Justin Ballard traverses a section of West Texas oil land in a Nissan Frontier pickup one sweltering afternoon. Ballard spent years attempting to convince people to allow the drill rigs to enter and perform their work in these mesquite-covered areas, just like any good oil landman. But early last year, he stopped his hunt. He is currently searching the same desolate areas for a different kind of fuel: natural gas that is being squandered and burned up. The lost gas can be used to power massive computer clusters that create or mine Bitcoin and verify transactions on its blockchain record.
Ballard, 41, claims that the issue is all about stranded energy and that it needs to be found and mined. It resembles the oil industry greatly. In other words, wildcat crypto miners sniff for excess electricity to run the servers that operate around-the-clock instead of utilising drill rigs to reach oil buried deep beneath. A digital currency worth roughly $19,000 is the reward. The price of the cryptocurrency does not take the effects on the environment into account, just like a barrel of oil does.
A few steps from an oil well, Ballard approaches an orange flame spewing out of a charred pipe. These flares, a consequence of extracting oil from the massive petroleum deposit that is more than a mile underground known as the Permian Basin, are all throughout West Texas. Natural gas follows oil, but there isn’t always a pipeline that can transport it to market. Instead, the gas is burned off to make room for petroleum, releasing sooty smoke columns into the Texas sky.
Ballard wants to convince the owner of the well to give him a deal on the lost gas so he can use it to fuel a container’s worth of Bitcoin servers. He began his career as a miner in Wyoming using gas wells to power servers 16 months ago. He remarks, he feels like I can see the Bitcoins coming out of that flare.
Ballard’s actual focus is two hours to the northwest, where he is preparing to build a gigantic Bitcoin mining facility connected to a series of substations and fueled by some of the cheapest power in the entire globe. This project is the digital equivalent of a big oil gusher.
Bitcoin cowboys like Ballard are spearheading a movement that is making Texas, with its cheap power and lax restrictions, one of the largest centres for cryptocurrency mining in the world. At meetups in Austin, Houston, and Miami, thousands of men—almost exclusively men—congregate to share tales about hash rates, power purchase agreements (PPAs), and ASICs—the abbreviation for the computer servers that solve the mathematical riddles underlying Bitcoin—while exchanging stories. They have similar aspirations of converting electricity into digital gold and liberating their money from the control of governments and central banks. Their Xanadu is Texas.
Griffin Haby, dressed in a brimmed hat and cowboy boots, holds court over dinner after a hard day promoting cryptocurrencies at a mining conference in Houston, declaring, Bitcoin mining is freedom. Like his pal Ballard, Haby, a former oil landman, hunts out Bitcoin mining locations for his customers.
A number of nations, most notably China, have banned bitcoin mining since it is thought to be responsible for power system failures, rising electricity costs, and worsening global warming. However, Texas’ political elites have accepted them. At a Washington, D.C., Heritage Foundation symposium on cryptocurrencies in late May, Republican Senator Ted Cruz declared, he believe in Bitcoin. He wants Texas to be the Bitcoin and cryptocurrency haven on Earth.
The crypto market collapsed shortly after, shattering Cruz’s utopian vision. From its high earlier this year, the price of Bitcoin has fallen more than 60%. Some miners stopped operating. Others were forced to postpone or curtail expansion plans and sell their cryptocurrency holdings to raise money. Profitability for the Texas miners who have remained in business depends on the affordable cost of power. Ballard, a lawyer by profession, describes his group as energy maximalists. There isn’t a finer setting for it, he says.
It would be comparable to adding entire cities’ worth of electricity use in only a few years to the Texas Bitcoin accumulation due to its size and speed. Multiple Bitcoin mine proposals have been submitted to Texas utilities, requiring an additional 33,000 megawatts of electricity, or enough to run the whole state of New York.
To one of the biggest and most unstable electrical systems in the US, however, the rapid expansion is adding to the risk. The thirty million Texans who also require electricity are fighting with the humming servers for a limited supply. Bitcoin miners in the state are already using as much energy as 300,000 houses, placing a strain on the grid, which has a history of occasionally failing when temperatures change substantially.
A violent storm in February 2021 resulted in widespread outages that claimed hundreds of lives. Six Texas power plants were destroyed by a heat wave in May of last year, sending utilities back into a state of emergency and sparking calls for energy conservation as a record number of hot days hit the state. These occurrences demonstrate the possible risks of using so much electricity for cryptocurrency mining.
Additionally, there are planetary expenses. Bitcoin mining uses more electricity than the 110 million-person Philippines does globally, and much of that electricity is now produced using fossil fuels that release greenhouse gases. Estimates of how much carbon-free energy Bitcoin uses range widely. Industry organisation the Bitcoin Mining Council estimates it to be 58%. A research analysis indicated that only about 25% of the electricity used for Bitcoin mining globally as of August 2021 came from renewable sources.
No matter how you look at it, the business “has a big carbon footprint,” according to Alex de Vries, a Vrije Universiteit Amsterdam expert on Bitcoin’s energy usage. The energy-guzzling proof of work technique that underpins Bitcoin mining was singled out in the White House’s own study from September, which warned that it was endangering US climate goals.
However, the miners are increasingly using a contradictory justification to support their actions: their usage of electricity is really beneficial to the environment and Texas’ power grid. Bitcoin mining can contribute to grid balancing and provide a market for underutilised solar and wind resources by consuming enormous amounts of power. Additionally, they simply turn off when blackouts are imminent, preventing a catastrophe.
From his home in Malta, Adam Back, the founder and CEO of bitcoin miner Blockstream Corp. in British Columbia, claims that bitcoin miners can help to stabilise the electrical system. He claims that miners can aid the spread of green energy throughout the Midwest, preventing blackouts that could affect Texas and other states’ power grids.
Back made the decision to put this notion to the test outside earlier this year. Jack Dorsey, the former CEO of Twitter Inc. and co-founder of Blockstream and Block Inc., started constructing a $12 million Bitcoin mining pilot facility in West Texas that will be entirely powered by solar energy. The mine would be able to operate at night when there is no sun since the plant includes large Tesla batteries to store electricity. A Bitcoin mine is currently not profitable due to the expense of the batteries, but Back claims his pilot experiment will show that can change.
Miners don’t want their computers to shut off when the wind or sky clears; they want them to run continually. Even in areas where renewable energy is readily available, for the time being, those who want to make a profit—which is to say, everyone—plug into the grid.
Ballard and other Bitcoin cowboys don’t see much profit in connecting servers to gas flares. The great benefit is the affordable electricity in West Texas, one of the world’s largest renewable energy hubs, where there is more wind and solar power available than the sparsely inhabited area could ever use. Ballard, who is directing his Frontier pickup toward a location on the Texas–New Mexico border where he has just made his biggest Bitcoin mining strike to yet, claims that it is massively stranded electricity.
He has a deal with Sydney-based miner Mawson Infrastructure Group Inc. to connect 30,000 computers to underutilised energy substations dispersed around distant tracts owned by Texas Pacific Land Corp. in order to produce hundreds of Bitcoins. The potential reward in Bitcoins is enormous: The mines have a chance to produce 3,700 Bitcoins year, which are currently worth $72 million.
Because numerous solar and wind farms were built thanks to federal price guarantees and tax subsidies, West Texas enjoys an abundance of renewable energy. The issue is that no comparable transmission line building was funded by the subsidies. There is no way to get all that power hundreds of kilometres to the places that require it. According to the Texas grid operator, West Texas will produce at least 6,700 gigawatt-hours more wind and solar energy by 2023 than the region’s electrical infrastructure can handle. That would last for approximately a year to power 500,000 households in Texas.
According to Ballard, his actions are “simply another way for the renewable power producers to continue to create a return on investment, which leads to additional grid stabilisation and expansion through renewable projects.” So, as opposed to saying, “Oh, we’re burdening the grid,” this is actually helping to green the grid.
This position has been taken by Republican state officials all the way down to Cruz and Governor Greg Abbott. Abbott frequently echoes industry claims that Bitcoin miners consistently consume enormous amounts of extra power, stabilising the grid.
A decade of economic and population growth has already exceeded the capacity of the Texas grid. Then this summer’s intense heat arrived. According to the Electric Reliability Council of Texas, or Ercot, which runs the grid, Texas has broken electricity usage records 37 times since May as temperatures maintained above 100F every day.
According to Ercot, the capacity of its 1,000 power units is enough to meet summer demand by 23%. According to a new analysis by the North American Electric Reliability Corp., which keeps an eye on power systems nationally, that calculation does not adequately account for the severe heat that Texas experiences every summer. In Texas, the need for power has been increasing quickly during the past ten years. According to the independent agency’s evaluation, Bitcoin mining is one factor that is driving increased demand.
Miners have a different perspective: They can prevent blackouts by simply turning off their servers, saving energy for homes, businesses, and healthcare facilities. That is what occurred this summer when Houston’s temperature soared to a record-breaking 105F. Ercot urged locals and businesses to practise energy efficiency the following afternoon in anticipation of a potential shortage. On July 11, all of the state’s significant Bitcoin miners went down, resulting in a staggering 1,000 megawatt reduction in electricity use and preventing any blackouts.
The cryptocurrency community celebrated. Texas Blockchain Council president Lee Bratcher tweeted, Texas #bitcoin miners are not only excellent corporate citizens, but they are also good ‘grid citizens’. Over the course of the summer, the situation occurred at least 12 more times.
However, the households that kept their lights on will ultimately be charged by the miners. In so-called curtailment programmes offered by Ercot, industrial power users like factories and Bitcoin miners are compensated for not using the electricity to which they are legally entitled. By shutting down its massive mining complex near Rockdale, north of Austin, Riot Blockchain Inc., one of the largest Bitcoin miners in the world, earned an estimated $9.5 million in power credits through July. In the end, these expenses are borne by almost everyone who must pay an electrical bill.
According to De Vries, an expert on Bitcoin’s environmental effects, bitcoin miners contribute to the current electricity scarcity. Then they get given an absurd sum of money to assist in resolving the shortfall that they contributed to in the first place.
Energy expert Doug Lewin of Austin believes that cryptocurrency miners could benefit the grid by turning off during periods of peak demand. It can’t, however, be optional like it is now. Lewin asserts, “At some point, you need some regulation.” When human life is at danger, mining Bitcoin cannot get to that stage.
The oil firm BP Plc built 50 turbines at a height of 300 feet at a wind farm known as Sherbino I in the rural Pecos County in 2008. Federal policies that guaranteed wind farms a price of $27 per megawatt hour for electricity as long as they transferred their power elsewhere helped them grow for a decade. However, these warranties lapsed ten years after a project was completed, and Sherbino I decided to shut down rather than provide power that no one would buy. The turbines were long gone, and the high mesa is now deserted. An underutilised energy substation that is connected to the nearby power system is located in a clearing at the site’s base.
Before early 2021, when the demolition crew was still removing the sleek turbine blades of Sherbino I and transporting them away, County Judge Joe Shuster, the top local elected official in Pecos County, had no knowledge of Bitcoin. Then, other miners began approaching Shuster and pleading for tax exemptions from the county so they could spend hundreds of millions of dollars building enormous buildings in the midst of the desert.
Shuster, who has a handlebar beard that is starting to grey, is aware that mining is risky. They can pick up and depart right away if prices drop because they are mobile. However, he is certain that Bitcoin will continue to exist as long as there is electricity to spare. For the time being, they have provided us with jobs, which is what we need, he claims.
One of the individuals courting Shuster was 37-year-old Jamie McAvity, CEO and creator of Cormint Data Systems. He is a former oil trader who appears to be a true believer—young, animated, and persuasive in his claim that Bitcoin is here to stay. The county agreed to exempt Cormint from paying property taxes for 22 years in exchange for the guarantee of at least 50 full-time jobs, according to paperwork submitted to the county. The business relocated its headquarters to Fort Stockton and made a $100 million minimum investment in a mine nearby that will use 200 megawatts of electricity.
On a hot day, it would be sufficient to power 40,000 houses in Texas, but McAvity is unconcerned about the state’s electrical crisis getting worse. According to him, adding Bitcoin miners to your grid is comparable to adding a market maker to a market. Both volatility and liquidity are increased by it. The location of his Bitcoin mine is somewhere between Midland and El Paso, surrounded by the imposing sandstone mesas that formerly supported the windmills. The facility will produce 24 Bitcoins per day once its 24 mining machines are operational, which is equivalent to a total worth of roughly $500,000 at the current exchange rate.
More quickly than any other state in the US, Texas is developing renewable energy sources. But most of the additional supply runs the same risk of being stranded as its clean power does now. Although approximately $3 billion from President Joe Biden’s Inflation Reduction Act will help with the location and construction of transmission lines, this infrastructure won’t appear overnight. Construction of transmission projects takes years.
Places outside of Texas might find themselves with a similar abundance of clean energy that they can’t reach where and when they most need it if the new climate law fulfils its intended purpose of encouraging the installation of wind and solar capacity across the nation. But Texas is in a unique position since it cannot import power from other states to prevent blackouts when demand exceeds supply because its enormous power grid is not connected to the national networks. (Unlike most states, Texas chose to wall off its grid 100 years ago to evade federal regulation of its power infrastructure.)
De Vries said of the miners, he don’t know how they got trained to think that this is a good deal for the Texas grid. He mean, flexible additional supply is what you need to fix the system, but flexible additional demand? It is a very strange way of thinking.
A few weeks after the fatal blackouts of 2021, Texas’s lack of flexible supply of emergency power prompted billionaire Warren Buffett to persuade the state to spend $8.3 billion on a number of so-called peaker power facilities. Only to prevent blackouts would the natural gas-fired generators, which would be constructed by Buffett’s firms, be turned on. Buffett’s offer has not yet been accepted by the state.
Grid operators are forced to rely on miners and other large-scale power users to keep the lights on in the absence of flexible power plants or other innovative solutions.
Crypto mining is similar to the contrast dye doctors inject before a diagnostic scan for the country’s weak power infrastructure as it makes its gradual, awkward transition to clean energy. The perverse incentives that reward a sector for being an energy glutton are highlighted, along with paradoxes like the simultaneous abundance and shortage of clean power.
There are few indications that Texas’ government will quit courting Bitcoin miners. Brad Jones, the former temporary CEO of Ercot, declared in April that he was working with miners to get the grid ready to accommodate a lot more demand for cryptocurrencies and that he wanted to make Texas the world’s biggest mining hub.
The second-ranked cryptocurrency Ethereum’s network recently switched from a “proof of work” strategy to a much less energy-intensive technique called proof of stake. There are no indications yet that Bitcoin will follow suit. The Bitcoin Mining Council stated that it was “imperative” that Bitcoin continue to run on proof of work in May, describing proof of stake and proof of work as “qualitatively distinct.” The US Environmental Protection Agency received a letter from Democratic members of Congress expressing worry about the emissions from mining plants, to which the council was reacting.
The “halving” is currently being fought against in the Bitcoin community. The algorithm is expected to become twice as challenging in 2024. As a result, producing a coin will demand twice as much computational power and energy, burdening the Texas grid even more.
Texas’ electrical crisis can be solved, according to Zach Pless, a 35-year-old former street musician from California who oversees the Cormint site for McAvity. Pless speaks with an almost religious passion, like many crypto converts. Bitcoin, he claims, is freedom, a method to keep his wealth out of the banks and out of the government.
Pless started setting up the mine in the beginning of 2021, and ever since then, he has been sleeping in a trailer a short distance from the buzzing servers. He enters a container one recent afternoon where servers are arranged in a row and submerged in coolant vats to help them function more effectively while outside temperatures soar into the triple digits. It’s sort of a modest pilot mine that will be extended 100 times. The servers are silent, which Pless claims is evidence of how Bitcoin miners can contribute to Texas’ efforts to prevent blackouts that would leave people in the dark, in the heat or cold, or even dead.
Pless points to the dormant servers and says, “Just today, the boss called and directed me to take it down, heeding a request from the utility.” The pilot mine only consumes 166 kilowatts of power, so it’s not much. Imagine what would happen if we received that call when we are operating at full capacity, he asks. “Perhaps that would change things.
