Miners And Locals Are Fighting A “Guerilla War” In Bitcoin’s “El Dorado”

With the People’s Bank of China cracking down on bitcoin miners, an unprecedented exodus out of the Chinese hinterlands – where subsidized energy made crypto mining an enormously profitable enterprise – has created opportunities for towns in Canada, and even parts of the US, where relatively cheap energy is the only marketing necessary.

And while some towns and cities have embraced these advantages and have actively sought to recruit enterprising crypto miners (Winnipeg City is one prominent example), some towns that have long played host to miners, even before bitcoin really took off, are struggling with some unanticipated drawbacks – like the enormous energy draw that is overwhelming their power infrastructure as miners suck up megawatts of power (as we’ve pointed out in the past, bitcoin mining globally already uses more energy on a daily basis than the Republic of Ireland, and many other countries, as depicted by the map below).

Mining

To wit, a recent Politico Magazine piece focuses on East Wenatchee, Washington, a town near the Columbia River, a region that boasts several hydroelectric power installations – making for extremely cheap power.

Miners discovered East Wenatchee, and towns across three counties in the Columbia river valley, during the early days of bitcoin, and began setting up mid-sized operations in old fruit warehouses and other abandoned buildings.

Boom

But today, as large miners crowd in, individual commercial miners can suck up as much as 30 megawatts a day – enough energy to power 13,000 homes.

As more miners pack into the river basin – which Politico says could account for up to 30% of the world’s total bitcoin mining capacity by the end of 2018 – disputes between the newcomers and locals are growing more common, and more outrageous.

The Mid-Columbia Basin isn’t the only location where the virtual realm of cryptocurrency is colliding with the real world of megawatts and real estate. In places like China, Venezuela and Iceland, cheap land and even cheaper electricity have resulted in bustling mining hubs. But the basin, by dint of its early start, has emerged as one of the biggest boomtowns. By the end of 2018, according to some estimates, miners here could account for anywhere from 15 to 30 percent of all bitcoin mining in the world, and impressive shares of other cryptocurrencies, such as Ethereum and Litecoin. And as with any boomtown, that success has created tensions. There have been disputes between miners and locals, bankruptcies and bribery attempts, lawsuits, even a kind of intensifying guerrilla warfare between local utility crews and a shadowy army of bootleg miners who set up their servers in basements and garages and max out the local electrical grids.

Speculators are arriving seemingly every day. Workers at one of the area dams even described to Politico an incident where a group of Asian investors flew in on a private jet to inspect real estate and tour the dams.

The leader of the group asked one of the workers if they could speak with the “dam master,” because they were interested in “buying some electricity.”

For years, few residents really grasped how appealing their region was to miners, who mainly did their esoteric calculations quietly tucked away in warehouses and basements. But those days are gone. Over the past two years, and especially during 2017, when the price of a single bitcoin jumped from $1,000 to more than $19,000, the region has taken on the vibe of a boomtown. Across the three rural counties of the Mid-Columbia Basin—Chelan, Douglas and Grant—orchards and farm fields now share the rolling landscape with mines of every size, from industrial-scale facilities to repurposed warehouses to cargo containers and even backyard sheds. Outsiders are so eager to turn the basin’s power into cryptocurrency that this winter, several would-be miners from Asia flew their private jet into the local airport, took a rental car to one of the local dams, and, according to a utility official, politely informed staff at the dam visitors center, “We want to see the dam master because we want to buy some electricity.”

But as residents watch in horror as bitcoin miners suck up an ever-growing share of their common resources, the bitcoin miners are convinced that they’re doing the area a service – after all, if the industry keeps growing the area around the Columbia River basin could one day become a vibrant tech hub to rival “knowledge hubs” like Seattle and San Francisco.

More broadly, the region is watching uneasily as one of its biggest natural resources—a gigantic surplus of hydroelectric power—is inhaled by a sector that barely existed five years ago and which is routinely derided as the next dot-com bust, or this century’s version of the Dutch tulip craze, or, as New York Times columnist Paul Krugman put it in January, a Ponzi scheme. Indeed, even as Miehe was demonstrating his prospecting chops, bitcoin’s price was already in a swoon that would touch $5,900 and rekindle widespread doubts about the future of virtual currencies.

For local cryptocurrency enthusiasts, these slings and arrows are all very much worth enduring. They believe not only that cryptocurrency will make them personally very wealthy, but also that this formerly out-of-the-way region has a real shot at becoming a center—and maybe the center—of a coming technology revolution, with the well-paid jobs and tech-fueled prosperity that usually flow only to gilded “knowledge” hubs like Seattle and San Francisco. Malachi Salcido, a Wenatchee building contractor who jumped into bitcoin in 2014 and is now one of the basin’s biggest players, puts it in sweeping terms. The basin, he tells me, is “building a platform that the entire world is going to use.”

And squarely between these two competing narratives are the communities of the Mid-Columbia Basin, which find themselves anxiously trying to answer a question that for most of the rest of us is merely an amusing abstraction: Is bitcoin for real?

Still, the die-hards are undeterred. David Carlson, a pioneering miner who was one of the first to discover the region, refers to it as bitcoin’s “El Dorado”.

On paper, the Mid-Columbia Basin really did look like El Dorado for Carlson and the other miners who began to trickle in during the first years of the boom. The region’s five huge hydroelectric dams, all owned by public utility districts, generate nearly six times as much power as the region’s residents and businesses can use. Most of the surplus is exported, at high prices, to markets like Seattle or Los Angeles, which allows the utilities to sell power locally at well below its cost of production. Power is so cheap here that people heat their homes with electricity, despite bitterly cold winters, and farmers have been able to irrigate the semi-arid region into one of the world’s most productive agricultural areas. (The local newspaper proudly claims to be published in “the Apple Capital of the World and the Buckle on the Power Belt of the Great Northwest.”) And, importantly, it had already attracted several power-hungry industries, notably aluminum smelting and, starting in the mid-2000s, data centers for tech giants like Microsoft and Intuit.

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With prices sliding since the beginning of the year, many miners are being forced to reevaluate their business plans. As JP Morgan points out in its “cryptocurrency bible”, 17 million of the total 21 million bitcoins that will eventually be released – as preordained by the bitcoin code – are already in circulation. As competition for the remaining coins grows increasingly fierce, at current prices, miners in the US have roughly a 60% margin at the current prices after energy costs are factored in. Still, equipment and housing fees will eat up most of what’s left.

Bitcoin

But as real-estate and energy prices around the Columbia River continue to boom, it increases the possibility that all of the newcomers who have set up shop in the region could move on just as quickly…leaving the hollowed out husks of bitcoin mines, and thousands of displaced locals, in their wake.