How Bitcoin Mining Almost Destroyed a City in the United States

If you had taken the easy risk a few years ago and bought a relatively new digital currency called Bitcoin, you could be a multi-millionaire today. But while the crypto industry has brought some people big profits, the communities where the so-called mining takes place have often paid a heavy price.

Cryptocurrencies are created by calculators solving complicated – but ultimately completely useless – mathematical equations, a process that really took off after a Chinese company called Bitmain started selling a server with specialized application processors in 2016 that made it possible to perform these special calculations much faster. “Almost overnight,” says Colin Read, a professor of economics and finance at the State University of New York at Plattsburgh, “a cryptocurrency arms race began.”

Companies have started looking around the world for cheap power sources to locally operate large Bitcoin mining farms. Cryptocurrencies notoriously consume a lot of electricity. Each bitcoin transaction uses 1173 kilowatt hours – more than the average US uses in a month. In 2020, global crypto mining demanded more energy than all of Switzerland. At the time, the small town of Plattsburgh had one of the cheapest electricity supplies in the United States thanks to inexpensive hydroelectric power from the Niagara Power Authority.

It wasn’t long before a subsidiary of the notorious mining company Coinmint rented an abandoned Family Dollar store in Plattsburgh. City building inspector Joe McMahon said the man who signed the lease, Prieur Leary, wanted things done quickly. “He wanted enough power overnight,” says McMahon. “It worried us a bit, but we didn’t know what the ultimate consequences would be.”

Coinmint filled the small building with servers and then ran them around the clock. When the miners wanted to expand to a nearby mall, Bill Treacy, the lighting manager for the city of Plattsburgh, told them that they would have to invest $140,000 in new infrastructure to do this. He was surprised that Cointmint was undeterred. The company was quickly drawing over 10 megawatts on a regular basis – enough electricity for around 4,000 homes.

Other miners soon followed. Treacy remembers a bitcoin miner calling him to see if he could get five gigawatts. “I said, ‘Sorry, that’s a quarter of what New York State uses in a day!’ Soon, Plattsburgh was receiving a major request from a crypto firm almost every week.

In January 2018, there was a cold spell in the region. People have increased their heating and also connected electric heaters. The city soon exceeded its reserved quota with the hydroelectric utility, forcing it to buy power elsewhere at much higher prices. McMahon says the utility bill for his Plattsburgh home has been rising $30 to $40 a month. “People sensed there was a problem but didn’t know what to blame,” he says.

At the end of the long winter, local residents noticed a new problem: the mining servers were generating extreme heat, requiring significant ventilation to prevent shutdowns. These fans produced a constant, high-frequency howl, McMahon says, “like a small-engine airplane preparing for takeoff.” It wasn’t just a matter of decibels, it was also a matter of pitch: “You hear it at this weird frequency, like a toothache that won’t go away.” Carla Brancato lives across the river from Zafra, a crypto mining and hosting company owned by Plattsburgh resident Ryan Brienza. She says that for several years the noise from the business made her apartment vibrate, as if someone upstairs was constantly vacuuming.

The mining boom has hardly created any jobs, the servers work almost automatically. “I’m in favor of development,” says economics professor Read, “but the biggest mining operation in town has created fewer jobs than a new McDonald’s.” There is no local income tax in Plattsburgh – and most miners rent out their buildings so they don’t have to pay property taxes. Elizabeth Gibbs, a counselor, was shocked when she visited one of the establishments. “I was blown away by how hot it was – so hot and so loud,” she says. She describes a warehouse with hundreds of stacked servers connected by umbilical cables, with doors and windows left wide open to let in fresh air.

Read, who also became mayor in 2017, decided to impose a moratorium on new crypto miners so the city could figure out what to do. First, the New York Public Service Commission created a regulation that required high-demand users to charge higher rates. Additionally, crypto companies have been required to pre-fund special infrastructure and put down a deposit to ensure their bills are paid. Based on two months of power usage, Coinmint’s deposit was $1,019,503. The company spent two years appealing through lawyers. “In the end, they lost,” says Treacy. Then Plattsburgh updated its building codes and noise ordinances. (At least, as an established company, Coinmint has volunteered to work with the city.)

Miner Brienza thinks the moratorium was unnecessary. “The town could have attracted a lot of business,” he says. Resident Brancato says that after Plattsburgh struck a deal with Brienza-based company Zafra to shut down fans since last summer, her house finally went quiet.

The city is once again accepting new applications from crypto miners. But since the entry into force of the new regulations, interest has been low. Instead, mining has intensified in the nearby town of Massena, where Coinmint has signed a long-term lease for a former Alcoa aluminum plant. In 2021, Massena itself halted the creation of new crypto-related companies. “Our goal is not to prevent business, but to ensure that the character of our city is protected and that we can live safely,” a member of the city council wrote in an emailed statement. about the decision.

From 2016 to 2018, crypto mining in New York State added an estimated $165 million to annual utility bills for small businesses and $79 million for individuals, according to a recent study. “Of course, if you’re an investor, you see the value in crypto,” McMahon says, “but me, living in this community? No thanks.”

Economist Matteo Benetton, co-author of the study and a professor at the Hass School of Business at the University of California, Berkeley, says crypto mining puts pressure on local economies. In places where power supplies are not flexible, operations take up network capacity, which can lead to bottlenecks, rationing, and power outages. Even in places with adequate electricity supplies, such as upstate New York, mining can crowd out other potential industries that could have employed more people. “While there are benefits for private companies in the electricity market, there are also high social costs,” says Benetton.

These effects are now being felt across the country. Benetton says there are strong profit incentives to run as many servers as possible – and it’s now calling for greater transparency in how these companies use energy. This is not a popular opinion in the industry. But, according to Benetton, “if you’re really meant to do something right, don’t be afraid to leak the data.”

The US federal government does not currently oversee the energy use of cryptocurrency mining, but Securities and Exchange Commission Chairman Gary Gensler acknowledges that there are regulatory gaps. In a speech at the Aspen Security Forum in 2021, he described the industry as “the Wild West”.

As long as mining is profitable, Read warns, cryptocurrency bans will only move the problem to new places. When China banned crypto mining in 2021 to better meet its climate goals, activity picked up in places like Kazakhstan, where electricity is mostly generated from coal. As a result, according to a recent study, Bitcoin’s use of renewable energy decreased by around half to 25% between 2020 and 2021.

Even though the industry invests in renewable energy, it contributes significantly to carbon emissions through its simple consumption. Read rejects promises that green investments or increased efficiency can solve this problem. In a recent working paper, he noted that cryptocurrency energy consumption will grow another 30% by the end of the decade, releasing an additional 32.5 million tons of carbon dioxide per year. As the price of bitcoin rises, miner wages also rise, which leads to energy consumption, he says. He calls this situation “the bitcoin dilemma”.

The 32 million tons of carbon dioxide will exacerbate the climate crisis, whether the emissions come from upstate New York or Kazakhstan. “We all suffer from it,” Read says.

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