How Do Data Center Providers Benefit from Blockchain Technology? “The Key is Where and When You Want to Sell It”

PORTLAND, OR – Bitcoin mining and its underlying technology, blockchain, are more than just in vogue at the moment. Some may say we are entering the era of blockchain. However, that doesn’t mean that everyone in the industry understands what it takes to turn a profit from blockchain, or that every market is suitable for it.

At CapRE’s Portland Data Center Summit yesterday, Robert McCullough, Principal at McCullough Research provided some opening remarks for the panel Blockchain, Cryptocurrency and Bitcoin: What Are They and How Do They Impact Data Center Design & Construction? In those remarks, he also provided some context for Portlanders as to what to expect and how to make the most of the blockchain boom.

“Everybody here knows that the common understanding of blockchain and bitcoins is minimal, absent, zero, or not even to be mentioned,” began McCullough. “We know they are two entirely different things, and they’re two entirely different markets. “Invasion of the Power Snatchers” was the headline of a rural, electric power journal that is distributed to many farmers and coops. I love that headline. And they said that they were going to prevent these firms from coming into their county.”

So, how did we get here? “Well there were two innovations,” he explained. “First of all is blockchain – which is very useful. It’s not yet tested in terms of economic competition, but it’s certainly an interesting concept. Then we have mining. This is just brilliant. It’s flashy, it looks good, it’s mysterious. And it really doesn’t have a lot to do with blockchain whatsoever. The tie-in is really only that at the moment, mining gets you paid for doing some of the blockchain work. But there are a dozen different ways to get there. And given that we’re about to run out of bitcoins, we’re going to have to find some of those right off the bat.”

McCullough then recalled a famous quote from John Maynard Keynes that can be applied to Bitcoin mining. “One important way of making the economy work is to print a lot of paper money, bury it, tell people where it is, and then have them expand the economy by digging it back up,” he quipped. “That’s pretty much where we are the moment with bitcoin. Bitcoin is designed to be scarcer and scarcer. The difficulty graph is rising pretty rapidly. We’re going to need two more centers this year, followed by twenty more next year, and 200 more the year after. Then, in fact, it’s over. There are no more bitcoins. It’s an interesting philosophy.”

Next, McCullough transitioned to the pivotal topic of his remarks. “What are we, meaning the greater data center industry, going to do with all of these miners?” he asked the room. “Well the answer is that we sort of like the miners. The mining guys are interesting.”

data center summitEven if some people think it’s all a bit of a Ponzi scheme, McCullough cautioned the room not to dismiss them. “The point of the matter is that there’s nothing wrong with selling to a Ponzi scheme,” he explained. “The key is where and when you want to sell it. If you actually want a long-term customer relationship, if you actually want heavy infrastructure, and you want to plan for a long-term solution, then [it’s] probably not [a great fit]. That’s why we’re seeing Québec and many locations turning them down. Because blockchain really goes against that long-term utility.”

Robert McCullough is Principal of McCullough Research in Portland, OR, and has been in business for twenty five years advising governments, utilities, and aboriginal groups on energy, metals, paper, and chemical issues. He has testified repeatedly in state, federal, and provincial courts as well as before Congress and regulatory bodies. Before starting McCullough Research, Mr. McCullough was an officer at Portland General Corporation where he had responsibilities in finance, power marketing, and rate setting.