Heard of bitcoin mining? If you haven’t, you’re probably not alone. But it exists and Ramona Dzinkowski predicts that Canada will become the number one host for miners
This article was first published in the February 2018 International edition of Accounting and Business magazine.
As an economist, I miss the old days when forecasting economic growth was relatively simple, based upon predictions of supply and demand for reasonably recognisable products, services and money. In Canada, where the economy has historically relied on the spoils of the land, this typically meant understanding the market fundamentals of a handful of long-traded resources with relatively stable prices and supply.
Alas, those days are gone. A new type of mining has emerged that has left many a commodity expert scratching their head – bitcoin mining. It seems that following the threat of a systematic tightening of bitcoin mining operations in China, Canada with its robust power grid is the next best option. (For an explanation of bitcoin, see Coining it: all you need to know about bitcoin)
If you have no idea what bitcoin mining is, rest assured you are not alone. Bitcoinmining.com defines it as ‘the process of adding transaction records to Bitcoin’s public ledger of past transactions or blockchain’, noting that ‘bitcoin miners help keep the bitcoin network secure by approving transactions’.
So what does bitcoin mining mean for economies such as Canada and Iceland with a ready supply of lower-cost hydro/solar resources to power warehouses full of bitcoin mining machines?
Let me be the first to take a crack at predicting the future. In my view, Canada – with its firmly established rule of law, stable economy, educated workforce and provincial power authorities amenable to selling off electricity at bargain basement prices – will become the preferred home of bitcoin miners worldwide.
For example, Hut 8, in partnership with Bitfury (one of the largest coin miners in the world), announced late last year that it will maintain and operate North America’s largest bitcoin mining data centres in Drumheller, with possible expansion to other cities in Alberta and other provinces. To this end, Hut 8 is currently negotiating deals for cheap electricity with provinces across Canada.
The Bank of Canada has also lent credibility to the highly speculative cryptocurrency as a form of exchange (as opposed to an asset or commodity) by taking a hard look at the prospect of issuing a digital currency itself.
As for the potential downsides, there are clearly cons that will impact the success of bitcoin mining in Canada, which also characterise the market for cryptocurrencies worldwide. Large investors (those with long-term retirement goals in mind) loathe volatility and uncertainty, and as the North American Securities Administrators Association (NASAA) has made clear, cryptocurrencies are currently a high-risk proposition and subject to minimal regulatory oversight. Cryptocurrency accounts are also not currently insured by federal deposit insurance bodies, and investors will have to rely on their own computer security systems, as well as those of third parties, to protect purchased cryptocurrencies from theft.
Ramona Dzinkowski is a Canadian economist and editor-in-chief of the Sustainable Accounting Review
"The Bank of Canada has lent credibility to the cryptocurrency as a form of exchange by looking at issuing a digital currency itself"