This story appears in the August/September 2021 issue of Forbes Magazine. Subscribe
Bitcoin is infamous for wasting enough electricity to add 40 million tons of carbon dioxide to the atmosphere a year — but now, a growing cadre of U.S. miners are developing green, and lucrative, new strategies worth a fortune all their own.
by Chris Helman
(IMAGE ABOVE) Bill Spence (left) and Greg Beard on a Russellton, Pennsylvania, coal waste pile left by a mine that powered 20th-century Pittsburgh steelmakers. They’re burning this polluting “gob” to mine bitcoin.
Growing up in rural western Pennsylvania in the early 1970s, Bill Spence played with his pals on piles of coal waste, oblivious to the toxic heavy metals right under his feet. After working as an oil industry engineer out west, he returned home in the 1990s and found the piles—known as “gob,” for “garbage of bituminous”—still pockmarking the landscape. The present worry is that these unlined pits are leaching deadly carcinogens into the groundwater—or, worse, that they will catch fire and start polluting the air too. (Of the 772 gob piles in Pennsylvania, 38 are smoldering.)
So Spence, now 63, set out on a mission to whittle down the piles, restore the land—and make money doing it. In 2017, he bought control of the Scrubgrass Generating power plant in Venango County, north of Pittsburgh, which was specially designed to combust gob. But gob isn’t a very good fuel, and the plant was barely viable. Later that year, after being diagnosed with pancreatic failure and kidney cancer (which he speculates may have been linked to his early gob exposure), he stepped back from the business. Bored, he started dabbling in cryptocurrencies and soon had a eureka moment: He could make the Scrubgrass numbers work by turning gob into bitcoin.
After surgery and being taken off a feeding tube, Spence is now back at it, converting the detritus of 20th-century heavy industry into 21st-century digital gold. About 80% of Scrubgrass’ 85,000-kilowatt output is now used to run powerful, energy-hungry computers that validate bitcoin transactions and compete with computers worldwide to solve computational challenges and earn new bitcoins—a process known as mining. Depending on the price of bitcoin, which has recently been gyrating around $35,000, Scrubgrass realizes an estimated 20 cents or more per kilowatt hour (kwh) from mining, against just 3 cents selling to the power grid. Plus, because the plant is safely disposing of gob, it collects Pennsylvania renewable-energy tax credits now worth about 2 cents per kwh, the same as those available for hydropower.
Spence is one of an emerging cohort of American bitcoin miners who are turning one of the cryptocurrency’s biggest liabilities—its insatiable thirst for energy—into an asset. Whether they’re getting rid of waste fuels like gob, helping balance the electric grid in Texas or tapping into the flares at oil-and-gas fields, these cryptopower entrepreneurs are profiting by turning digital lemons into green lemonade. And with countries such as China, Indonesia and Iran moving either to severely restrict bitcoin mining or ban it altogether, the opportunity for domestic producers has never been greater. From just a 4% share two years ago, the U.S. has grown into the world’s second largest miner, now accounting for 17% of all new bitcoins, according to the University of Cambridge Centre for Alternative Finance.
For all bitcoin’s purported benefits, it’s also clear that the currency is an environmental disaster. Depending on bitcoin’s cost (a higher price attracts more miners), its global network sucks up between eight and 15 gigawatts of continuous power, according to Cambridge. New York City runs on just six gigawatts, the nation of Belgium on 10. Exactly how much carbon is released into the atmosphere by bitcoin mining depends entirely on what energy source is used. But the pollution is not negligible. To unlock a single bitcoin, miners must feed their machines about 150,000 kwh, enough juice to power 170 average U.S. homes for a month.
It’s especially frustrating that high-energy inputs aren’t a bitcoin bug but rather a feature. Sure, some portion of the electricity is used to validate transactions, but much is seemingly wasted solving flat-out useless mathematical problems. This “proof of work” is simply a way to create artificial scarcity, making it far too expensive for any one group to corner or manipulate the market. In a 2010 message board comment, Satoshi Nakamoto, the pseudonymous creator of bitcoin, made no apologies: “It’s the same situation as gold and gold mining. The marginal cost of gold mining tends to stay near the price of gold. Gold mining is a waste, but that waste is far less than the utility of having gold available as a medium of exchange. I think the case will be the same for bitcoin. The utility of the exchanges made possible by bitcoin will far exceed the cost of electricity used.”
As Bitcoin’s price rises, so does the amount of energy consumed by its worldwide network, as more “miners” jump in with their high-powered computers to solve mathematical problems. When Bitcoin peaked at $64,654 in April, its network was wasting enough energy to keep the lights on in all of Georgia.
Of course, the system could have been designed differently. There are serious cryptocurrencies, including ethereum, cardano, stellar, Ripple’s XRP and algorand, which use vastly less energy than bitcoin or are being modified to do so. Ethereum, for instance, is transitioning next year from “proof of work” to a system called “proof of stake,” which cuts energy use by 99.95%. There’s even a new currency, candela, whose protocol requires solar-powered mining.
But bitcoin isn’t going anywhere. Its first-mover advantage has translated into a recent market cap of $700 billion, more than the five next most valuable cryptocurrencies combined. (Ether, the second most popular, has a market cap of $250 billion.) And bitcoin mining is unlikely to get much less energy-intensive. Its algorithm forces miners to compete to unlock each new coin, and that competition will continue until the last bitcoin is mined, sometime around 2140. Registering a transaction on the bitcoin blockchain takes a million times more energy than processing one on Visa’s bank network. (Backers say a new Lightning transaction network designed to operate atop bitcoin could make it even more efficient than Visa.)
“If you think it’s fake money, then any amount of energy use will be too much,” observes Ted Rogers, vice chairman of Greenidge Generation Holdings, which operates a power plant and bitcoin mining facility on Lake Seneca in upstate New York. “But bitcoin is not going away, and it is going to be the global reserve currency and the center of the future financial world.”
“If you think bitcoin is fake money, then any amount of energy use will be too much.”
To see how green bitcoin can be, look no further than the Lone Star State, whose independent power grid famously failed during last winter’s deep freeze. Dozens of power plants were knocked offline, causing billions of dollars in property damage, and some retail customers were presented with monthly bills as high as $17,000. While the directors of the comically named Electric Reliability Council of Texas (ERCOT) have since resigned, the state’s politicians—beyond mandating that plants prepare better for winter weather—haven’t done much to reform the system.
Fortunately, the free market seems to be coming to the rescue, with 16 gigawatts of new wind and solar projects set for construction in west Texas over just the next year. During normal conditions this will be far more electricity than is needed to fill the Texas demand gap. But it will also ensure that there’s enough power for extreme events like ice storms and summer heat waves. Bitcoin miners are acting as a kind of shock absorber for this new green power. They buy up excess energy when it’s not needed, then shut down their mining rigs when demand surges, releasing power back onto the grid.
“West Texas is going to dominate; it will all come here,” predicts Jesse Peltan, 24, CTO of Dallas-based Autonomous (and a member of the 2021 Forbes 30 Under 30). Last year Peltan helped launch a 150-megawatt crypto mining data center near Midland called HODL Ranch, named for crypto hoarders who buy and then (typo intended) “hodl on for dear life.” It’s the first large-scale operation to be powered by the region’s massive solar and wind farms. Some nights the gusts are so ferocious that grid operators give away power just to keep the system from overloading.
Here’s the key: These miners have entered into so-called “demand response” contracts with the Texas grid, whereby they agree, in exchange for rebates, to shut down their computers at a moment’s notice during times of peak power demand. This brings average power costs at HODL Ranch down below 2 cents per kwh, for a mining cost close to $2,000 per bitcoin.
In Texas, bitcoin miners act as a shock absorber for new green power, buying energy when it’s not needed and shutting their rigs when demand surges.
The largest bitcoin mining operation in America is also in Texas, operated by publicly traded Riot Blockchain ($3 billion market cap) in Rockdale, northeast of Austin, near a giant interconnection that moves 5,000 MW of grid power through a maze of transformers and high-voltage lines. Riot taps directly into this interconnection to draw 300 MW of that juice, which powers 120,000 high-speed mining computers stacked in racks 30 feet high in three narrow buildings, each longer than two football fields. Construction is underway to expand to 750 MW, with 130,000 more machines to be installed by the end of 2022.
Riot has a 10-year contract to buy all the power it needs in Rockdale at a bargain 2.5 cents per kwh, counting a 0.5 cent-per-kwh discount it gets for participating in demand response. It also has the option to resell all its power to the grid. During the Texas freeze, the Rockdale facility voluntarily shut down all mining for two days. Assuming it earned the peak price of $9 per kwh, that’s a $90 million windfall. “At this scale of energy procurement, we are not just mining bitcoin,” says CEO Jason Les. Instead, Riot is acting as a “virtual power plant.”
Les, 35, studied computer science at UC Irvine but first learned about bitcoin while playing professional poker in the mid-2010s—and seeing other players use it to hold and move their winnings without banks. He’s not bothered by bitcoin’s volatility, because he’s all in: “When massive price swings come, they don’t affect me whatsoever. In poker, if you’re good, you’re still losing 45% of the time. I’m very comfortable with losing.”
An even bigger technological green gamble is being taken by Crusoe Energy Systems, which has raised $250 million, mostly to mine bitcoin in the middle of remote oil-and-gas fields in six states, including New Mexico, Texas and North Dakota. Investors include Bain Capital, Valor Equity Partners, Tesla cofounder J.B. Straubel and the twin brother crypto billionaires Cameron and Tyler Winklevoss. Crusoe has deployed 45 shipping containers stuffed with bitcoin mining computers, which are powered using natural gas that otherwise would have been burned off or flared. (When drillers complete new oil wells but don’t yet have pipelines hooked up to gather the natural gas, they set it on fire, since allowing it to simply waft into the atmosphere would be even worse for global warming.)
“We underestimated the operational complexities in the business,” admits Crusoe cofounder Chase Lochmiller, a 35-year-old veteran of crypto investment firm Polychain Capital. The startup has found it a challenge to maintain containers spread out across the vast landscape, particularly during the heat of the summer. While Crusoe is unlikely ever to scale up to Riot’s size and profitability, it is already diverting 10 million cubic feet per day of gas that would otherwise be flared. “We think the best way to improve the carbon economics of an oilfield is to add a few bitcoin rigs,” Lochmiller says.
What really counts as green energy? Wind and solar power, for sure. Other sources can be a tougher call.
On the banks of New York’s Lake Seneca, the Greenidge Generation plant produces 80 MW of power, using about half to mine crypto. Private equity firm Atlas Holdings, based in Greenwich, Connecticut, bought the mothballed plant in 2014 and invested tens of millions to upgrade it to run on natural gas. That means it emits just a quarter of the carbon dioxide it did during the previous six decades, when it ran on coal, and none of the sulfur compounds or particulate matter.
So far, so green. Yet, as it did when it was powered by coal, the plant sucks in up to 100 million gallons of water daily for cooling, returning it to Lake Seneca about seven degrees warmer. Local environmentalists call it a “giant fish blender” and blame the heated water for lowering oxygen levels and contributing to algae blooms. A bill that would have banned crypto mining in New York for three years died in a state assembly committee in June. Greenidge has been further “greenwashing” its bitcoin by acquiring CO2 allowances and forestry offsets. CEO Jeff Kirt notes the plant’s discharge water is well within regulatory limits and says it has been adding more screening systems to protect Seneca’s trout. The company plans to go public later this year.
Back in Pennsylvania, environmentalists aren’t entirely thrilled that Spence’s Scrubgrass plant gets the same subsidy as hydropower. But the state has decided it’s better to have carbon dioxide emitted by a gob-burning power plant than to leave the stuff in polluting pits.
“The problem is real,” Spence insists. “The only way to fix it is these plants.” The technology at Scrubgrass wasn’t widely used until the 1990s and is expensive. A special reactor burns the gob, rocks and all, producing a high-pH ash that is applied to the remaining piles to neutralize their acidity. The economics make sense only with the addition of bitcoin mining. Spence has a new, well-connected partner in Greg Beard, who until 2019 headed natural-resources investing at private equity giant Apollo Global Management. The two cofounded Stronghold Digital Mining, which now owns Scrubgrass. With Beard, 49, as CEO, Stronghold raised $105 million in June from private investors—enough to buy more bitcoin mining equipment and acquire a second and possibly third gob-burning plant—and has filed preliminary papers to go public. Beard says he never saw anything like this during his two decades in private equity. “This is the most important growth play in a generation.”
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