The crypto-millionaires on the hunt for power

Cryptocurrencies are essentially computer networks that govern the ownership of digital tokens

When Bitcoin finally takes over the world, 2021 will be remembered as the exodus of the miners. All across China, officials are closing companies and making mass arrests as part of a comprehensive crackdown on the trading and minting of cryptocurrency – forcing miners into new corners of the globe in their search for power. Swept up in the government’s purge, a new silicon-toting diaspora is in the making: one that could transform towns and countries all over the world over.

Until now, China has been a magnet for crypto “mining” operations, which use fleets of specialised high-speed computers to create new digital coins such as Bitcoin and Ethereum by solving mathematical problems. But Texas is making a bid for the top: this month, governor Greg Abbott unveiled his “master plan” to tempt crypto billionaires to the state. Elsewhere in Miami, Florida, mayor Francis Suarez has been urging crypto producers to relocate and is considering special enterprise zones for miners. “We’ve seen a dramatic uptick in companies contacting us to manage the relocation of mining operations from China to the US,” says Nicole DeCicco, a former Ethereum miner and head of the consulting firm CryptoConsultz. “We’ve got partnerships with shipping companies, specifically air freight, that can offer the most competitive turnaround time – and time is money in the mining industry.”

But what does it actually mean to “mine” crypto? Cryptocurrencies are essentially computer networks that govern the ownership of digital tokens, recording each transaction on a shared database called a blockchain and verifying them by instructing numerous computers to check each other’s work. Bitcoin does this by setting demanding puzzles for the computers to solve and rewarding them with new coins – a hugely inefficient and power-intensive process that is estimated by the Cambridge Centre for Alternative Finance (CCAF) to suck up more electricity than the whole of Finland. Earlier this year, researchers at the Chinese Academy of Social Sciences predicted that by 2024, China’s bitcoin mining industry could consume more energy than Italy.

China last year accounted for about 75 per cent of global mining power – but scientists estimate that Bitcoin alone is generating enough CO2 to sink the country’s emission targets. CCAF researcher Michael Rauchs describes how miners would spend November to April in the hot north-western provinces of Xinjiang and Inner Mongolia, where coal and solar power are cheap, before loading their computers onto trucks and decamping south to Sichuan and Yunnan for the rainy season, when hydroelectric dams produce so much spare energy that it costs almost nothing.

The recent rise in crypto prices has supercharged this process, exacerbating a worldwide microchip shortage and causing power outages in multiple countries. Gavin Brown, a lecturer in financial technology at the University of Liverpool, points out that China is also trying to push people onto its own more controlled digital currency, which will launch at the Beijing Winter Olympics next year. Together, these factors appear to have sealed the miners’ downfall.

So where do they go next? Energy price is paramount, but DeCicco says miners increasingly consider the environmental costs too. Their ideal targets are so-called “stranded” renewables, meaning energy sources in isolated areas where much of the product goes to waste. Colder temperatures are also good, since they make it easier to keep mining rigs cool – and it always helps to have favourable regulations and politicians.

Iceland has all of these factors, with its deep reserves of volcanic energy, while El Salvador has just made Bitcoin legal tender, and has abundant geothermal power. In the US, possible contenders include Texas (despite its heat), Nebraska, Florida and Wyoming, which only uses about 40 per cent of the energy that it generates. All four states have passed laws putting crypto on firmer legal footing.

“Most of the energy that we produce historically has been hydrocarbon-based,” says Chris Rothfuss, a Wyoming state senator and chairman of the blockchain committee who has been leading the push. “We see declining revenue [ahead], and we want to make sure that we’re trying to diversify into spaces that are really forward looking. Cryptocurrency and financial technology is an exceptional candidate.”

But Bitcoin’s sky-high emissions have tainted crypto’s reputation and made it anathema to environmentalists, including former advocate Elon Musk, who recently announced that Tesla would no longer accept Bitcoin payment for its cars until a greener means of mining became the norm. The failure of Texas’s power grid during a winter storm earlier this year – which left 4m without power, and 111 dead – has heightened fears of the knock-on effects this new influx of miners can have, and that crypto power grabs may drain resources enough to cause future blackouts. 

Some in the community are hopeful that a greater era of climate-friendliness can be ushered in by switching Bitcoin’s costly “proof of work” method to a more energy-efficient solution called “proof of stake”. The latter requires less complex sums to be solved, which makes the cost of electricity to verify each transaction far lower. If that takes hold, the mining industry might persist but in ways that don’t require power-hungry processors.

There is also the possibility that these state or countrywide power grabs may not be the economy-healing effort they seem. “Miners are working on three or four year horizons, constantly having phases of renewal,” says Prof Brown. “If the economics suddenly fail they will at the next inflection point say ‘right, tools down, we’re no longer in this business.’” Local officials’ usual tactic of attracting long-term job creation with up-front incentives would be risky here.

Rothfuss is under no illusions about that. “I can’t guarantee that it’s beyond the short term,” he acknowledges. “We’ll see what happens a few years from now.” 

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