Bitcoin mining is booming in Canada

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There has been a lot of jibber-jabbering about the benefits the United States might derive from the great hash rate migration from China, but what about the continental cousin of the United States, Canada?

A few months ago, a report surfaced that Bitfarms, one of the largest bitcoin miners in Canada, was leaving Quebec due to rising energy prices and strict regulations. In fact, this is not true; Bitfarms is expanding in Quebec, but it is only moving part of its fleet to South America in order to diversify its operations.

Still, the press has portrayed Canada as a bad jurisdiction for minors to settle in, but lest we paint the whole country in broad strokes, we should take a look at other jurisdictions for a complete picture, as well as examine the big hash of Quebec’s tariff footprint despite the administrative burden of the industry.

Figures from the latest Cambridge University mining report indicate that Canada currently accounts for 3% of the network hash rate. This is flawed because the report relied on IP connection data to identify mining operations (so if a company operates machines in Canada but manages their machines from the UK, then its rate of hash would be registered in UK). Luxor Technologies estimates a more precise figure to be 7.8%, based on the size of the ASIC fleets of the major players in the region and the current hash rate of the network.

Cambridge’s 2018 figures pinned Canada’s hashrate share at 13% – why the huge gap between then and now? Has the mining landscape changed so much?

Canada is more than Quebec

When observers compare Canada to other mining hotspots, the country’s ostensibly strict regulatory environment – especially when it comes to energy regulation – is often one of the main pain points of their critiques. Even so, the region has the highest concentration of miners in the country, with over 3 hash rate exahashs currently underway.

Every Canadian province is not the same, however, and they each have their own regulators and electrical authorities.

Quebec’s only electricity utility, Hydro-Quebec, for example, imposed a moratorium on Bitcoin mining in the spring of 2018, and some players in that province, like the Blockstream mining arm, have left the region. , citing difficulties in working with supplier power.

After the moratorium, Hydro-Québec put in place a program allowing miners to request up to 50 megawatts (MW) as part of a call for tenders. The electricity supplier segregated 300 MW of capacity for a public tender under this program, but the application process was so long and arduous that only 20 MW to 30 MW ended up being contracted. In addition to the language barriers (the request was in French), Hydro-Québec asked for proof that the miners had obtained the appropriate infrastructure (transformers, warehouse space), therefore the miners who had connections in the region. and could secure the infrastructure in advance had a leg on the strangers. In addition, the agreements were strict with regard to electricity consumption: if you subscribed to 5 MW, you had to consume as much, otherwise your tariffs would be increased to a level which would make your operation uncompetitive.

Through this program, miners who were already operating in the area or knew the landscape got deals, while others did not meet the requirements or gave in completely.

Still others, like Bitfarms, have no plans to leave the region anytime soon. The company operates five facilities in the region and plans to double its capacity in Quebec in the future, according to CEO Ben Gagnon’s comments during a recent live broadcast from Compass.

The problem for future miners in Quebec, however, is that Hydro-Quebec limits the amount of electricity they are willing to sell to Bitcoin miners. Thus, incumbents like Bitfarms, who have already established relationships with the power producer, will have a head start in trying to strike power purchase agreements (indeed, Gagnon said in the stream in direct Compass that, during the bear market of 2018, Bitfarms was able to secure 50% of the energy allocated to miners by Hydro-Quebec for a given block of power purchase agreement).

“The Quebec mining gold rush continued as soon as the 2018 moratorium came into effect. However, clarity was born from this regulatory obstacle. Hydro-Quebec and the Régie de l’Énergie have set up a tendering process to award purchase contracts for cryptocurrency mining, “said Mike Cohen, who operates several farms in Canada. , in an interview for this article, summing up the situation. “While the cost of energy may not be the best in the world, at around C $ 0.05 per kilowatt hour (kWh), it is still competitive and the security and peace of mind that comes with a five-year fixed rate agreement with a government-run utility company in a jurisdiction where the climate is cold, the courts are functioning and the energy is almost entirely drained renewable energy has great value in our industry.

Alberta, other jurisdictions may have more room for improvement

Yet there are other jurisdictions where power is not monopolized by the government and independent system operators (ISOs) operate as private entities. In Alberta, New Brunswick and Ontario, for example, ISOs dominate and provide an abundance of cheap energy. Oil-rich Alberta stands out above the rest here and has been a boon for companies like Upstream Data, which has been capturing gas flaring from this region to mine bitcoin since 2017.

Typically, these oil producers (operating like they do in the middle of nowhere) don’t want to transport this natural gas to consumers because they would lose money on shipping costs, so they flare it. in place. Bitcoin miners are absorbing this otherwise wasted energy and offering the drillers a paycheck – a win-win situation for everyone involved.

Additionally, Hut 8, one of the largest miners in the world, operates in Alberta, with CEO Jaime Leverton noting in the past that the more conservative province has been kinder to Bitcoin miners.

Hopping jurisdiction

It should also be noted that some miners operate multiple farms in different provinces.

This jurisdictional arbitration is crucial given that some provinces (like Alberta and Labrador) are much more supportive of Bitcoin miners than a place like Quebec (which, while still viable for those who know how to navigate the landscape) regulatory, is more difficult to break through).

Additionally, East Coast provinces like New Brunswick are ripe for mining and are still largely unexplored compared to Canada’s historic mining epicenters. These coastal states have an abundance of cheap hydropower and other renewables, but they lack the population density to absorb what they produce.

Bitcoin miners could therefore provide some kind of economical battery that would provide these power producers with a regular first and last resort buyer to balance costs. The mining industry is still in its infancy in these areas, but we expect it to take off in the coming years as miners move forward with suppliers and regulators in these areas and the industry is full of new participants.

Advantages over the United States

Canada’s Bitcoin mining sector is often compared to that of the United States, and not without reason: both share the same continent, so both compete for the same market to some extent.

Most observers see the United States as a more competitive market, but Canada has its own advantages over the United States

Principle among these, Canada’s import taxes are much lower, around 5% for the general sales tax on imported goods. Trump-era tariffs, along with the usual 2.6% tariffs levied on imported goods, add a 27.6% tax on ASICs that U.S. companies buy in China. This is a significant charge to add to the CAPEX of any transaction.

In addition, Canadian companies have traditionally found it easier to list their shares on Canadian stock exchanges. The Toronto Stock Exchange, for example, hosted Hut 8, Hive, and Bitfarms long before any of those stocks went live on the Nasdaq (which just happened this year).

The only active ASIC manufacturer in North America, ePIC Blockchain, also resides in Toronto. The company currently only manufactures Siacoin ASICs, but its CEO has declared plans to eventually enter the Bitcoin ASIC market (Argo, for example, signed a deal with ePIC to get the first dibs on its bitcoin miners when they reach production).

If and when this happens, it will give miners in Canada (and more broadly North America) easier access to machinery and repairs. In addition, Blockstream, a mining company based in British Columbia and Quebec, has just announced its intention to begin manufacturing ASICs as well.

“Canada currently has the opportunity to promote itself as a national host to trusted infrastructure providers like Hut 8,” Hut 8 CEO Jaime Lerverton said in an interview. “The only job they need to do to achieve this is to confirm their commitment to our industry and establish clear and supportive policies and programs to support our growth and innovation. Canada has a lot to gain and, as a proud Canadian company, we hope our government will take the opportunity to lead the world with us.

Mining in Canada is likely to grow more slowly than in the United States, where states like Texas and Wyoming have fewer administrative restrictions, allowing for expedited business operations. But it will increase, and we expect Canada to become one of the top three mining centers in the world over the next decade, as new entrants seek reliable and plentiful energy in countries with property rights and rights. strong legal protections.

This is a guest article by Colin Harper. The opinions expressed are entirely theirs and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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