How Texas winds sparked a Bitcoin mining boom

According to Technologyreview, Texas, commonly known as the "Lone Star State", has cheap electricity and a unique regulatory environment, and has been called a new mining mecca by the backers of several large-scale mining projects. If their projects can be realized, the distribution map of the world's most popular cryptocurrency network will undergo major changes.

The success of bitcoin mining depends largely on how much power the equipment contributes. Last week in West Texas, a project by Peter Thiel-invested Layer1 Technology attracted particular attention. The project is said to have started up a 100MW power facility for bitcoin mining.

Bitmain, a leading mining chip manufacturer based in China, has also moved to Texas, building a 50 MW facility in the town of Rockdale in October that it says will eventually be expandable to 300 MW. A German company called Northern Data plans to build the world's largest mining facility in Rockdale, saying it will devote 1,000 MW worth of funds to cryptocurrency mining.

These are just a few of the most high-profile mining operations in Texas, where many companies are planning to build mining facilities in pursuit of cheap electricity.

According to a study by Cambridge University, the Bitcoin network ranks between the Philippines and Belgium in terms of annual electricity consumption. These huge electricity consumptions are to ensure the security of the public ledger, the blockchain. Bitcoin miners around the world need to consume a lot of computing power to compete to complete a mathematical puzzle based on a cryptographic hash algorithm. Every 10 minutes, the winner has the right to add a block of new transactions to the ledger, and they will also receive Bitcoin rewards. In essence, this system prevents attacks by making them more expensive.

For miners, the difference between mining revenue and operating costs is profit and loss. Companies compete to deploy the most efficient mining hardware on the largest scale. The more efficient the hardware, the greater the chance of profitability. Therefore, it is necessary to seek the cheapest electricity. 65% of the Bitcoin mining network is located in China because some regions have cheap coal or hydropower.

Texas' cheap electricity is largely due to the boom in natural gas and wind power over the past decade. "Texas has an abundance of wind power," said Joshua Rhodes, an energy analyst at Vibrant Clean Energy. Texas has more than 28GW of wind power capacity, which is far ahead of the U.S., and federal and state renewable energy policies have also promoted the prosperity of the wind power market.

But what’s most attractive to bitcoin mining are the unique characteristics of its wind power market, which investors assert is enough to significantly dilute the concentration of bitcoin mining networks in China.

That feature is the loose regulation of the electricity market. In most parts of the United States, power generation and distribution are usually controlled by a single utility company, but the Texas electricity market is open to any business that wants to provide these services. Rhodes told Technology Review: "From a regulatory perspective, this means that it is much easier to build and operate power plants."

Companies can sign agreements directly with electricity producers without having to deal with intermediaries, greatly reducing energy costs.

“The cheapest large-scale electricity in the world right now is in West Texas,” Layer1 CEO Alexander Liegl recently told Fortune.

Many of Texas' wind farms are located west of its largest population centers, especially in the Houston area. Transmission lines can deliver electricity to areas of the state where it's needed, but limited transmission capacity has led to excess electricity. Power producers are eager to find nearby customers to buy excess power. So miners are likely to succeed in buying wind power at extremely low prices.

Texas' unique wind energy resources are not new, but one of the challenges of mining is to prevent hardware from overheating, and the hot summer in Texas has discouraged miners. "Now we know how to solve this problem," said Jesse Peltan, chief technology officer of HODL Ranch. "The arid climate in Texas can be solved by using low-cost evaporative cooling." There are other different methods, such as Layer1's development of a system that uses liquid to cool hardware.

However, there is a bigger variable that all bitcoin mining businesses must consider: the cryptocurrency’s price volatility. A drop in the token’s value could have a serious impact on a company’s profit margins.

Peltan believes that what matters most in the long run is not the price of Bitcoin, but the relative cost of production. As long as operating costs are low enough, large producers will be protected from falling prices. Bitcoin is programmed to automatically reduce the difficulty of mining (and thus the cost) in response to a drop in the total capacity of the network (and vice versa). "The industry is really competing towards low cost, large scale, and spreading the operating costs over more electricity," Peltan said.

No wonder the windy Lone Star State is so alluring.

Image source: pixabay

Author:May

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