three to four years, Sullivan said. The company expects to start generating revenue as it adds customers.
In the first quarter of this year, the company achieved revenue of 179.3 million USD, an increase of 58.6 million USD compared to the same period last year.
Additionally, at least two other major Bitcoin mining companies are starting to enter the space: Hut 8 and Hive Digital Technologies.
Aydin Kilic, CEO of Hive, said that the company's AI system has begun operating. Of the company's 38,000 graphics processing units (GPUs) — computers that can perform high-speed calculations — more than 10% have been reused for AI computing tasks.
Hive is actively seeking additional opportunities. “Our ambition is to expand our AI business to exceed $100 million in annual revenue by 2025,” Kilic said. Hive has total revenue of $121 million in 2023.
Meanwhile, Mike Ho, chief strategy officer of Hut 8, said that AI computing also offers higher potential profits than Bitcoin mining.
Ho said that although Hut 8's AI system is not yet operational, the company plans to diversify its business soon, specifically the company purchased GPUs worth $40 million in October 2023.
Hut 8 also said it will not reuse any of its existing Bitcoin mining systems for AI. Instead the company will “deploy the latest generation technology” for this purpose.
Bitcoin mining and AI: cooperation or competition?
The Bitcoin mining industry and AI have been linked for some time. The reason is because Bitcoin miners and AI manufacturers both need a large number of high-performance processing chips. Miners need high computing power to secure the Bitcoin network, while AI models need to be trained on huge amounts of data.
“During this cycle, Bitcoin ASIC chips have had to compete with strong demand for AI chips, and therefore manufacturers are interested in signing large contracts with cash-rich Bitcoin miners,” wrote analysts at research firm Bernstein in a recent report.
Bitcoin miners and AI data centers are not only competing for chips, but are also looking to acquire the same land with low electricity prices in renewable energy-friendly jurisdictions like Texas.
Miners also expressed concern that AI data centers may be willing to pay higher energy fees. Bernstein said this has led top Bitcoin miners to sign long-term electricity contracts.
According to Dixon, in the end, Bitcoin miners' new strategy into AI could tempt big tech companies like Google and Amazon to make offers to buy miners' AI systems.
“If you're one of these big tech companies, you basically have two options: Find someone like a Bitcoin miner that you can retain to do AI calculations, or buy a data center ”, said Dixon. “You can't build them fast enough.
Maybe we will see some of these large companies start buying up entire Bitcoin mining companies,” Dixon added. “Amazon, Google, the giants in the technology field need computing power for this AI. There's really no other way."
When asked if they were willing to sell to big tech companies, Hut 8 and Hive both said no.
However, there are also opinions that it is difficult for the Bitcoin mining industry to relate to AI, due to the fact that most Bitcoin mining is done on a specialized machine called an ASIC.
“They only allow mining on one algorithm and in a very specific way. They are not designed to be flexible and their algorithms cannot be changed, which is why they cannot support AI infrastructure,” said Joe Downie, marketing director at Bitcoin mining company Nicehash. .
