Texas: A Global Bitcoin Mining Mecca

Texas: A Global Bitcoin Mining Mecca

The Texas Gold Rush: Why Bitcoin Miners Stake Their Claim

To understand why bitcoin miners have flocked to Texas, it’s useful to think about ducks. Yes, ducks. Or, more accurately, something called the “duck curve.” This concept graphs the balance of energy demand and supply throughout the day. Just like the shape of a duck, the graph starts out flat, lowers in the morning, and rises again in the evening. This balance changes as energy demands fluctuate, with more electricity being used at 5pm compared to 2am. Texas recognizes this imbalance and has a power grid that allows the price of energy to fluctuate throughout the day, reflecting the reality of the duck curve.

Unlike most states, Texas has an abundance of cheap renewable energy. The plains of West Texas, in particular, have ample wind and solar power but few homes or office buildings. As a result, energy costs less in those areas compared to cities like Houston. Texas also offers credits on its power grid, called ERCOT, to companies that mine bitcoin. This additional revenue, on top of the rewards from verifying transactions, incentivizes miners to set up shop in Texas. They can reduce their energy demand during periods of short supply or sell excess power they don’t need. As Lee Bratcher, President of the Texas Blockchain Chamber, puts it, “Wasted power is cheap power. Sometimes wasted power is free power.”

This opportunity has attracted several bitcoin mining companies to Texas, including Core Scientific, Genesis Digital Assets, Riot, and Marathon Digital. The gold rush began when China banned mining in 2021, and though the pace has slowed, the growth in Texas remains steady. The state offers three key benefits that these companies value: a welcoming business environment, a stable power grid, and a pool of labor. Texas checks off all three boxes.

The state’s openness to business is evident through recent legislation. Proposed bills like SB 1751 initially sought to reduce miners’ incentives from the power grid and end mining tax abatements. However, the mining industry engaged with politicians, explaining the benefits they bring to the grid. The regulators in Texas have been receptive to their arguments, recognizing the advantages miners offer. As a result, the bill ultimately died in the House, much to the joy of miners.

While it’s true that bitcoin mining consumes a significant amount of energy, about as much as the city of Austin, it’s important to consider the context. In the summer, Texas has a peak energy demand of approximately 80,000 megawatts. Bitcoin mining consumes around 2,200 megawatts, or about 3% of the entire state’s energy usage. Miners can control their operations, ensuring they are active when demand is low and reducing demand during peak periods. This flexibility helps stabilize the grid, functioning almost like a massive battery storage system.

Imagine a battery that can inject new supply into the system during high-demand periods. Miners can achieve a similar effect by switching off their mining equipment, reducing demand when needed. Critics might argue that if miners weren’t present in the first place, the grid would be better off. However, as Bratcher points out, if the demand isn’t there during low-demand periods, the generation won’t be either. By operating in isolated areas, bitcoin miners provide a reason for renewables like wind and solar companies to operate during off-peak hours. They also have the flexibility to contribute excess power back to the grid in times of stress.

Despite the benefits miners bring, the ERCOT grid has capacity limits. In 2022, Texas implemented the “Interim Large Load Interconnection Process,” a policy that requires future miners to apply for the ability to increase or decrease their energy consumption. This application process, with stricter standards, has slowed the growth of new mining operations. Nevertheless, Texas continues to attract bitcoin miners, with an estimated 150 megawatts of growth per quarter.

The economic impact of bitcoin mining in Texas has been significant. It has created around 2,000 W2 jobs and 20,000 contractor positions. The price and market incentives make Texas an attractive destination for mining businesses.

In conclusion, Texas has become a hotbed for bitcoin mining due to its unique combination of cheap renewable energy, the flexibility offered by the power grid, and the favorable business environment. Miners benefit from the ability to adjust their energy consumption according to demand fluctuations, providing stability to the grid. Despite regulatory measures to moderate growth, Texas remains an attractive destination for bitcoin miners, stimulating job creation and economic growth in the state.

References:

  • CoinDesk’s 2023 Mining Week, sponsored by Foundry.
  • The Week – “How voracious Bitcoin mining is messing with Texans”
  • Bloomberg – “The notoriously energy-intensive industry’s Texas operations can consume more than 2 gigawatts at their peak, enough to power about 400,000 homes.”

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