There are thousands of pounds of bitcoin mining equipment still in transit from China to Texas, part of a multi-month caravan, as Texas Governor Greg Abbott makes courting the bitcoin industry a pinnacle part of his re-election campaign in 2022.
Texans are broadly looking to pick up on China’s missed opportunity, as the Chinese government forces bitcoin mining operations to relocate or go underground, ensuring that Texas will have a major role to play in the cryptocurrency industry.
“We have launched our first bitcoin mine in downtown Fort Worth, which will be a showpiece for our larger mine located right outside the city,” Geosyn Mining co-founder Caleb Ward described a new Texas facility that opened in January 2022. “We’re using income from this 20,000-square-foot facility outside of Fort Worth to bootstrap a significant solar power build.”
By the end of March, Ward expects to have roughly 530 bitcoin mining machines operating in his facility alone. And he’s not the only bitcoin miner turning an eye toward Texas. There are reportedly 27 local bitcoin mining companies tallied by the Texas Blockchain Council. Abbott’s challenger in the upcoming election, Don Huffines, a Republican real estate developer and candidate for Texas governor, recently said that he would look to opportunities beyond the mining industry and be even more pro-bitcoin than Abbott. Huffines said he would make bitcoin tender if he’s elected.
Across the board, Texan politicians appear to be pro-bitcoin. Republican Senator Ted Cruz said in October 2021 that bitcoin mining could help “strengthen our energy infrastructure.” There are, however, critics in Congress who doubt the bitcoin mining industry would benefit the power grid. House of Representatives Energy and Commerce Committee Chairman, Rep. Frank Pallone, D-N.J., pointed out in January that bitcoin’s proof-of-work mining process requires massive amounts of power.
“Last year, there were hundreds of thousands of transactions on this network. Just imagine the climate implications,” Pallone said.
The massive shift of bitcoin mining facilities to Texas, currently underway, could offer a proving ground for whether the mining industry is good, or bad, for the power grid. Supporters argue bitcoin mining will help regulate energy demand across the grid. Critics say it will take more energy than it provides and regulates. The stakes have never been higher. Over the past year the Texas power grid experienced multiple failures, with deadly consequences. Some analysts blame privatization for the electricity infrastructure’s woeful state. Right now it’s still prohibitively expensive and difficult to send energy from production sites to consumers. Electricity gets lost in translation, crippling the grid.
Meanwhile, the march of businessmen and equipment continues. Poolin CEO Kevin Pan, leading one of the top bitcoin mining companies in the world and representing roughly 13% of the global network hashrate, told TechCrunch that his own company’s goal is to expand their new two-gigawatt mining facility in Texas, more than quadrupling their operations in Texas over time.
“Texas will be the bitcoin capital of the world in the next two years,” Pan said.
Pan and Ward both said the best way to make Cruz’s vision happen, using bitcoin mining to strengthen the energy infrastructure in Texas, is to power bitcoin mining facilities using renewable energy sources like solar and wind power.
“We’re building solar panels around our site in Texas,” Pan said. “There’s a lot of wind mills around the coast as well.”
Wind power is generally seasonal, fluctuating from 7-20% of energy production in Texas, depending on the month. Because solar power has the same temporal limits, these bitcoin miners will use a mixture of energy sources throughout the year. Mining consultant Alejandro de la Torre, founder of ProofofWork.Energy, said that’s why Texas lawmakers are busy meeting with bitcoin mining executives from around the world. They’re working to counteract the assumption that the local bitcoin mining industry’s power consumption will harm the environment. If companies build, from the start, to optimize for local renewable energy sources, then the industry could expand to bring in lucrative taxes as reliance on the oil and gas industry wanes.
“In Texas, they’ve been incentivizing renewable energy initiatives so that it’s affordable to add wind and solar power equipment,” de la Torre said. “I’m focused right now on connecting Chinese miners to businesses in Texas. One of the main reasons that Chinese miners are interested in operating in Texas is they believe it is less likely the government will come to shut down their operations if they’re located in Texas.”
When the pandemic started, Chinese facilities managed roughly 65% of the bitcoin network’s global hashrate, compared to just 8% in the United States. It remains to be seen if the bitcoin cowboys of Texas will help the Americans conquer the industry by 2024, as Pan predicted.
China’s ongoing regulatory crackdown on bitcoin miners now outweighs the local economic incentives, the hydropower subsidies that made bitcoin mining so profitable in China. So those Chinese companies are moving to Texas and competing with American bitcoin companies like Riot Blockchain.
“Before this year China was the biggest market for bitcoin mining equipment. So the standards and transformers were optimized for China,” Pan explained, noting that miners are the most profitable when the hardware is optimized for the local environment, including the local power grid. “Manufacturers are already switching to making hardware for American standards…Riot Blockchain started building in Texas two or three years ago, so they have the advantage in Texas.”
As such, Pan said he believes Riot Blockchain will become one of the world’s leading bitcoin companies, rivaling Poolin, over the next few years. Meanwhile, Ward added that the best way for smaller bitcoin miners in Texas, like himself, to become globally competitive is to tap into the renewable energy sector.
“When you can consume 20% of your electricity on site and sell roughly 80% back into the grid, and can shut down our miners in a minute if we need during peak hours, that offers a massive benefit with regards to smoothing our supply and demand across the energy grid,” Ward said, describing the benefits of building on-site solar panels.
“We can still make money [when bitcoin miners are turned off] by selling our leftover solar energy back into the wholesale system. This won’t hurt our profitability, yet the relief it could provide to the end consumer could be massive,” he said.
Ward doesn’t want Geosyn Mining to stay a small player for long. The goal is for his company to bootstrap a $1 billion facility by starting small and renting bitcoin miners to American retail consumers. Ward’s company buys and operates the machines, charging a percentage of the bitcoin mined, giving the bulk of newly mined bitcoin to remote customers.
“For example, a retired schoolteacher was able to purchase four ASIC miners from us that will yield her approximately two bitcoin in two years,” Ward said. “We plan to house approximately 2,400 of our own miners in this [second] location, as well as a significant number of client miners. Ultimately, this will provide us with the financial ability to break ground on our first solar farm by year’s end.”
Although Texas renewable energy subsidies pale in comparison to the cheap electricity once provided by Chinese dams, Texan politicians are eager to attract industry experts by reducing the reputational risk associated with bitcoin mining’s environmental impact. In addition to Texas Governor Greg Abbott meeting with bitcoin miners and hyping up the industry, the GOP primary challenger, former state senator Don Huffines, also announced his own pro-bitcoin mining strategy.
“I am committed to making Texas the Citadel for Bitcoin,” Huffines said in a statement.
Indeed, EnergyFunders CEO Laura Pommer Fidler, who recently launched a bitcoin fund investment service relying on two new natural gas-powered bitcoin mining facilities in Texas, said that “all the people running for office in Texas right now are pro-bitcoin and want to make it easier for Texans to mine bitcoin.”
It appears that most Texan political candidates running for various offices in 2022 plan to make the bitcoin mining industry an integral part of Texas’s energy infrastructure.
“We’re going to see exponential growth in the bitcoin mining industry in Texas,” she said. “Our customers are earning profits in bitcoin or dollars, it’s their choice…We’re waiting for more of our miners to arrive from China, we’ve already got one tranche of mines in.”
It’s worth noting that EnergyFunders’ mining operations are off-the-grid, relying on natural gas instead. So they won’t add stress to the overburdened and congested power grid across Texas. Overall, only time will tell who will benefit from the millions of dollars’ worth of bitcoin being mined in Texas throughout this gubernatorial election and subsequent term.
“Texas is a totally different market,” Pan said, betting that either outcome will benefit bitcoin miners. “We want to do long-term business here.”
Pommer Fidler, who has previous experience working in the energy industry in Colorado and Wyoming, agreed.
“There are more on-grid facilities spinning up more bitcoin mining, as well, plus a lot of people like the idea of having fractional ownership of [EnergyFunders’] off-the-grid bitcoin mines,” she said. “Texas is Bitcoin country.”