"Our infrastructure is actually being put to the test. We're full," Ron Cridlebaugh, the Port of Douglas County economic development manager, told CNBC's Michelle Caruso-Cabrera on Thursday.
Cryptocurrencies such as bitcoin and ripple have skyrocketed in value recently. Last year, those digital currencies surged 1,500 percent and 35,000 percent, respectively.
People have been trying to get in on the action by purchasing these digital assets or by "mining," or creating, them. But the mining process requires a lot of electrical power as computers process gargantuan amounts of data.
Cridlebaugh said the county is building out 100 megawatts (100,000 kilowatts) of infrastructure just in data centers to keep up with demand. "It's going to take some time to catch up because growth has been so quick."
How Much Electricity?
- Estimates of bitcoin's soaring energy use are likely overstating the electric power required to mine the cryptocurrency, top experts warn.
- One model from Digiconomist is being widely cited by journalists, analysts and investors, but researchers say its estimate is not based on hard data.
- Digiconomist's estimate of bitcoin's energy consumption is the basis for a lofty projection that reminds some experts of debunked forecasts that led businesses to over-invest in internet infrastructure.
Mysterious Bitcoin 'Mining'
Bitcoin mining is now being done at dedicated data centers that have sprouted up from Iceland to Inner Mongolia, where electricity prices are cheap. Much of the mining takes place in China, which generates most of its electric power from coal, prompting warnings that bitcoin threatens to wreck the environment and supersize the world's carbon footprint.
Several energy experts caution that there is currently no reliable, verifiable way to measure just how much electric power is consumed in the process of minting the cryptocurrency. They say the first step is gathering hard data from the data centers, and no one has done that work yet.
"Many of those calculations that you see today I think are based on very weak assumptions," said Christian Catalini, an assistant professor at the MIT Sloan School of Management who studies blockchain technology and cryptocurrencies.
"I don't think anybody can make a credible claim about the current" electric power use for bitcoin mining "without actually having data from the miners."
"So perhaps the grey swan of next year is not Bitcoin's bubble bursting, as so many commentators tend to suggest, but instead it's [sic] continued rise and a surging demand for coal," Nomura analyst Jordan Rochester wrote.
Nomura noted that power used to mine bitcoin is estimated at 33.2 terawatt hours. That figure came from the bitcoin energy consumption index, which is updated daily on the cryptocurrency website Digiconomist.
Digiconomist's index has emerged as something of an authority recently. The index was developed by Alex de Vries, a 28-year-old consultant for PwC with a background in data and risk analysis who now specializes in blockchain, the technology that underpins bitcoin. He founded Digiconomist as a hobby in 2014 and acknowledges he has no previous experience in energy economics.
De Vries stands by his figures. Given what we know about bitcoin mining, he says it is fairly easy to determine the lower bounds of its energy usage. If all bitcoin mining were done on the fastest machines in optimal conditions, he says, it would still consume 13 to 14 terawatt hours. But since not all mining is done under these conditions, he said, his estimate is "plausible."
"I'm obviously confident in this number. I wouldn't be publishing it if I wasn't confident," he told CNBC.
Bitcoin Consumption Index
Regardless of which side has the numbers correct for now,, "mining" for beanie babies, which is essentially what's happening, is taking more and more energy as the mathematical problem that miners must solve gets increasingly difficult.
This is another of the many numerous flaws in cryptocurrencies.
Another flaw is that if and when quantum computers can factor huge prime numbers multiplied together, the whole thing blows up posing other security problems as well.
Finally, if and when it takes more electricity to mine bitcoins than the things are worth, the system will likely break down.
Mike "Mish" Shedlock