Plattsburgh is a small city located in the far north of upstate New York, just before the Canadian border. About 20,000 people live here. In 2016, Plattsburgh began to attract interest from companies looking to build data centers there.
Colin Read thought of Google, Facebook, IBM or a similar company that will certainly create many jobs for engineers. When data centers came into being, Colin Read became mayor of Plattsburgh. Then it turned out that data centers are bitcoin mines.
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Colin Read estimates that five to ten percent of the Bitcoin network’s global computing capacity has been installed in his city. As a professor of finance and economics at the local university, he knows the subject well. He also calculated the income generated by these calculators, installed in an abandoned shopping center. Five to ten million dollars – per month.
It works like this: every ten minutes, the latest transactions are aggregated into the Bitcoin network. A new transaction block is added to the previous chain of transaction blocks. Hence the term blockchain. However, the new block must meet certain criteria. In addition to transactions, the block must contain a numerical value to be accepted by the network. The computer that is the first to find a numerical value that results in a valid block is allowed to attach that block to the blockchain. There is a reward for this in the form of newly generated bitcoins. This is why this process is called mining.
Cheap electricity for bitcoin mines
Because mining generates hundreds of thousands of dollars worth of bitcoin every day, hundreds of thousands of machines are scrambled to be the first to generate a new block. This is why Bitcoin consumes so much electricity. That’s why miners came to Plattsburgh in New York, because electricity is cheaper here than almost anywhere else, says Colin Read. Namely not two cents per kilowatt hour.
Cheap electricity comes from a hydroelectric plant on the Niagara River. But the residents of Plattsburgh only receive a certain quota from the hydroelectric plant. If it runs out, they have to buy expensive electricity on the stock exchange. Bitcoin miners were now consuming so much electricity that citizens’ electricity bills were multiplying. Especially in winter, because cheap electricity is also used for heating. The mayor, Colin Read, had to act.
No jobs, no tax revenue
On cold winter days, when the temperature stays below five degrees Celsius, miners have to recycle some of their waste heat, that is, use it elsewhere for heating. Since then, no Bitcoin mining company has wanted to set up shop in Plattsburgh – despite the cheap electricity. Colin Read can live with that, because the data centers haven’t brought the hoped-for jobs, and the city hasn’t benefited from tax revenues.
The Bitcoin system offers miners no incentive to operate sustainably or even to become climate neutral. Because they have no customers. They just mine bitcoin for themselves. As long as they can find a less regulated place, they put their computers there. It is not without reason that shelves with mining computers have often been built into containers in recent years, which can be easily transported to another location if electricity is cheaper there or the needs are lower.
However, that is changing, says Denis Rusinovich from Berlin. He advises Bitcoin miners and invests in them. Bitcoin mining is becoming more stationary, he says, and sustainability more important. “We miners want to grow and for that we need to find investors. The capital comes from the institutions and they must meet environmental and social standards.
Cryptocurrencies without high power consumption
Bitcoin also competes with other cryptocurrencies. They often operate without exorbitant power consumption. With Bitcoin, the computing power used is used to ensure the integrity of transactions. The principle is called proof of work in technical jargon. An alternative is proof-of-stake: capital investments aim to ensure that no one is tampering with the blockchain. The second-largest cryptocurrency, Ethereum, is planning to switch from proof-of-work to proof-of-stake. Energy consumption to generate new Ethereum blocks is expected to drop by more than 99.9%.
However, Denis Rusinovich believes Bitcoin mining can also become environmentally friendly with proof of work. “Immersion cooling will come where, to put it simply, the machines are in a bath. The heat then no longer goes into the air, but is used, for example for fish farms or for heating in general,” he says. “I think that’s where the development is heading.”
In Plattsburgh, where electricity is cheaper again, some residents have been inspired by local bitcoin companies. They now use small mining calculators to heat their homes. They’re just as inefficient as your permanently installed electric heater, but hopefully they’ll fetch a few bucks too.