1. How Bitcoin Miners in Texas Are Making Millions Without Mining at All
A sizzling Texas has turned its power grid into overdrive recently, enforcing emergency procedures into action–affecting first and foremost, Bitcoin miners.
Due to the excessive heat the lone star state suffered, several mining outfits were pushed to turn down their mining operations, albeit temporarily. Riot platforms made news today that it “had been paid” to shut down, along with Marathon Digital, who reported a 9% drop in Bitcoin productions.
The Electric Reliability Council of Texas (ERCOT) was forced to implement emergency procedures during August to ensure that customers were never without energy as a heatwave socrched the state. ERCOT supplies power to roughly 25 million Texans, translating into 90% of the state’s grid load.
Emergency procedures refers to specific power consumers, such as Bitcoin miners, curtailing their energy needs (effectively, shutting off machines).
Bitcoin mining can oftentimes be a somewhat obscure and controversial activity. Specialized computers known as ASICs plug into a plethora of energy sources and begin a competition to find a random number. On average, every ten minutes, one computer finds the number and is allowed to add the newest block of transactions to the Bitcoin blockchain. Currently, a Bitcoin miner receives 6.25 BTC for each block they add to the chain.
Les also pointed to a unique strategy put in place by ERCOT to manage uncertainty and variability on the grid–Ancillary Services.
Ancillary Services are purchased by ERCOT in the day-ahead market to balance the next day’s forecasted supply and demand of electricity on the grid and mitigate real-time operational issues.
Anthony Power, mining analyst for Compass Mining, considers what Riot and others are doing as “the best strategy.”
As he explained to Decrypt, Riot can do this because they use power purchase agreements, essentially allowing them to mine at a specific price.
This also has a financial incentive for the miners. They can “either mine BTC or curtail energy when prices are high to sell it back to the grid,” he told Decrypt. This gives them a better return than mining, along with being responsive to grid needs.
2. Bitcoin Miner Warns Lawmakers Of ‘Chinese Takeover In Wyoming’
Chinese-connected corporations have allegedly acquired land next to Sean Murphy’s bitcoin mining operation in the Campstool Business Park outside Cheyenne, which has killed an agreement his company had with the state of Wyoming.
Murphy, who represents Bison Blockchain, told the Legislature’s Management Audit Committee on Wednesday that a conglomerate of about eight “corporate entities” run by Chinese nationals with varying levels of connections to companies in China — including the largest manufacturer of bitcoin miners in the world — have pushed his Wyoming-based company out.
“It’s a diverse, complicated flow from Chinese nationals operating companies,” Murphy said in warning lawmakers about the potential for Chinese companies to exploit Wyoming’s business and land-use laws.
He said although some of the companies that buried Bison Blockchain are based in Wyoming, they are all connected to China.
“We came to learn that they were Chinese,” he said. “There’s been a Chinese takeover in Wyoming.”
What Murphy didn’t tell the committee is that his business had a prior relationship with at least some of these companies.
In May, Bison Blockchain filed a $22 million lawsuit in Wyoming federal court against five companies based in either Delaware or the Cayman Islands related to its bitcoin mines in Cheyenne. The lawsuit accuses the companies of breach of contract, covenants of good faith and fair dealing, enterprise liability and intentional interference with contractual relations.
What Are They Doing?
Blockchain mining is the process of adding transaction records to the bitcoin blockchain.
In June 2022, Black Hills Energy entered into a five-year service agreement with Bison Blockchain involving up to 45 megawatts of power, with an option to expand to as much as 75 megawatts at the North Range Business Park in Cheyenne.
Black Hills said at the time that the facility “will represent one of the largest bitcoin mining operations in the region,” according to a press release from the utility. “We were the largest bitcoin miners in the state until we weren’t,” Murphy told the committee.
In October 2022, Bison Blockchain broke ground on the future site of its MineOne Data Center at North Range. It is now suing MineOne as one of the parties in the lawsuit.
How It Works
Power is an incredibly important valuable asset in bitcoin mining and the data centers that typically house these operations, as they need a significant amount of electricity to run their operations.
Bison Blockchain leased state land next to a large Black Hills Energy substation to run its operations off 30-45 megawatts of power. To put that number in perspective, Murphy said the entire city of Cheyenne runs on about 100-120 megawatts.
Their business model was to generate revenue for the state on a per-miner basis, the process of creating valid blocks that add transaction records to Bitcoin’s public ledger. For each Bitcoin miner, the company would pay the state $1 per month.
Bison Blockchain was paying the state $5,000 a year on its 10-year lease.
Murphy said a large mine like Bison could result in 10,000-15,000 bitcoin miners, representing as much as $1 million to $2 million revenue for the state over the course of its 10-year lease.
“The more bitcoin that we mined, the more money the state made,” he said. “It was a great win-win-win.”
Murphy said the other companies acquired private land next to the Black Hills substation and have since taken over Bison Blockchain’s service agreement with Black Hills. Now, Murphy said the companies will be using Black Hills power to mine their own bitcoin, all of the proceeds of which he believes will eventually go to China.
3. How a Bitcoin miner earned more money by switching the power off
The move comes amid surging power demand and peak electricity usage, the Electric Reliability Council of Texas (ERCOT) called upon consumers to conserve electricity.
Riot Platforms, headquartered in Castle Rock, Colorado, effectively received $31.7 million from ERCOT to refrain from Bitcoin production.
The company announced this windfall in a press release, stating it set a new monthly record for Power and Demand Response Credits in August, surpassing its total earnings from such credits in the entirety of 2022.
Bitcoin mining involves energy-intensive algorithms running on computer systems, and this power-hungry process coincided with Texas experiencing extreme heatwaves and record-breaking global temperatures fueled by climate change.
As a result, the demand for electricity soared, approaching the total available supply.
Riot Platforms responded by implementing its power strategy, drastically reducing power consumption by over 95% during peak demand periods.
This decision meant forgoing revenue from Bitcoin mining operations to allocate energy resources to ERCOT.
Texas operates its independent power grid through ERCOT, and the grid operator has had to request energy conservation from Texans on ten occasions this summer to mitigate surging power demand.
ERCOT clarified that the recent conservation appeal did not indicate an emergency but was driven by ongoing high temperatures, elevated demand, limited wind power, and decreasing solar energy generation in the afternoon and evening hours.