Paul Roberts/The Seattle Times
Last fall, as soaring cryptocurrency prices sparked another wave of investor madness, one of Washington state’s largest crypto miners was already watching the exits.
Malachi Salcido, a Wenatchee miner since 2013, knew that crypto prices – bitcoin was close to $68,000 – were about to do what they had done many times before: tank. But rather than just weather another “crypto winter”, Salcido has stepped up plans to shift more of its business from mining to conventional data processing for other clients, a less volatile business that, according to him, “will represent the majority of who we are”. do in the future.”
There’s a similar “been there, done that” vibe these days across much of the Columbia Basin, once ground zero for the US crypto boom.
Although plenty of mining activity still occurs in Chelan, Douglas, and Grant counties, thanks to the abundant hydropower that miners enjoy for their power-hungry processors, the basin’s crypto industry is a shadow of its former Far West.
Many of the miners who have flocked to the basin over the past decade have either gone out of business or moved to other states, such as Texas.
And while the three utility districts still get requests from would-be miners looking for juice to run the complicated math that underpins cryptocurrencies, it’s nothing like the heyday around 2014. to 2017. At the time, investors from as far away as China were eyeing around two-thirds of the basin’s total hydropower output. Today, crypto mining accounts for perhaps 4% of the combined output of the basin’s five hydroelectric dams.
“It’s been pretty quiet,” said John Stoll, general manager of Chelan County utilities, which at one point had power demands of more than 200 megawatts of electricity, more than what existing county residents and businesses were using. The current mining load of the PUD is 8 megawatts, or approximately 3.5% of the local load.
“We get calls, but we haven’t had any active applications for several years,” Stoll says. (One megawatt is enough to power about 650 homes.)
Some of this new stillness is forced. To protect local power grids from dynamic and short-term crypto investment horizons, utilities have adopted new tariffs and other policies for their hydropower, which typically ranges from around 2.5 cents to 5 cents. per kilowatt hour, compared to about 15 cents for US average.
Chelan County, for example, charges miners about triple what it charges residents for electricity. Douglas County caps its total crypto mining load at 39 megawatts (it’s currently just under 33 megawatts) and increases rates for crypto miners by 10% every six months. In Grant County, rates for “industry-changing” customers, as crypto miners are called, increase by a few cents if the miners’ current and requested total electricity demand exceeds 5% of total demand. of the county, which she has had since March.
Even a small rate increase matters a lot for crypto, considering what mining entails. For example, in bitcoin, still the largest cryptocurrency by market value, miners use their computer banks to do two things. First, they act as a kind of decentralized Venmo and process all bitcoin transactions currently in the bitcoin network. Then they compete to win a reward – a bitcoin – by being the first to solve a very complicated mathematical calculation which is programmed to become more difficult as miners bring more computing power into the network.
Today, commercial-scale miners perform billions of high-speed calculations on tens of thousands of computers that, despite efficiency improvements, consume a lot of juice. Aside from the cost of computers and buildings, “a miner’s biggest expense over time will be electricity,” says Lauren Miehe, a crypto industry veteran from Basin who shut down his own mining operations l last fall. Even rate increases of a few cents “are huge,” he says.
For example, when miners triggered the highest rate in Grant County in 2020, most of the county’s mining capacity was shut down, says Louis Szablya, senior director of high-powered solutions at Grant County PUD. He expects a similar effect if the utility commissioners approve a rate adjustment expected later this year.
Higher electricity rates aren’t the only thing dampening miners’ affection for the basin. Opening a new commercial mine today requires huge capital – $50 million and up, Salcido says. This type of money makes many investors wary of any local regulatory, bureaucratic or political hurdles that could delay when they can fire up their mines and start recouping that capital.
“New entrants recognize that they need to get massive, operational capability as quickly as possible,” Salcido says.
But utility districts are highly regulated and can be very deliberative when considering new power demands, Salcido says. Local construction and electrical permits can also be slow. This is one of the reasons many crypto startups are now heading to places like Texas, which has fewer regulatory hurdles and many private utilities, Salcido says.
More broadly, in some parts of the Basin, crypto mining seems to have had a still tenuous welcome.
Early in the industry, critics complained about the stealthy nature of some crypto miners. Massive power consumption by industry has also raised fears that residents will lose their historically cheap electricity, when “relatively few [miners] were getting extremely rich, extremely fast,” says Miehe. Local crypto politics has become “really toxic,” he says.
Boosters promised to address these concerns with better regulation. They also argued that cryptography could transform the basin into a 21st century technology hub. In Douglas County, port officials have proposed a “blockchain innovation campus,” focused on finding new uses for blockchain, the decentralized accounting and processing technology that underpins most cryptocurrencies. .
This vision has not yet become reality. The innovation campus has gone nowhere, and while cryptocurrency operators have been largely swept away by regulation and market fluctuations, so has this higher conception of the industry. of crypto, which increasingly operates like any other business.
“We don’t see as much interest in innovation [from] blockchain because we are mining cryptocurrency directly right now,” says Ron Cridlebaugh, director of economic and business development for the Chelan Douglas Regional Port Authority, which administers the port leases.
The notion of “blockchain innovation” as the basis for a fundamentally new industry “has sort of fallen by the wayside.”
Douglas County is still experiencing a tech boom; it’s just a more conventional one: Microsoft is building a huge data center, one of many that tech companies have planted in the basin to get cheap power.
Another potential sign of the times: A bankrupt crypto-mining firm that’s repurposed as a business “incubator” is attracting interest from “more of your core industries,” like a bakery and a coffee wholesaler, Cridlebaugh says.
Veterans like Salcido and Miehe don’t expect crypto to disappear from the pool. When crypto prices rise again, which Salcido predicts could happen as early as 2024, if past cycles are any guide, investors could once again focus on the pool.
But in the meantime, Miehe says, miners could be “looking for ways to turn this infrastructure” into businesses, such as data processing, that are less vulnerable to rate changes, market volatility or local politics.
Salcido agrees. While he plans to go into mining for the long term, he’s also fine with having a bigger slice of his business in an industry that, while it may lack crypto highs, hasn’t. nor her stockings. “No boom,” Salcido said. “But no bust either.”