A small Italian town of 2,500 people is experimenting with Bitcoin mining

The author is Alps Blockchain. Wu Shuo authorized the publication of some of the content from CoinDesk.

Is environmentally friendly Bitcoin mining possible in Italy?

Environmentally friendly Bitcoin mining is becoming possible in Italy, with additional support for renewable energy producers.

This year, under Graziadei’s leadership, Borgo d’Anaunia, a city of about 2,500 people, became the first city in Italy to operate a crypto data center. In a small rack at the end of Alta Novella’s historic turbine room are 40 state-of-the-art application-specific integrated circuit (ASIC) machines that power bitcoin, the world’s most popular cryptocurrency.

Image via CoinDesk

Under pressure from rising energy costs and concerns about meeting climate goals, some regulators and lawmakers in the European Union are looking to outlaw proof of work. But in Italy, the same mechanism has become a financial incentive for hydropower producers to continue or expand their renewable energy production.

The northern Italian region bordering the snow-capped Alps is home to dozens of hydroelectric plants of all sizes, thanks to the abundance of water and varying altitudes. In 2008, municipal authorities decided to open the facility again by replacing the turbines, and the Italian government offered the facility some incentives.

But last winter, Borgo d'Anaunia received almost no rain or snow, Graziadei said. In February, the valley was largely free of snow, except for a thin layer of ice on the road leading to the facility. Running and maintaining the hydroelectric plant has therefore become an expensive burden. "Without snow to increase the water level in the river, power generation is low, and in previous years during these months we would close the facility for maintenance," Graziadei said.

State incentives, which included buying electricity produced by the facility for 0.20 euros (about $0.22) instead of the standard price of around $0.06, expired several years ago.

Despite the relatively unfavorable conditions, the plant is still operating: the small amount of energy produced is used to run some Bitcoin mining machines. "In periods of little precipitation like this winter, when the amount of water brought by the river is very low, this new technology allows us to maximize production and thus provide higher value to our facilities," Graziadei said, adding that "mining allows us to keep the facility productive even when the water level is low."

Image via CoinDesk

Graziadei’s main motivation for building a data center at the municipal hydroelectric plant is economic. The municipality does not mine or trade Bitcoin. Alps Blockchain, an Italian tech company that built and maintains the mining farm at Alta Novella, buys the computing power generated by the facility’s mining farm at a price that is at least 35% higher than what the government pays for the energy.

Alps Blockchain was born in 2018 and found a solution to encourage the development of this business by focusing on hydropower. Large mining farms are usually installed in cold places to save money on cooling the processors, or in places where electricity is cheap. In Italy, electricity prices are very high, but Alps Blockchain still managed to introduce Bitcoin mining to the country.

The co-founder of Alps Blockchain explained: We face two problems: the sustainability of this energy-intensive activity and economic issues related to energy costs, which in Italy are not competitive compared to the rest of the world.

Graziadei, who dabbles in crypto trading himself, said it wasn't hard to convince the city council and its constituents to build a data center: In the absence of government incentives, they had to find a way to cover the cost of maintaining the facility and turn it into a sustainable source of revenue for the municipality. "The revenue from the Alta Novella power plant goes towards maintaining the facility, as well as public work by the municipality to serve the community," Graziadei said.

Compared to large mining facilities in the United States and European countries such as Sweden, which have thousands of mining equipment, the Alps Blockchain mining farm is a small operation. Alps Blockchain's hydroelectric power plant has 20 to 600 ASIC mining equipment. The company's larger hydroelectric power plant in the city of Valstagna has 300 machines and is adding 150 machines.

The Valstagna hydroelectric power station is a facility owned by a large local energy company. According to Giacomo Magoni, who manages the mining project at the power plant, since July 2020, the plant has been consuming 20-25% of its total electricity in 10 megawatts to generate Bitcoin computing power.

In November, Swedish financial and environmental regulators published an open letter calling on the European Union to ban crypto mining due to energy issues. It is unclear whether Italian hydroelectric producers are affected.

Failoni believes that without Bitcoin mining, Valstagna would not be able to invest in expanding its renewable energy production, and Alta Novella would shut down completely this winter, unable to cover costs.

Failoni said that both Italy’s renewable energy sector and the crypto economy would benefit from strong and clear regulations that target the efficiency levels of mining machines rather than specific consensus mechanisms. “One of the things that makes this activity very energy-intensive is that… the hardware used is not very efficient. If they could put in place some regulations about only using efficient mining machines, only using renewable energy, that would definitely change things,” Failoni said.