The true cost of the digital race for bitcoin (2023)

Texas rose to power. Winter storm Uri had shut down power plants across the state and left tens of thousands of homes in freezing darkness. By the end of February 14, 2021, nearly 40 people had died, some from the freezing cold.

Meanwhile, in the shell of a former aluminum smelting plant an hour outside of Austin, row upon row of computers drew enough power to power some 6,500 homes as they competed to win bitcoin, the world's largest cryptocurrency.

Computers performed trillions of calculations per second, searching for an elusive combination of numbers that the Bitcoin algorithm would accept. About every 10 minutes, a computer guesses somewhere correctly and wins a small amount of bitcoin, worth about $170,000 in recent weeks. Anyone can try it, but turning it into a business can consume as much electricity as a small town.

In Texas, computers ran until just after midnight. The state network operator then ordered it shut down, under an agreement that allowed it to do so when the system was about to fail. In return, he paid bitcoin company Bitdeer an average of $175,000 an hour to keep computers offline. Over the next four days, Bitdeer would earn more than $18 million for being down, from fees ultimately paid by Texans who weathered the storm.

The New York Times has identified 34 such large-scale operations, known as bitcoin mines, in the United States, all of which are putting enormous pressure on the power grid and most are finding new ways to profit from it. Operating them can lead to costs, including higher electricity bills and massive carbon pollution, for everyone around them, most of whom have nothing to do with Bitcoin.

As of June 2021, most bitcoin mining was in China. He then impersonated Bitcoin trading, at least for a while, citing its power consumption, among other things. The United States quickly became the world leader in the industry.

Since then, it has been unclear how much electricity bitcoin mines in the United States are using and how this is affecting energy markets and the environment. Using public and confidential records and the results of studies it commissioned, The Times has produced the most comprehensive estimates yet of the energy use of the world's largest operations and the impact of its insatiable demand.

It's as if the homes of a different New York City are now benefiting from the nation's energy supply, noted The Times.

In some areas, this has driven up prices. In Texas, where 10 of the 34 mines are connected to the state grid, increased demand has raised utility bills for electricity customers by nearly 5 percent, or $1.8 billion a year, according to a simulation. by Energy Research for The Times. and consulting firm Wood Mackenzie.

The additional use of electricity across the country also creates as much carbon pollution as adding 3.5 million gasoline-powered cars to America's roads, according to an analysis by WattTime, a nonprofit technology company. Many of Bitcoin's operations advertise themselves as green and have been located in areas rich in renewable energy, but their electricity needs are too great to be met from these sources alone. As a result, they have become a boon for the fossil fuel industry: WattTime found that coal and natural gas power plants are springing up to meet 85 percent of the demand these bitcoin operations are adding to their networks.

Its massive power consumption, combined with its ability to shut down almost instantly, allows some businesses to save money and make money by smartly tapping into the US electricity markets. They can avoid fees charged during demand spikes, resell their electricity at a premium when prices rise and even get paid for offering to disconnect. Other large energy consumers, such as factories and hospitals, cannot routinely or drastically reduce their energy consumption without serious consequences.

In some states, notably New York, Pennsylvania, and Texas, bitcoin traders' revenue may ultimately come from other electricity customers. The clearest example is Texas, where the network operator pays bitcoin companies to promise to shut down quickly if necessary to avoid power outages. In practice, they are rarely asked to shut down and instead earn extra money while doing exactly what they would be doing anyway: digging for bitcoin. Five companies have collectively earned at least $60 million from this program since 2020, records show.

Several of the companies are paid through these arrangements most of the time they operate. Most years they are asked to go offline for a few hours and then get paid even more.

Bitdeer's lucky break during Winter Storm Uri came through this program, in exchange for a fraction of the energy normally consumed. The company did not respond to requests for comment. Another bitcoin company made tens of millions of dollars reselling electricity during the storm, ultimately netting as much as $125 million, according to its financial records, previously reported by theTechnological Transparency Project. A third companysaid investorsthat another natural disaster like Uri could be a major business opportunity.

"Ironically, when people pay more for their electricity or lose it completely, miners make money and sell power to Texans at prices that are 100 times what they paid," said Ed Hirs of the California energy industry. University of Houston. he teaches and critiques the industry.

In interviews and statements, many of the companies said they were no different from other large electricity consumers, apart from their willingness to quickly disconnect to use the grid. Several objected to the method used by The Times and WattTime to estimate their emissions, which calculated the pollution caused by the extra power generated to meet the needs of the mines and showed that it came mainly from fossil fuels.

The companies said this method held them to an unfair standard.

“The cited analysis could be used to attack any industry that uses electricity,” said David Fogel, chief executive of Coinmint, which operates in upstate New York. "I think the whole idea of ​​highlighting certain industries like this is unfair."

But the WattTime method is the one that many energy and climate experts recommend for measuring the environmental impact of increased electricity use in any industry, especially one that is suddenly growing so big.

Some in the industry have resisted suggestions that they are directly responsible for environmental damage.

May 1, 2022Brieftold the Environmental Protection Agency, signed off on by many of the largest companies, that its operations have not "released" any pollutants. “Bitcoin miners have zero emissions,” he said. "The associated emissions are a function of power generation."

Nic Carter, a partner at a crypto-focused venture capital firm, and a The prominent bitcoin advocate, who told The Times he was the lead author of the letter, said he was playing a "language game" when he wrote that bitcoin mining is zero emissions. At the time, he had the feeling that the industry was mismarked.

"Perhaps the most honest point is that we are already aware of the emissions associated with utility companies that generate electricity on the grid," he said.

Many academics who study the energy industry have said that Bitcoin mining undoubtedly has a significant impact on the environment.

“They are adding hundreds of megawatts of new demand when we are already faced with the need to rapidly reduce our use of fossil fuels,” said Jesse Jenkins, a Princeton professor who studies emissions from power grids.

"If you're worried about climate change," he added, "then that's a problem."

flood to america

Bitcoin, conceived in 2008, introduced most of the world to the concept of cryptocurrencies. Instead of relying on banks to track account values, the system posts transactions to a public ledger called a blockchain. Advocates said cutting out the middlemen would free people from financial institutions, government oversight and fees.

So-called mining is an elementary part of the system: if a computer guesses correctly, it updates the ledger and collects six and a half new bitcoins. Then the guessing game begins again.

Initially, hobbyists could earn on PCs, but as the value of each bitcoin increased (from less than $1,000 in 2017 to more than $60,000 in 2021), mining became more and more of an industrial endeavor. (The price has since dropped and was around $28,000 at press time.)

The only way miners can improve their odds is to add processing power, which requires more power. But as the number of attempts increases, the algorithm makes the game more difficult. This has triggered an arms race in the energy sector.

The dimensions of the mines can take the breath away of people in the energy industry. A one megawatt mine uses more energy each day than a typical US home uses in two years. The electricity flowing through a 100-megawatt facility at any given time could power about half of Cleveland's homes, according to federal data.

Aspects of the industry have previously beenreportedin newspaper articles, etc.GovernmentYnonprofit white paper, including comprehensive estimates of environmental impact. But The Times turned to financial statements, land records and satellite images to compile the first national accounts of the biggest deals. The analysis includes mines that operate at around 40 megawatts or more, though dozens more exist below that threshold.

Of course, other industries, including metal and plastic manufacturing, also require large amounts of electricity, creating pollution and increasing electricity prices. But bitcoin mines create significantly fewer jobs, often employing only a few dozen people once construction is complete, and are less of a driver of local economic development.

Their financial benefits flow almost exclusively to their owners and operators. In 2021, the year the Bitcoin price peaked, 20 executives from five publicly traded Bitcoin companies collectively received nearly $16 million in salaries and more than $630 million in stock options, they show. the registers.

Since then, the industry has been less profitable as Bitcoin's value has fallen and electricity prices have risen. Two of the largest US-based companies have filed for bankruptcy. Still, new mines continue to be opened across the country.

There are ways to run a cryptocurrency using much less electricity. Over the past year, Ethereum, the second most popular cryptocurrency, has reduced the amount of electricity needed to power the network by more than 99 percent by changing its algorithm. You now reward people and trust them to update the ledger because they are willing to put up their own money as collateral, not because they spent money feeding guessing computers like Bitcoin does.

Bitcoin advocates, however, oppose changing their algorithm, saying it has proven resistant to attacks longer and on a larger scale than any other approach. In practice, the more computers that make the guesses, the more secure the network will be.

With the proliferation of bitcoin mining, countries around the world have realized that the operation taxes their power grids. In 2019, China declared the industry "undesirableand banned it in 2021. Many operations followed suitIranYkazakhstan, which also issued restrictions.

And shipping pallets full of bitcoin mining computersstarted coming to america, where some states welcomed them.

The land of coal and oil

North of Jamestown, N.D., the terrain is flat, sparsely treed, and snowdrifts can easily top 10 feet in winter. Even when strong prairie winds blow, the high-pitched wail of fans at Applied Digital's bitcoin mine can be heard half a mile away.

They are working to cool more than 30,000 computers stacked two stories high and stretching hundreds of feet next to signs that read "Danger: High Voltage." Radiant heat melts snow on one side of each of the facility's eight buildings.

The mine has 33 employees and uses almost ten times more electricity than all the homes in the city of 16,000. It is one of three mines in the state that combined consume nearly as much electricity as all North Dakota homes.

Few other states have welcomed bitcoin businesses like this. In October 2021, Governor Doug Burgum filed aEconomic Promotion Awardlocal officials and a power company for bringing a mine to Grand Forks. Months later, he announced the development of a $1.9 billion Bitcoin operation in Williston. And last spring, heturned arounda switch at the groundbreaking ceremony for the Jamestown mine.

The impact of bitcoin operations on the state's economy is simple, said Josh Teigen, Commissioner of Commerce: "They support our fossil fuel industry, and that's what we want."

North Dakota is rich in lignite, a type of coal used primarily to generate electricity. Mr. Teigen said the state ultimately hopes it does. capturing carbon from fossil fuel power plants and storing it underground, reducing emissions and keeping the coal industry alive.

The state also boasts a large amount of wind power, which has attracted it Applied Digital, said Wes Cummins, managing director.

Your company is not alone. Many Bitcoin companies are promoting their ability to operate in rural areas where renewable energy is abundant.

But these claims run up against a harsh reality: Much of this renewable energy would still be used without the mines, so fossil fuel power plants almost always have to produce additional electricity to keep them running.

For example, the power requirements of the Jamestown mine mean that coal or natural gas utilities generate electricity more than 90 percent of the time, WattTime found.

Using a technique known asLimit emissions analysisWattTime surveyed the location and power consumption of each mine, identified which types of power plants generated the additional power needed, and estimated the resulting pollution. This method, and WattTime in particular, was recommended in a report by the Crypto Climate Accord, an initiative to reduce the industry's carbon footprint that is supported by more than 200 cryptocurrency companies.

The analysis revealed that the electricity consumption of the 34 mines generates almost 16.4 million tons of carbon pollution each year.

"I'm very surprised," Mr. Cummins said when presented with estimates for Applied Digital's Jamestown operations. He said his operation uses electricity available on the grid and cannot control whether it comes from clean or dirty sources, which is affected by demand from all customers. Miners generally prefer to calculate emissions based on this energy mix.

Using this method, WattTime estimated that they use 54 percent of their electricity from fossil fuels, resulting in almost 10.4 million tons of CO2 emissions.

Lee Bratcher, president of the Texas Blockchain Council, a bitcoin lobby group, said in an email that the industry is incentivizing the development of new renewable energy and natural gas assets. But energy industry experts say that while some current wind farms benefit only marginally, renewables take years to build and typically require customer commitments that can guarantee they will buy power for a decade or more. .

according to dr. Jenkins of Princeton, the near-constant power demands of bitcoin operations are more likely to keep fossil fuel plants running than to generate more renewable energy.

This came true in upstate New York, where a gas-powered facility has reopened and is now powering a bitcoin mine. Three other large operations are operated by companies that also own the fossil fuel power plants in which they operate, including two that burn residual coal in Pennsylvania.

Some of the bitcoin companies that WattTime has identified as causing the most pollution have become proponents of renewable energy.

For example, the CEO of Riot Platforms described Bitcoin mining as "unusually beneficial and supportive of renewable energy." 96 percent of the electricity demand added by the company's mine was met by fossil fuels, the WattTime analysis showed.

The bitcoin miners power play

Bitcoin mining generates constant income, but using so much electricity can also be a business model.

Times of extreme weather provide particularly clear examples. Take June 23, 2022 as an example – the eighth straight day of temperatures nearing 100 degrees in the Austin area, allowing Riot Platforms to demonstrate multiple ways they are turning energy into cash.

Like many industrial buyers, the company had previously purchased its electricity at a fraction of the price available to residential customers. Riot's mine runs on 450 megawatts, the largest in the country.

Every day in June, their computer estimates gained an average of about $342,000. But the company had two other opportunities to improve its profit margins.

First, he enrolled in Responsive Reserve Service, a Texas power grid program that provides a way to quickly shed load when the grid is overloaded and acts as insurance against power outages. The program pays miners and other companies to promise to stop using electricity when asked. In reality, they are rarely asked to close, but still get paid to do so.

From midnight to almost 4:00 p.m. m. on June 23, Riot earned more than $42,000 from the program while continuing to mine bitcoin. (In total, Riot earned nearly $9.3 million in 2022 for participating in the program nearly 85 percent of the time, the data shows, though the operator asked companies to limit their use to about 3.5 hours. to reduce it).

It was around this time that the company switched to the second technique: avoiding the fees that Texas charges to maintain and strengthen the electrical grid. He did this by shutting down almost completely.

To encourage large customers to save electricity, these charges are based on the amount of electricity they use during various peak times of summer. Riot reduced their energy consumption by more than 99 percent.

At 6:30 p.m., the company resumed mining. If Riot had been up and running all day, it would have incurred fees estimated at $5.5 million, costs that are largely covered by other Texans. Over the year, this saved Riot more than $27 million in potential fees.

The company's actions were described in data released by the Texas Electric grid operator Reliability Council of Texas, or ERCOT. Although the records refer to utilities under pseudonyms, The Times was able to identify six of the 10 Texas operations in the data.

A final mechanism allows some companies to earn extra money when electricity prices rise: they can stop mining and resell electricity to other customers. That earned Riot about $18 million last year.

The company made $156.9 million from bitcoin mining last year.

Five of the six Texas mines in the power grid data participate in the Responsive Reserve program. The six chose to close nearly every time fees were assessed in 2022, saving approximately $62 million in fees.

When asked if bitcoin companies can use both schemes disproportionately, ERCOT said in a statement that it "does not discriminate based on the nature or activity" of companies registering.

It's not uncommon for Texas businesses to be able to anticipate when fees will be charged and reduce their demand, but unlike bitcoin miners, most can stop using an average of 5 to 30 percent of their electricity, they say industry consultants.

In a statement, Riot said the reduction in electricity charges has helped all electricity customers.

"The company's decision to actively reduce its load during expected peak periods contributes to grid reliability and ultimately helps reduce peak electricity prices," the statement read.

Mr. Bratcher of the Texas Blockchain Council said that the benefits outweigh the costs.

"In addition to the job creation and positive economic impact, bitcoin miners shut down when energy prices rise, and that energy is available to commercial and residential users," he said.

Others say that companies are taking advantage of the weaknesses of programs designed for very different industries.

“I think they are exploiting the system,” said Severin Bornstein, a professor at the University of California, Berkeley, who studies electricity prices. "But they're going to say, 'You know, the system was already there,' and I'm okay with that."

After accounting for the savings and income from each of the strategies, Riot told investors that its electricity costs in 2022 were 2.96 cents per kilowatt-hour.

For comparison, the median price for other industrial businesses in Texas was 7.2 cents. For inhabitants was 13.5 cents.

“Texas will be the leading crypto”

These opportunities have led some of the largest bitcoin companies in the country to choose Texas.

"It's a massive financial drain on Texans," said Ben Hertz-Shargel, who leads network-related research at Wood Mackenzie and was part of the team that ran the market-based simulation for The Times based on ERCOT historical data. . Because of how the Texas market works, the increases are stronger for retail customers, said Hertz-Shargel, who previously criticized Bitcoin's reliance on electricity as "negligible."

Others say higher prices will encourage the development of cheaper forms of power generation.

“Texas generation expansion is critical, and if different power sources can compete in the market, it will help drive prices down,” said Gideon Powell, chief executive of Cholla, a Texas energy exploration company that develops mines. of Bitcoin.

Last month, ERCOT had approved plans to connect another4,000 megawattsof bitcoin operations this year, which would almost triple its consumption in Texas.

In Congress, Democrats have called for an accurate inventory of electricity use and resulting emissions. Republicans have broadly supported the industry, including introducing a congressional resolution last month that reaffirmed its importance to the nation's energy goals and economy.

And in Texas, corporations have powerful allies. Governor Greg Abbott said in acheepthat "Texas will be the crypto leader" andprovidedthe Texas Blockchain Council at the Governor's Mansion. The Grid's former interim CEO has declared himself "pro-Bitcoin," and the current vice chair of the Grid's board of directors is a former adviser to the Texas Blockchain Council. Still, three Republican senators joined in Marchsponsor an invoicethat would limit tax breaks for miners and severely limit their participation in programs like Responsive Reserve.

In Rockdale, where two of the country's largest mines operate just outside the city limits, city manager Barbara Holly told the Times that the city used to be "a pretty prosperous little community." She said that changed when a large industrial plant that had created thousands of jobs closed more than a decade ago. "It just cut the legs off this community," she said.

It was the old aluminum smelter that now houses the Bitdeer mine.

Produced by Gray Beltrán and Ege Uz. Additional graphic work by Jon Huang. Reporting was contributed by Mr. Huang, Zach Levitt, Aimee Ortiz, Julie Tate, and Tim Wallace.

About the analysis

The Times identified major bitcoin mines by reviewing public statements, news articles, and financial disclosures, and then used satellite imagery and land records to identify the precise location of each operation and the specific part of the US power grid. USA to which it connects. Farms can often grow and shrink; The Times analysis reflects information available as of March 9. The companies confirmed operating levels for 21 mines, declined to confirm specific figures for five others, and did not respond to repeated inquiries about the remaining eight. WattTime's calculations were based on each mine being operational 95 percent of the time, a commonly accepted figure in the industry, except for two companies that provided alternative numbers: Coinmint and TeraWulf. WattTime's calculations also assumed that miners' offline hours were during periods of peak contamination.

Wood Mackenzie prepared annual estimates based on locations and throughput levels, taking into account miner shutdowns at the most costly times.

To calculate the number of households that collectively use as much electricity as specific mines, The Times used data from the University of Minnesota's IPUMS NHGIS 2020 census of occupied housing units and average household electricity consumption rates nationwide. 2021 US State and State Energy Information Management. Numbers are rounded to the nearest thousand.

Households were randomly assigned to census blocks on maps that compared the energy use of the mines to nearby communities. The regions on the Texas map were based on the state grid operator's list of counties within each climate zone on the grid.