The 'great bitcoin mining migration' in Texas is coming to an end

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The 'great bitcoin mining migration' in Texas is coming to an end

John King knew his small town of Rockdale, Texas had landed on the crypto map when three Chinese bitcoin miners showed up unannounced in City Hall this summer.

Then came the phone calls to the city Chamber of Commerce, from investors asking about power hookups, to connect mining equipment they planned to ship from China. Never stepped foot inside the rural West Texas community, with a population of roughly 5,600 people.

I didn't realize what was happening in China until my first phone call, King said. But there are also a lot of smaller miners that are pulling together and trying to come over here now.

The interest, sparked by an earlier crypto mining crackdown in China is poised to give Rockdale a significant lift as miners search the globe for new opportunities, setting off an exodus dubbed 'the great bitcoin mining migration'. From neighboring Canada and the United States, Chinese players are scrambling to find real estate to rehouse their data servers, shifting the crypto power dynamic from a country that's long been home to more than half of the world's bitcoin miners.

'Demand is much larger than the supply because now all of our capacities are gone. We are building one more data center that will be opened in September and it's already deployed, said Didar Bekbauov, founder of Xive, which helps miners relocate to Kazakhstan. I think every spare kilowatt in Kazakhstan is already booked. Right now a lot of Chinese are reaching us like every day asking for capacities. Cheap electricity is a key driver of the migration, largely because the crypto mining process to enter new coins into circulation consumes enormous amounts of energy. The Cambridge Center for Alternative Finance estimates energy use to be roughly 110 Terawatt Hours per year, equivalent to the annual energy consumed by small countries like Sweden or Malaysia.

The state of Texas provides an attractive alternative with some of the world's cheapest energy prices, in part, because the state's deregulated power grid allows providers to choose between providers. The cost of electricity is roughly a quarter of where it is elsewhere in the country, according to Riot Blockchain CEO Jason Les, who acquired Whinstone U.S. just outside Rockdale, owner and operator of the largest bitcoin mining and hosting facility in North America.

Les said the structure of the Texas grid allows bitcoin miners to 'act like a real power plant" by securing long-term power purchase agreements up front, with the flexibility to sell some of that power back to the grid when the market price of energy becomes very high during peak demand.

It is kind of an economic calculation for miners. They see, 'oh wow, the price of energy is going up' so not only does it not make sense for me to mine bitcoin anymore, but it actually makes sense for me to sell an energy that I own and take back to the grid, Les said. When you have reliable generation sources like wind and solar, loads like Bitcoin mining help provide that intermittent demand.

That increasing abundance of renewable energy has also contributed to the boon, as miners face scrutiny over their carbon footprints. Roughly 20% of Texas's energy is generated by wind power, although fossil-powered natural gas accounts for nearly half the energy mix.

It depends on the company itself. If a company starts mining bitcoin, they can choose to buy all their energy from renewables if they want to, said Josh Rhodes, a research associate at the University of Texas at AustinTexas at Austin Energy Institute. 'If they just go by what is on the market, about half of their power on the system just goes to be from fossil fuels.

Shenzhen-based BIT mining has already invested $26 million in a 57-megawatt data center in Texas, according to Nikkei Asia, while Beijing-based Bitmain plans to expand capacity at its Rockdale facility by 20,000 additional servers, According to King.

Whinstone is looking to capitalize on the mining rush, by adding additional 400 megawatts to its facility or 200,000 servers total, to potentially host other miners coming into the market.

'We have been speaking to a number of people and we see what the hosting market looks like, Les said. What we are focused on building capacity at that site, to sort of leave ourselves optionalism there.

Lawmakers have aggressively moved to take advantage of the exodus as well. Earlier this year, Texas Governor Greg Abbott signed a law to establish a legal framework for cyptocurrency investments in the state. In a subsequent tweet, Abbott declared that 'blockchain is a booming industry Texas needs to be involved in.

For all of the excitement around Texas' bitcoin boom, there are concerns about the impact the accompanying energy usage is likely to have on the state’s infrastructure that suffered major power outages during peak usage this winter.

Rhodes conducted a study on the grid's capacity to withstand demand through 2035 and said much of the viability concerns largely depend on the miners' ability to remain flexible and shut down operations during peak demand.

That flexibility can also lead to a less carbon footprint, according to Rhodes.

'If they don't put as much effort into the grid and run 24 hours a day, they increase carbon emissions because we're using more energy and some of the energy produced in Texas is made from coal and natural gas, said he. 'If they're willing to be flexible, if they're willing to dial their usage down roughly 20% over the year at critical times that it can actually reduce net, negative carbon emissions. The grid produces a lot of wind and solar to handle the energy that these data centers or these mining facilities would want to consume.

King said the city is struggling to keep up with demand back in Rockdale. The city can't invest in Power Substations quick enough to distribute the electricity, as miners continue to build up home in his town.

'All the power stations of Europe are taken up. There's no way to immediately hook on to the power lines without building a substation and that is where the holdup is going to be, King said. It's nobody's fault. Rockdale is betting Rockdale's future on crypto mining’s success, in part because he said there is no real alternative. The town built its fortune on aluminum for decades as home to Alcoa's largest smelting operation. It's struggled to find a replacement since production stopped operations seven years ago.

'We don't have an industry left here, said King, who joined an online MIT course to learn more about blockchain last week. 'We welcome the possibility of industry here of any sort, but I think technology is where we're going to end up, based on what's going on.