Bitcoin Miners Navigate Extreme World of Crypto
Power-Hunting
A crypto crackdown sent them in search of cheaper, greener
power sources
By , , , and
July 13, 2021, 5:01 AM GMT+1
One weekend in late June, hundreds of gloomy Bitcoin miners
crowded into a luxury hotel in Western China. They had a big problem: Just
weeks earlier, the Chinese government banned cryptocurrency mining over
concerns about illicit coal mining and underlying financial risks. Now they had
to figure out how to move millions of computers out of the country.
The miners sat in rows of white chairs in a hall at the Gran
Melia Chengdu Hotel and listened intently to the executives at Bitmain
Technologies Ltd., the world’s largest mining-equipment maker. In between
presentations about Texas energy fundamentals and crypto mining in Kazakhstan,
the attendees nibbled cupcakes, drank cocktails and discussed the dismal
outlook for their local industry.
Bitmain’s employees were offering to serve as matchmakers,
hooking miners up with data centers in the U.S., Central Asia and Europe. They
also cautioned that an unchecked rush into new markets would jack up costs for
all of them. One slide presented at the event read, “Hold Together for Warmth,
Say No to Vicious Competition.”
Just hours after the conference, the urgency of the
situation came into full view. Alex, a Chinese miner who didn’t want his last
name published for fear of government retribution, was out singing karaoke with
some of his fellow miners when he called to check in on his machines in the
mountains outside Chengdu. His colleague told him that local authorities had
just shut off the power to his facility, leaving the mine silent and
potentially worthless.
“All my money is gone,” he said, cursing as he chugged a
beer. “Every day I’m losing money by not running those machines.”
The Chinese miners forced to leave behind the country’s
cheap electricity from abundant coal and roaring rivers have found themselves
thrust into a wild and extreme world of crypto power-hunting. Just as miners
sprinted toward gold fields in California and Alaska over a century ago,
Bitcoin miners now are bolting toward any source of inexpensive, reliable power
they can find. Their next destinations matter greatly to an industry
emphasizing decentralization and independence, and to other energy-consuming
sectors, with which they are competing for access to greener power.
Cheaper Power
A Bitcoin mining rig doesn’t pull anything out of the
ground, of course. Instead, it is usually made up of thousands of computers,
specially built to run the complex calculations that maintain the
cryptocurrency’s network. These computers are stacked on shelves in warehouses,
often with huge water-cooling fans. In China, the warehouses are usually
situated close to their power sources, such as standalone hydropower stations
and thermal plants affiliated with coal mines. Electricity accounts for about 80% of a miner’s operating cost,
according to Tyler Page, the chief executive officer of Cipher Mining
Technologies Inc.
The miners who
complete the calculations are rewarded with new Bitcoin, which has ranged
in value from a peak of almost $65,000 before China outlawed mining to about
$33,500 today. Around 65 percent of the world’s Bitcoin mining took place in
China as of April last year, according to the latest data from the University
of Cambridge.
Cheaper power is the reason China’s neighbor, Kazakhstan, has become a top
destination for fleeing miners. The former Soviet nation has over 22 gigawatts
of electric power capacity, mostly from coal and gas-fired stations. It
also borders the region of Xinjiang, which once held nearly 36% of the world’s
bitcoin mining. Bitcoin miners can get electricity for as low as about 3 cents
per kilowatt-hour, according to Dmitriy Ivanov, sales director at Almaty-based
Enegix LLC. The country is also cool enough that the data centers don’t
require any air conditioning to keep them from overheating, which can add
as much as 30% more power
consumption.
Enegix runs a server-hosting
business in Kazakhstan, where it is building data centers at which miners
can pay a fee to plug in their machines. At the end of last year, the company
built its biggest site yet, a 180-megawatt data center on 37 acres of land near
the northeastern town of Ekibastuz. The region is an industrial hub fueled by one
of the largest coal-fired power stations in the world outside of China.
In June, Ivanov started to get messages daily from miners in
Sichuan and Inner Mongolia who needed to relocate after Beijing’s crackdown.
“We stand to benefit from it, but these people are facing
devastating losses in terms of all the infrastructure that has to be deployed
elsewhere,” he said.
Enegix’s clients will soon be shipping about 10,000 mining
machines, a mix of Bitmain’s S19Pro and the Whatsminer M21S model from Chinese
manufacturer MicroBT, to Kazakhstan by plane. Transport by land from China
would be cheaper, but trucks can get held up at the border for weeks. Spending
that time mining Bitcoin instead can make up for the extra cost of airfare.
Didar Bekbauov runs another Almaty-based Bitcoin mining
hosting company, a smaller competitor to Enegix. He was similarly inundated
with messages.
“So many Chinese are reaching out to us and asking for help
to relocate the equipment,” Bekbauov said by phone. “They ask every Kazakh they
know to help them with electricity.”
But there is a limit to Kazakhstan’s potential: Its electric
grid has added only a little over 3 gigawatts of capacity in the last 20 years,
according to data from BloombergNEF. That’s leaving little room for the
surge in mining machines to get connected. Bekbauov now has to turn
customers away.
“Every spare kilowatt
is already booked,” he said.
Renewable Sources
For some miners, the decision to move out of China is also
an opportunity to clean up their power supply.
It’s difficult to say how dirty Bitcoin mining is overall,
but it’s a reflection of the power supply to a mine’s location. Earlier this
year, tens of thousands of mining machines consumed about 45 million
kilowatt-hours of power per month in an area of western China that depends
on coal-burning power plants, the official Xinhua News Agency reported. That’s
about 15,000 tons of standard coal.
Overall, mining machines globally consume about as much power as all of Bangladesh, a country of more than 160
million people.
While some of that power is green, the majority of the
world’s electricity still comes from burning fossil fuels. Earlier this year,
Elon Musk said Tesla Inc. would no longer accept purchases in Bitcoin because
of its carbon footprint. An alliance of companies launched the Crypto Climate
Accord earlier this year to address criticisms and vowed to help the industry
shift to 100% renewable power consumption.
Bitcoin Mining With Stranded Energy
Crypto miners are coming up against a much bigger drive to
decarbonize power to combat climate change. The percentage of energy from
renewable sources would need to increase to about two thirds of supply by 2050,
up from around 12% in 2020, to keep temperatures from rising more than 1.5
degrees Celsius from pre-industrial levels, according to the International
Energy Agency. Countries around the world, including China, the U.S. and the EU
will have to ramp up construction of wind farms and solar parks to come close
to hitting their targets.
Renewable energy sources like wind and sunshine may be
abundant at times, but demand for them is set to surge as cars, home heating
and heavy industries increasingly shift to electricity. The Nordic region, which has long been a
popular Bitcoin mining spot because of its ample hydropower, began running
out of excess electricity earlier this year as industrial users ramped up
production.
“There’s a more noble use of renewable power than Bitcoin
mining,” said Peter Wall, chief executive officer of London-listed mining
company Argo Blockchain Plc. “But the fact is people are going to mine Bitcoin
full stop. It’s not going away.”
Regulatory Concerns
Miners also want confidence they won’t wake up one morning
to news that their business has been outlawed again. Bit Digital Inc., a
Nasdaq-listed mining company, began moving some of the 30,000 machines it
operated in China to North America back in October. By the time Beijing cracked
down, Bit Digital was able to keep mining with as little disruption as
possible.
Even within the U.S., there are regulatory differences among
states. Cipher Mining Technologies Inc., the U.S. arm of Netherlands-based
Bitfury Holding BV, is working to build up mining capacity in Texas, the only
state with a deregulated power grid, and Ohio because of the state’s cheap
power prices and low-carbon power sources. A state like New York, where
lawmakers previously proposed a bill that would have limited crypto mining in
the state, isn’t as attractive.
The physical attributes of a site matter too: extreme temperatures
in either direction are a negative, as is an overly dry and gritty environment.
“Literally the dust blows into the computers and you have physical problems,”
said Cipher’s Page.
Some of Bit Digital’s mining rigs were shipped to a data
center in Kearney, Nebraska, where the company already has about 5,000 machines
noisily mining Bitcoin. “You can’t hear a damn thing in here!” Chief Executive
Officer Bryan Bullett yelled on a recent tour of the facility as the machines’
fans whipped his hair around.
A warehouse a mile from the data center holds Bit Digital’s
displaced Chinese rigs. The machines were piled to the ceiling on wooden
pallets, waiting for an opening so they could be put to work. “It’s not great
to see them sitting here in boxes, because they could be plugged in and making
money,” said Bullett. He estimated that 500,000 mining machines are being
shipped out of China as a result of the crackdown.
Bit Digital is considering setting up operations outside
North America, but local regulations and stability are a concern. The president
of El Salvador announced last month
that his country would be the first to adopt Bitcoin as legal tender and
directed the state-run geothermal electric company to come up with a plan for volcano-powered
Bitcoin mining. Bullett and other Bit Digital executives flew to the
Central American country late last month for two days of meetings with the
president’s cabinet.
Bitcoin miners from other countries want to know that El
Salvador’s enthusiasm for the digital currency will survive a change in
leadership.
“The question is naturally going to arise about stability,”
Bullett said, especially with a capital-intensive industry like mining. Asked
whether he would send Bit Digital’s machines to a site El Salvador is
developing, the chief executive paused. “It depends on the details,” he said.
“It's certainly worth monitoring.”
Power Brokers
Beyond the large U.S.-based mining companies, there are also
smaller middlemen making a business out of the big move.
Ever since news of the beginning of the crackdown in China
first broke in late May, Tim Kelly, chief executive officer of BitOoda has
barely slept. Kelly started BitOoda in 2017 to provide research, investment
banking and other services to Bitcoin-mining clients. From his beach-front home
on the island of Nantucket off the coast of Massachusetts, Kelly spent most
nights this summer on the phone with Chinese miners. When the sun rose, he
would start calling people in the U.S. who could provide sites with enough
electricity to host mining operations.
“There’s so much absolute desperation to secure sites as
quickly as possible,” Kelly said.
While China’s restrictions strangled the Bitcoin mining
industry for now, the pain will only be temporary. With increasing capacity in
places like the U.S., BitOoda estimates that the amount of computing power used
for mining will be back to its pre-crackdown level by early 2023 and continue
growing for the rest of the decade.
Business for BitOoda had been progressing steadily. By May
of this year, the company built up a pipeline of under 500 megawatts of grid
connections for Bitcoin miners looking to plug into American power. Kelly’s
sleepless nights helped that figure boom to about 2,000 megawatts of deals in
the works, with about 70% going to Chinese clients.
It’s not easy to just set up a Bitcoin mining operation out
of nowhere. Kelly’s clients need not
only power supply, but also substations and transformers, devices that
filter the high powered volts in the power grid to be gentle enough that they
won’t fry all those valuable computers. Setting all the machinery takes time,
in some cases as long as 18 months to get up and running.
Most of them have already made down payments on new machines
and are looking for a new address in a hospitable location. This time, they
want to make sure the sites will last. For many, that means trying to connect
to renewable power sources, which the Biden administration has signaled are the
future of the American electric grid. Chinese clients are even willing to pay higher
prices for green credentials.
“Every conversation we have starts with the the site’s
potential power source. What is it? If it’s coal we won't even talk about it.
Gas, maybe,” said BitOoda’s Chief Strategy Officer Sam Doctor. “They’re looking
for renewables. That’s a really important step in the greening of bitcoin.”
— With assistance by Amanda Wang, Matt Goldman and Vildana
Hajric
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