GrowingUpBill Spence, an early 1970s resident of rural Pennsylvania, was playing with his pals on piles full of coal waste. After working in the oil industry, he returned to his home state of Pennsylvania in the 1990s. The piles, also known as “gob” (garbage-of-bituminous), were still visible on the landscape. Unlined pits can leach deadly carcinogens to groundwater. Worse, they could catch on fire and start polluting our air. 38 of the 772 Pennsylvania gob heaps are currently smoldering.
Spence, now aged 63, embarked on a mission: to remove the piles, restore land, and make money. He purchased the Scrubgrass Generating power station in Venango County, near Pittsburgh, in 2017, which was designed to burn gob. Gob isn’t a great fuel and the plant was barely functional. After being diagnosed with kidney cancer and pancreatic dysfunction later that year, he decided to leave the business. He became bored and began dabbling with cryptocurrency. Soon, he had a eureka moment.
Spence, after undergoing surgery, was taken off a feeding tube and is now back at work, converting the scraps of 20th century heavy industry into 21st Century digital gold.
Scrubgrass uses about 80% of its 85,000-kilowatt output to power robust, energy-hungry computers. These computers validate bitcoin transactions and then compete with other computers around the globe to solve computational challenges and gain new bitcoins.
Scrubgrass earns approximately 20 cents to more per kilowatt-hour (kwh) depending on the bitcoin price, which recently hovered around $35,000. It sells electricity for 3 cents. Additionally, Scrubgrass can collect Pennsylvania renewable-energy credits worth around 2 cents per unit (kwh) because it safely disposes of gob. These credits are the same as those for hydropower.
Spence is one of a growing number of American bitcoin miners, making one of the most significant liabilities of cryptocurrency–its insatiable appetite for energy–an asset. These crypto power entrepreneurs make a lot of money by making digital lemons green lemonade. With countries like China, Indonesia, Iran, and others moving to either severely restrict or ban bitcoin mining, domestic producers have never had more opportunities. From a mere 4% share in 2012, the U.S. has become the second-largest miner worldwide, accounting for 17% of all bitcoins.
Riot Blockchain’s Rockdale, Texas, bitcoin mining facility is called The Belly of Beast. Exhaust from some of Riot Blockchain’s 120,000-energy-sucking computers can push the temperature up to 130°F.
Bitcoin has many environmental problems despite its purported benefits. Cambridge estimates that depending on bitcoin’s price (a higher cost attracts more miners), the global network consumes between 8 and 15 gigawatts per hour of power. New York City can run on 6 gigawatts of capacity, while Belgium runs on 10. It depends on the energy source that bitcoin mining uses to release carbon into the atmosphere. The pollution isn’t negligible. Miners must give their machines 150,000 kwh to unlock a single Bitcoin. That’s enough juice for 170 average American homes for a whole month.
It is particularly frustrating that high-energy inputs are not a bitcoin bug but a feature. Although some electricity is required to verify transactions, most of the energy is spent solving mathematical problems that are completely inexplicable. This “proof of Work” is just a way to create an artificial shortage, making it much too expensive for any single group to dominate or manipulate this market. Satoshi Nakamoto was the pseudonymous founder of Bitcoin and made no apologies in a message board comment from 2010. It is the same situation that gold mining and gold mining. The marginal cost for gold mining tends not to rise above the gold price. While gold mining is a waste, the utility of having it available for exchange is much greater than that of gold mining. It will be the same with bitcoin, I believe. The utility of bitcoin-enabled deals will outweigh the cost of electricity.
It is possible that the system could be designed differently. Other serious cryptocurrencies such as ethereum or stellar, Ripple’s Ripple’sXRP, algorand, and Cardano. They use significantly less energy than Bitcoin or are being modified to do this. Ethereum, for example, will be moving next year from “proof of work” to a system called “proof of stake,” which cuts down on energy use by 99.95%. Even a new currency, candela, is available. The protocol of which solar-powered mining is required.
But bitcoin isn’t going anywhere. Its market capitalization of $700 billion is higher than that of the five most valuable cryptocurrencies. The market cap for Ether is $250 billion. It is not likely that bitcoin mining will become less energy-intensive. Its algorithm makes it difficult for miners to unlock new coins. That competition will continue until the last Bitcoin is mined around 2140. The bitcoin blockchain requires a million times the energy needed to process a transaction. (Backers believe a new Lightning transaction system that runs on bitcoin could make it more efficient than Visa.
Ted Rogers is vice chairman of Greenidge Generation Holdings. The company operates a power station and bitcoin mining facility at Lake Seneca in upstate New York. “But bitcoin will not disappear, and it will be the global reserve money and the center for the future financial world.
You are looking for green bitcoin. Its independent power grid failed last winter during the deep freeze, making it one of the most exciting places to see. Many power plants were taken offline, causing damage estimated to be billions of dollars and some customers being presented with $17,000 monthly bills. But the state’s politicians, beyond mandating that plants are better prepared for winter weather, haven’t done much reform.
Fortunately, the market is coming to our rescue. In West Texas, 16 gigawatts more solar and wind projects will be built in the next year. Normal conditions will produce far more electricity than is required to meet Texas’s demand gap. However, it will ensure enough electricity for extreme events like ice storms and heatwaves. The Bitcoin miners act as shock absorbers for this green power. They take up excess energy and then shut down the mining rigs when they are not in use.
Jesse Peltan is 24 years old and CTO at Dallas-based Autonomous. He was also a member of the 2021 Forbes 30 Under 30. Peltan launched a 150-megawatt crypto-mining data center in Midland last year. The facility is called HODL Ranch and was named after crypto hoarders who “hold on for the dear life.” It is the first large-scale operation to harness the region’s substantial solar and wind farms. Some nights, the wind gusts can be so intense that grid operators will give away power to keep the system running smoothly.
Here’s the deal: The Texas grid has entered into demand response agreements with these miners, which allow them to turn off their computers at any time during peak power demand. This allows HODL Ranch’s average power costs to drop below 2 cents per kWh. It also means that bitcoin mining costs are close to $2,000
The largest bitcoin mining operation is in Texas. It’s operated by Riot Blockchain ($3B market cap), a publicly-traded stock. Rockdale is near an interconnection that moves approximately 5,000 MW of power through a maze made up of transformers, high-voltage lines, and other infrastructure. Riot draws 300 MW from this interconnection, which is used to power 120,000 high-speed mining computers. The racks are 30 feet high and are housed in three narrow buildings that measure more than two football fields. Construction is ongoing to expand to 750MW with 130,000 additional machines expected to be installed by 2022.
Riot has a ten-year contract to purchase all of Rockdale’s power at 2.5 cents per kWh. It also gets a discount of 0.5 cents for participating in demand response. It can also resell its absolute power to the grid. Rockdale’s facility shut down all mining during the Texas freeze. It would have a net worth of $90 million if it achieved the peak price at $9 per kWh. Jason Les, a CEO, says that we are not mining bitcoin at this scale of energy procurement. Riot, on the other hand, is acting as a virtual power plant.
Les, 35, is a graduate of UC Irvine’s computer science program. He learned about bitcoin during professional poker games in the middle-2010s and saw other players using it to move their winnings. He isn’t bothered by bitcoin volatility as he is 100% in it: “When large price swings occur, they don’t affect me whatsoever. You can still lose 45% even if you’re a good poker player. I don’t mind losing.
Crusoe Energy Systems has taken a larger technological green wager. They have raised $250 million. This is mainly to mine Bitcoin in remote oil-and-gas fields in six US states. Bain Capital and Valor Equity Partners are among the investors, including J.B. Straubel (Tesla cofounder) and Tyler Winklevoss (twin-brother crypto millionaires). Crusoe has placed 45 shipping containers with bitcoin mining machines inside. They are powered by natural gases that are generally not flared or burnt off. (When drilling companies complete new oil wells and don’t have any pipelines connected to extract the natural gas, the containers are set on fire to ensure it doesn’t escape into the atmosphere.
Crusoe cofounder Chase Lochmiller, a 35-year-old veteran from crypto investment firm Polychain Capital, admits that “we underestimated the operational complexity in the business.” It’s been challenging for the startup to manage containers scattered across the landscape, especially in the summer heat. Crusoe will never reach Riot’s size or profitability, but it is currently generating 10 million cubic yards per day of gas that could otherwise be flared. Lochmiller said that adding bitcoin rigs is the best way for an oilfield to reduce its carbon emissions.
Reclaiming history: Spence & Beard of Stronghold explore the Russellton site, which was once home to the Pittsburgh steelworks’ metallurgical coke.
What It counts as green energy? Wind and solar power are undoubtedly the best sources of green energy. Other sources may be harder to choose from.
The Greenidge Generation facility, which is located on New York’s Lake Seneca banks, produces 80 MW of electricity, and half of it is used to mine cryptocurrency. Atlas Holdings, an investment firm based out of Greenwich, Connecticut, in private equity, purchased the mothballed facility in 2014 and spent tens of millions to make it more efficient on natural gas. This means that it emits less carbon dioxide than it did in the six decades before its conversion to natural gas.
So far, so green. It still heats to 100 million gallons per day, just like it did when it ran on coal. Local environmentalists describe it as a giant fish blender and attribute the heated water to lowering oxygen levels and contributing algae blooms. A bill to ban crypto mining in New York City for three years was defeated by the state assembly committee in June. Greenidge is further “greenwashing” its bitcoin by purchasing CO2 allowances, forestry offsets, and other perks. Jeff Kirt, the CEO, points out that the plant’s discharge water has reached regulatory limits. The company also claims it has been increasing its screening systems to protect Seneca trout. The company will go public later in the year.
Pennsylvania’s environmentalists are not thrilled that Spence’s Scrubgrass plant receives the same subsidy as hydropower. However, the state decided it was better to emit carbon dioxide from a potent power plant than pollute the environment.
Spence insists, “The problem is real.” “The only solution plants.” Scrubgrass technology wasn’t widespread until the 1990s. It is also expensive. The unique reactor uses the rocks and gob to create a high-pH solution applied to the remaining piles to neutralize their acidity.
Bitcoin mining makes economic sense. Greg Beard, Spence’s partner and well-connected friend is now a part of the equation. Beard, who was until 2019 head of natural resources investing at Apollo Global Management, is Spence’s new, well-connected partner. Together, they cofounded Stronghold Digital Mining. They now own Scrubgrass. Beard, a 49-year-old CEO, founded stronghold Digital Mining. The company raised $105 million from private investors in June to buy additional bitcoin mining equipment and purchase a second and possibly a third gob-burning facility. Stronghold has filed preliminary papers to become public. Beard said he’s never seen anything similar in his twenty-year career in private equity. “This is the best growth play in a generation.”