Jack Dorsey’s Block backs bitcoin mining company bringing affordable electricity to Africa

ACCRA, GHANA — Until February, Janet Maingi didn’t think much of it bitcoin. Born and raised in the Kenyan capital Nairobi, Maingi had instead spent more than twenty years trying to solve one of Africa’s biggest problems: connectivity. To that end, she spent more than 20 years in operations in the telecom industry, in companies specializing in Internet and wireless networks for cable and satellite television. But earlier this year, the 45-year-old mother decided to take on the continent’s second biggest issue: its energy problem.

Africa is a mecca for renewable energy. That’s an estimated 10 terawatts of solar capacity, 350 gigawatts of hydropower and another 110 gigawatts of wind, according to data from Energy, Capital & Power, an investment platform focused on Africa’s energy sector.

Some of this renewable energy is already being harnessed, but much of it is not, because it is expensive to build the kind of specialized infrastructure needed to capture it. Although Africa has 60% of the best solar resources globally, the continent has only 1% of installed solar capacity, according to the International Energy Agency.

“When you sit back and look at rural Africa and rural Kenya, one of the things that is very prevalent in homes – I’m talking about the 50% that are not electrified – is that children have to do their chores using either kerosene lamps or candles,” Maingi told CNBC on the sidelines of the Africa Bitcoin Conference in Accra.

“Think about their vision, think about their health,” she said.

Maingi was frustrated by the disconnect between generation and capacity, given that 43% of Africa’s population, or 600 million people, lack access to electricity. So in February, she started finding creative solutions with two friends, and the three landed on a kind of counterintuitive idea: bitcoin mining.

Mining for the world’s largest cryptocurrency is a process known as proof-of-work. Miners around the world run powerful computers that collectively validate transactions and simultaneously create new tokens. The process requires a lot of electricity, and because this is the only variable cost in a low-margin industry, miners tend to seek out the world’s lowest power sources.

Bitcoin gets a bad rap for the amount of energy it consumes, but it can also help unlock these locked-in renewable energy sources. Bitcoin miners are essentially energy buyers, and when they co-locate with renewable energy, it creates an economic incentive for development and improves the core economics of renewable power generation. The IEA says that in rural areas “where over 80% of the electricity poor live, mini-grids and stand-alone systems, mostly solar-based, are the most viable solutions.”

In May, Maingi and her two colleagues decided to try it out. They founded a venture called Gridless to see if the additional demand from bitcoin miners for these semi-wired assets could make renewable energy sources in Africa economically viable — and crucially, if the additional energy source could power communities previously beyond the reach of microgrids that electrify parts of Africa.

Gridless also has plans to expand to other parts of Africa with the help of a new infusion of cash.

Jack Dorsey’s the digital payment company Block and Alyse Killeen’s bitcoin-focused venture firm Stillmark, have led a $2 million seed investment in the company, which Gridless says it plans to use to open new mines.

Maingi is the chief operating officer, and her two friends-turned-co-founders, CEO Erik Hersman and CFO Philip Walton, have spent the past few months launching pilots across Kenya where they are working with mini-grid water and solar generators to use their excess capacity for mining .

“We had spent years building internet infrastructure in rural and urban Africa and realized that you can’t have a 21st century economy without both power and connectivity together,” Hersman told CNBC.

“When we looked at the next problem to solve, we realized that bitcoin mining solved a big problem for renewable mini-grid developers, in that we could be their industrial off-taker for stranded power, wherever they were located, making them more sustainable and increasing electrification across Africa,” continued Hersman.

Gridless currently has three operational pilot sites in Murang’a, a rural town located a 90-minute drive northeast of Nairobi. Each mine runs on hydropower from HydroBox, an energy company based on the continent. Two of the mines have a capacity of around 50 kilowatts, and by Thursday the third mine will be expanded to 300 kilowatts.

To put these numbers into perspective, 30 kilowatts would power about 500 households. 50 kilowatts is close to 800 households.

In January, Gridless plans to launch a new 50-kilowatt hydromine in Malawi and its first solar-powered facility in West Africa that will have a 30-kilowatt capacity.

So far, the economics make a lot of sense for everyone involved. Gridless acts as a kind of anchor tenant. The company finances the construction and manages the operation of data centers in rural communities where traditional industrial or commercial customers are not available, according to a statement from the company on Tuesday.

Because the power supplier makes a profit by selling energy that has previously been discarded, the power plants will sometimes reduce the cost to the end user. At one of their pilot plants in Kenya, for example, the hydroelectric utility reduced the price of power from 35 cents per kilowatt hour to 25 cents.

The development of capacity also electrifies households. Gridless says it has already seen this translate into containerized cold storage for local farmers, battery charging stations for electric motorcycles and public WiFi hotspots.

Once these types of needs are met, Gridless said in a statement that the remaining power capacity is used to power the bitcoin mine.

“Bitcoin and mining is really the tool. We don’t do bitcoin for bitcoin’s sake,” said the head of bitcoin mining and wallet at Block, Thomas Templeton. “The whole goal is really to empower these villages. Bitcoin is a means to that end.”

Block announced earlier in April that it would be teaming up with Blockstream to break ground on a solar and battery-powered bitcoin mine in Texas that uses solar power and storage technology from Tesla.

Block is also working on a project to make bitcoin mining more distributed and efficient.

Making the mining process more accessible has to do with more than just creating new bitcoins, according to Templeton. Instead, he says the company sees it as a long-term need for a future that is fully decentralized and permissionless.

The company solves one major barrier to entry: Mining rigs are hard to find, expensive and delivery can be unpredictable. Block says they are looking at creating a new ASIC, which is the specialized equipment used to mine bitcoin.

Democratizing access to the mining process is big for Block. Right now, Africa accounts for around 0.2% of the global bitcoin hashrate (an industry term used to describe the collective computing power of the entire network), according to the Cambridge Center for Alternative Finance. The bulk of the hash power shifted from China to the US over the past 18 months after Beijing banned crypto mining. Many in the industry tell CNBC that this kind of centralization is a problem.

“Decentralized mining is critical to the robustness of bitcoin,” said Templeton, who added that Block started its mining initiative to make mining more accessible, user-friendly and reliable, so more people can mine.

It was a sentiment echoed by Dorsey in Accra on Tuesday morning. The Block boss, who said he still plans to move to Africa in six months, added that Block wants to work with other companies on the continent to make it easier to onboard people into bitcoin.

“We are working on a hardware miner to make it more, hopefully, accessible and more efficient for people around the world and especially on the continent to participate in securing the network and make it even more robust in terms of something that is also useful for other things, not just mining.”

Supporting the rise of bitcoin mining across Africa also means another big goal for Block: Helping accelerate the global renewable hashrate.

“Gridless represents a close strategic alignment with our vision to ensure that the bitcoin network increasingly leverages clean energy, in combination with bitcoin computing centers around the world,” Templeton said.