Over the past two years, the region has taken on the vibe of a boomtown.<\/p>\n<\/blockquote>\n
These days, Miehe says, a serious miner wouldn\u2019t even look at a site like that. As bitcoin\u2019s soaring price has drawn in thousands of new players worldwide<\/a>, the strange math at the heart of this cryptocurrency has grown steadily more complicated. Generating a single bitcoin takes a lot more servers than it used to \u2014 and a lot more power. Today, a half-megawatt mine, Miehe says, \u201cis nothing.\u201d The commercial miners now pouring into the valley are building sites with tens of thousands of servers and electrical loads of as much as 30 megawatts, or enough to power a neighborhood of 13,000 homes. And in the arms race that cryptocurrency mining has become, even these operations will soon be considered small-scale. Miehe knows of substantially larger mining projects in the basin backed by out-of-state investors from Wall Street, Europe and Asia whose prospecting strategy, as he puts it, amounts to \u201crunning around with a checkbook just trying to get in there and establish scale.\u201d<\/p>\n 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<\/a> 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 \u2014 Chelan, Douglas and Grant \u2014 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\u2019s 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, \u201cWe want to see the dam master because we want to buy some electricity.\u201d<\/p>\n The Mid-Columbia Basin isn\u2019t 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 Ripple. 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.<\/p>\n The Datacenter Mjoelnir in Iceland, a cryptocurrency mine run by Genesis-Mining | Hanna Andresdottir\/EPA<\/p>\n More broadly, the region is watching uneasily as one of its biggest natural resources \u2014 a gigantic surplus of hydroelectric power \u2014 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\u2019s version of the Dutch tulip craze, or, as New York Times columnist Paul Krugman put it in January<\/a>, a Ponzi scheme. Indeed, even as Miehe was demonstrating his prospecting chops, bitcoin\u2019s price was already in a swoon that would touch $5,900 and rekindle widespread doubts about the future of virtual currencies.<\/p>\n 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 \u2014 and maybe the center \u2014 of a coming technology revolution, with the well-paid jobs and tech-fueled prosperity that usually flow only to gilded \u201cknowledge\u201d 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\u2019s biggest players, puts it in sweeping terms. The basin, he tells me, is \u201cbuilding a platform that the entire world is going to use.\u201d<\/p>\n 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?<\/p>\n ***<\/p>\n A few miles from the shuttered carwash, David Carlson stands at the edge of a sprawling construction site and watches workers set the roof on a Giga Pod<\/a>, a self-contained crypto mine that Carlson designed to be assembled in a matter of weeks. When finished, the prefabricated wood-frame structure, roughly 12 by 48 feet, will be equipped with hundreds of high-speed servers that collectively draw a little over a megawatt of power and, in theory, will be capable of producing around 80 bitcoins a month. Carlson himself won\u2019t be the miner; his company, Giga-Watt, will run the pod as a hosting site for other miners. By summer, Giga-Watt expects to have 24 pods here churning out bitcoins and other cryptocurrencies, most of which use the same computing-intensive, cryptographically secured protocol called the blockchain. \u201cWe\u2019re right where the rubber hits the road with blockchain,\u201d Carlson shouts as we step inside the project\u2019s first completed pod and stand between the tall rack of toaster-size servers and a bank of roaring cooling fans. The main use of blockchain technology now is to keep a growing electronic ledger of every single bitcoin transaction ever made. But many miners see it as the record-keeping mechanism of the future. \u201cWe\u2019re where the blockchain goes from that virtual concept to something that\u2019s real in the world,\u201d says Carlson, \u201csomething that somebody had to build and is actually running.\u201d<\/p>\n Granted, all that real-worlding and road-hitting is a little hard to visualize just now. The winter storms that have turned the Cascade Mountains a dazzling white have also turned the construction site into a reddish quagmire that drags at workers and equipment. There have also been permitting snafus, delayed utility hookups, and a lawsuit, recently settled, by impatient investors. But Carlson seems unperturbed. \u201cThey are actually making it work,\u201d he told me earlier, referring to the mud-caked workers. \u201cIn a normal project, they might just say, \u2018Let\u2019s just wait till spring,\u2019\u201d Carlson adds. \u201cBut in bitcoin and blockchain, there is no stopping.\u201d Indeed, demand for hosting services in the basin is so high that a desperate miner offered Carlson a Lamborghini if Carlson would bump him to the head of the pod waiting list. \u201cI didn\u2019t take the offer,\u201d Carlson assures me. \u201cAnd I like Lamborghinis!\u201d<\/p>\n Across the expanding bitcoin universe, lots of miners are turning their basements and spare bedrooms into jury-rigged data centers.<\/p>\n<\/blockquote>\n Carlson has become the face of the Mid-Columbia Basin crypto boom. Articulate, infectiously optimistic, with graying hair and a trim beard, the Microsoft software developer-turned-serial entrepreneur has built a series of mines, made (and lost) several bitcoin fortunes and endured countless setbacks to become one of the region\u2019s largest players. Other local miners credit Carlson for launching the basin\u2019s boom, back in 2012, when he showed up in a battered Honda in the middle of a snowstorm and set up his servers in an old furniture store. Carlson wouldn\u2019t go that far, but the 47-year-old was one of the first people to understand, back when bitcoin was still mainly something video gamers mined in their basements, that you might make serious money mining bitcoin at scale \u2014 but only if you could find a place with cheap electricity.<\/p>\n When you pay someone in bitcoin, you set in motion a process of escalating, energy-intensive complexity<\/a>. Your payment is basically an electronic message, which contains the complete lineage of your bitcoin, along with data about who you\u2019re sending it to (and, if you choose, a small processing fee). That message gets converted by encryption software into a long string of letters and numbers, which is then broadcast to every miner on the bitcoin network (there are tens of thousands of them, all over the world). Each miner then gathers your encrypted payment message, along with any other payment messages on the network at the time (usually in batches of around 2,000), into what\u2019s called a block. The miner then uses special software to authenticate each payment in the block \u2014 verifying, for example, that you owned the bitcoin you\u2019re sending, and that you haven\u2019t already sent that same bitcoin to someone else.<\/p>\n At this point, the actual mining begins. In essence, each miner now tries to demonstrate to the rest of the network that his or her block of verified payments is the one true block, which will serve as the permanent record of those 2,000 or so transactions. Miners do this by, essentially, trying to be the first to guess their block\u2019s numerical password. It\u2019s analogous to trying to randomly guess someone\u2019s computer password, except on a vastly larger scale. Carlson\u2019s first mining computer, or \u201crig,\u201d which he ran out of his basement north of Seattle, could make 12 billion \u201cguesses\u201d every second; today\u2019s servers are more than a thousand times faster.<\/p>\n A bitcoin mining machine on display in 2014. Mining capability has only improved in the years since | Stephane de Sakutin\/AFP via Getty Images<\/p>\n As soon as a miner finds a solution and a majority of other miners confirm it, this winning block is accepted by the network as the \u201cofficial\u201d block for those particular transactions. The official block is then added to previous blocks, creating an ever-lengthening chain of blocks, called the \u201cblockchain,\u201d that serves as a master ledger for all bitcoin transactions. (Most cryptocurrencies have their own blockchain.) And, importantly, the winning miner is rewarded with brand-new bitcoins (when Carlson got started, in mid-2012, the reward was 50 bitcoins) and all the processing fees. The network then moves on to the next batch of payments and the process repeats \u2014 and, in theory, will keep repeating, once every 10 minutes or so, until miners mine all 21 million of the bitcoins programmed into the system.<\/p>\n This bizarre process might not seem like it would need that much electricity \u2014 and in the early years, it didn\u2019t. When he first started in 2012, Carlson was mining bitcoin on his gaming computer, and even when he built his first real dedicated mining rig, that machine used maybe 1,200 watts \u2014 about as much as a hairdryer or a microwave oven. Even with Seattle\u2019s electricity prices, Carlson was spending around $2 per bitcoin, which was then selling for around $12. In fact, Carlson was making such a nice profit that he began to dream about running a bunch of servers and making some serious money. He wasn\u2019t alone. Across the expanding bitcoin universe, lots of miners were thinking about scaling up, turning their basements and spare bedrooms into jury-rigged data centers. But most of these people were thinking small, like maybe 10 kilowatts, about what four normal households might use. Carlson\u2019s idea was to leapfrog the basement phase and go right to a commercial-scale bitcoin mine that was huge: 1,000 kilowatts. \u201cI started to have this dream, that I was posting on online forums, \u2018I think I could build the first megawatt-scale mine.\u2019\u201d<\/p>\n But here, Carlson and his fellow would-be crypto tycoons confronted the bizarre, engineered obstinacy of bitcoin, which is designed to make life harder for miners as time goes by. For one, the currency\u2019s mysterious creator (or creators), known as \u201cSatoshi Nakamoto,\u201d programmed the network to periodically \u2014 every 210,000 blocks, or once every four years or so \u2014 halve the number of bitcoins rewarded for each mined block. The first drop, from 50 coins to 25, came on November 28, 2012, which the faithful call \u201cHalving Day.<\/a>\u201d (It has since halved again, to 12.5, and is expected to drop to 6.25 in June 2020.)<\/p>\n What separated the survivors from the quitters and the double-downers, Carlson concluded, was simply the price of electricity.<\/p>\n<\/blockquote>\n More important, Nakamoto built the system to make the blocks themselves more difficult to mine as more computer power flows into the network. That is, as more miners join, or as existing miners buy more servers, or as the servers themselves get faster, the bitcoin network automatically adjusts the solution criteria so that finding those passwords requires proportionately more random guesses, and thus more computing power. These adjustments occur every 10 to 14 days, and are programmed to ensure that bitcoin blocks are mined no faster than one roughly every 10 minutes. The presumed rationale is that by forcing miners to commit more computing power, Nakamoto was making miners more invested in the long-term survival of the network.<\/p>\n Barely perceptible in the early years after bitcoin was launched in 2009, these adjustments quickly ramped up. By the time Carlson started mining in 2012, difficulty was tripling every year. Carlson\u2019s fat profit margin quickly vanished. He briefly quit, but the possibility of a large-scale mine was simply too tantalizing. Around the world, some people were still mining bitcoin. And while Carlson suspected that many of these stalwarts were probably doing so irrationally \u2014 like gamblers doubling down after a loss \u2014 others had found a way to making mining pay.<\/p>\n What separated these survivors from the quitters and the double-downers, Carlson concluded, was simply the price of electricity. Survivors either lived in or had moved to places like China or Iceland or Venezuela, where electricity was cheap enough for bitcoin to be profitable. Carlson knew that if he could find a place where the power wasn\u2019t just cheap, but really cheap, he\u2019d be able to mine bitcoin both profitably and on an industrial scale.<\/p>\n All in all, recalls Miehe, the basin was bitcoin\u2019s \u201ckiller app.\u201d<\/p>\n<\/blockquote>\n The place was relatively easy to find. Less than three hours east of Seattle, on the other side of the Cascade Mountains, you could buy electricity for around 2.5 cents per kilowatt, which was a quarter of Seattle\u2019s rate and around a fifth of the national average. Carlson\u2019s dream began to fall into place. He found an engineer in Poland who had just developed a much faster, more energy-efficient server, and whom he persuaded to back Carlson\u2019s new venture, then called Mega-BigPower. In late 2012, Carlson found some empty retail space in the city of Wenatchee, just a few blocks from the Columbia River, and began to experiment with configurations of servers and cooling systems until he found something he could scale up into the biggest bitcoin mine in the world. The boom here had officially begun.<\/p>\n ***<\/p>\n 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\u2019s five huge hydroelectric dams, all owned by public utility districts, generate nearly six times as much power as the region\u2019s 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\u2019s most productive agricultural areas. (The local newspaper proudly claims to be published in \u201cthe Apple Capital of the World and the Buckle on the Power Belt of the Great Northwest.\u201d) 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.<\/p>\n As always, the miners\u2019 biggest challenge came from bitcoin itself.<\/p>\n<\/blockquote>\n Miners found other advantages. The cool winters and dry air helped reduce the need for costly air conditioning to prevent their churning servers from overheating. As a bonus, the region was already equipped with some of the nation\u2019s fastest high-speed internet, thanks to the massive fiber backbone the data centers had installed. All in all, recalls Miehe, the basin was bitcoin\u2019s \u201ckiller app.\u201d<\/p>\n Indeed, for a time, everything seemed to come together for the miners. By mid-2013, Carlson\u2019s first mine, though only 250 kilowatts in size, was mining hundreds of bitcoins a day \u2014 enough for him to pay all his power bills and other expenses while \u201cstacking\u201d the rest as a speculative asset that had started to appreciate. By then, bitcoin was shedding its reputation as the currency of drug dealers and data-breach blackmailers. A few legitimate companies, like Microsoft, and even some banks were accepting it. Competing cryptocurrencies were proliferating, and trading sites were emerging. Bitcoin was the hot new thing, and its price surged past $1,100 before settling in the mid-hundreds.<\/p>\n For all that potential, however, the basin\u2019s nascent mining community was beset by the sort of troubles that you would have found in any other boomtown. Mining technology was still so new that the early operations were constantly crashing. There was a growing, often bitter competition for mining sites that had adequate power, and whose landlords didn\u2019t flip out when the walls got \u201cSwiss-cheesed\u201d with ventilation holes. There was the constant fear of electrical overloads, as coin-crazed miners pushed power systems to the limit \u2014 as, for example, when one miner nearly torched an old laundromat in downtown Wenatchee.<\/p>\n Cryptocurrency miners in Moscow | Maxim Zmeyev\/AFP via Getty Images<\/p>\n And, inevitably, there was a growing tension with the utilities, which were finally grasping the scale of the miners\u2019 ambitions. In 2014, the public utility district in Chelan County received requests from would-be miners for a total of 220 megawatts \u2014 a startling development in a county whose 70,000 residents were then using barely 200 megawatts. Similar patterns were emerging across the river in neighboring Douglas and Grant counties, where power is also cheap.<\/p>\n But, as always, the miners\u2019 biggest challenge came from bitcoin itself. The mere presence of so much new mining in the Mid-Columbia Basin substantially expanded the network\u2019s total mining power; for a time, Carlson\u2019s mine alone accounted for a quarter of the global bitcoin mining capacity. But this rising calculating power also caused mining difficulty to skyrocket \u2014 from January 2013 to January 2014, it increased one thousandfold \u2014 which forced miners to expand even faster. And bitcoin\u2019s rising price was now drawing in new miners, especially in China, where power is cheap. By the middle of 2014, Carlson says, he\u2019d quadrupled the number of servers in his mine, yet had seen his once-massive share of the market fall below 1 percent.<\/p>\n Bitcoin miners were now caught in the same vicious cycle that real miners confront \u2014 except on a much more accelerated timeframe. To maintain their output, miners had to buy more servers, or upgrade to the more powerful servers, but the new calculating power simply boosted the solution difficulty even more quickly. In effect, your mine was becoming outdated as soon as you launched it, and the only hope of moving forward profitably was to adopt a kind of perpetual scale-up: Your existing mine had to be large enough to pay for your next, larger mine. Many miners responded by gathering into vast collectives, pooling their calculating resources and sharing the bitcoin rewards. Others shifted away from mining to hosting facilities for other miners. But whether you were mining or hosting, mining entered \u201ca scaling race,\u201d says Carlson, whose own operations marched steadily from 250 kilowatts to 1.5 megawatts to 5 megawatts. And it was a race: Any delay in getting your machines installed and mining simply meant you\u2019d be coming on line when the coins were even harder to mine.<\/p>\n \u201cMonth over month, you had to make this decision: Am I going to keep doing this, or am I going to call it?\u201d \u2014 Malachi Salcido, cryptocurrency miner<\/em><\/p>\n<\/blockquote>\n Just when it seemed that things couldn\u2019t get any worse, they did. As mining costs were rising, bitcoin prices began to dive. The cryptocurrency was getting hammered by a string of scams, thefts and regulatory bans, along with a lot of infighting among the mining community over things like optimal block size. Through 2015, bitcoin prices hovered in the low hundreds. Margins grew so thin \u2014 and, in fact, occasionally went negative \u2014 that miners had to spend their coins as soon as they mined them to pay their power bills. Things eventually got so grim that Carlson had to dig into his precious reserves and liquidate \u201call my little stacks of bitcoin,\u201d he recalls, ruefully. \u201cTo save the business, we sold it all.\u201d<\/p>\n Across the Mid-Columbia Basin, miners faced an excruciating dilemma: cut their losses and walk, or keep mining for basically nothing in the hopes that the cryptocurrency market would somehow turn around. Many smaller operators simply folded and left town \u2014 often leaving behind trashed sites and angry landlords. Even larger players began to draw lines in the sand. Carlson started moving out of mining and into hosting and running sites for other miners. Others held on. Among the latter was Salcido, the Wenatchee contractor-turned-bitcoin miner who grew up in the valley. \u201cWhat I had to decide was, do I think this recovers, or does the chart keep going like this and become nothing?\u201d Salcido told me recently. We were in his office in downtown Wenatchee, and Salcido, a clean-cut 43-year-old who is married with four young kids, was showing me a computer chart of the bitcoin price during what was one of the most agonizing periods of his life. \u201cMonth over month, you had to make this decision: Am I going to keep doing this, or am I going to call it?\u201d<\/p>\n ***<\/p>\n In the spring of 2016, everything turned around. Bitcoin regained traction. A few more vendors announced they\u2019d accept the cryptocurrency. Bitcoin prices stabilized and then, slowly but surely, began to climb, even after a second halving day cut the reward to 12.5 coins. In January 2017, the price crossed $1,000.<\/p>\n Starting in April, the price of bitcoin kicked up like a jet whose pilot has finally remembered where the afterburner switch is. By July, bitcoin was at $2,500. By September, $4,600. Then $7,200 in November. A week before Christmas, bitcoin went over $19,000. The surge touched off a media<\/a> frenzy<\/a> over the newest generation of tech millionaires.<\/p>\n The D Las Vegas casino and hotel advertised that it accepted bitcoin as early as 2014 | Ethan Miller\/Getty Images<\/p>\n No one was more surprised than the miners themselves. By the end of 2017, even with the rapidly rising difficulty, the per-bitcoin cost for basin miners was around $2,000, producing profit margins similar to those of the early years, only on a vastly larger scale. Marc Bevand, a French-born computer scientist who briefly mined in the basin and is now a tech investor, estimates that, by December, a hypothetical investor who had built a 5-megawatt mine in the basin just four months earlier would\u2019ve recovered the $7 million investment and would now be clearing $140,000 in profit every 24 hours. \u201cNowadays,\u201d he told me back in December, miners \u201care literally swimming in cash.\u201d<\/p>\n Of course, by the end of 2017, the players who were pouring into the basin weren\u2019t interested in building 5-megawatt mines. According to Carlson, mining has now reached the stage where the minimum size for a new commercial mine, given the high levels of difficulty, will soon be 50 megawatts, enough for around 22,000 homes and bigger than one of Amazon Web Services\u2019 immense data centers. Miehe, who has become a kind of broker for out-of-town miners and investors, was fielding calls and emails from much larger players. There were calls from China, where a recent government crackdown<\/a> on cryptocurrency has miners trying to move operations as large as 200 megawatts to safer ground. And there was a flood of interest from players outside the sector, including big institutional investors from Wall Street, Miami, the Middle East, Europe and Japan, all eager to get in on a commodity that some believe could touch $100,000 by the end of the year. And not all the interest has been so civil. Stories abound of bitcoin miners using hardball tactics to get their mines up and running. Carlson, for example, says some foreign miners tried to bribe building and safety inspectors to let them cut corners on construction. \u201cThey are bringing suitcases full of cash,\u201d Carlson says, adding that such ploys invariably backfire. Adds Miehe, \u201cI mean, you know how they talk about the animal spirits \u2014 greed and fear? Well, right now, everyone is in full-greed mode.\u201d<\/p>\n Many residents in Chelan County aren\u2019t keen to see so much public power sold to an industry whose chief product is, in their minds, of value only to speculators and criminals.<\/p>\n<\/blockquote>\n Nor was it simply the deep pockets. At these prices, even smaller operators have been able to make real money running a few machines in home-based, under-the-radar mines. Take the 20-something Wenatchee man we\u2019ll call \u201cBenny\u201d \u2014 he didn\u2019t want to be identified \u2014 who last July bought three mining servers, set them up in his house (one in the master bedroom and two in the living room) \u2014 and began mining Ethereum, bitcoin\u2019s closest cryptocurrency rival. As Ethereum climbed from $165 in July to nearly $1,200 in January, Benny had not only repaid his $7,000 investment but was making enough to pay his mortgage. As a side benefit, this winter, Benny\u2019s power bill went down: The waste heat from the three churning servers kept the house at a toasty 78 degrees. \u201cWe actually have to open the windows,\u201d he told me in January. His servers, meanwhile, pretty much run themselves \u2014 although, when he\u2019s at work, clerking at a grocery, he monitors the machines, and the Ethereum price, on his phone. \u201cIt\u2019s just basically free money,\u201d Benny says. \u201cAll I have to do is wake up in the morning and make sure nothing crashed during the night.\u201d<\/p>\n ***<\/p>\n In the zero-sum game that cryptocurrency has become, one man\u2019s free money is another man\u2019s headache. In the Mid-Columbia Basin, the latter category includes John Stoll, who oversees Chelan County Public Utility District\u2019s maintenance crews. Stoll regards people like Benny as \u201crogue operators,\u201d the utility\u2019s term for small players who mine without getting proper permits and equipment upgrades, and whose numbers have soared in the past 12 months. Though only a fraction of the size of their commercial peers, these operators can still overwhelm residential electric grids. In extreme cases, insulation can melt off wires. Transformers will overheat. In one instance last year, the utility says, a miner overloaded a transformer and caused a brush fire.<\/p>\n In parts of the basin, utility crews now actively hunt unpermitted miners, in a manner not unlike the way police look for indoor cannabis farms. The biggest giveaway, Stoll says, is a sustained jump in power use. But crews have learned to look, and listen, for other telltales, such as \u201cfans that are exhausting out of the garage or a bedroom.\u201d In any given week, the utility flushes out two to five suspected miners, Stoll says. Some come clean. They pay for permits and the often-substantial wiring upgrades, or they quit. But others quietly move their servers to another residential location and plug back in. \u201cIt\u2019s a bit of a cat-and-mouse game,\u201d Stoll admits.<\/p>\n A bitcoin mine in Sichuan Province, China has 550 machines benefits from the country\u2019s abundance of hydropower | Liu Xingzhe\/EPA<\/p>\n The utilities\u2019 larger challenge comes from the legitimate commercial operators, whose appetite for megawatts has upended a decades-old model of publicly owned power. The combined output of the basin\u2019s five dams averages around 3,000 megawatts, or enough for the population of Los Angeles. Until fairly recently, perhaps 80 percent of this massive output was exported via contracts that were hugely advantageous for locals. Cryptocurrency mining has been changing all that, to a degree that is only now becoming clear. By the end of 2018, Carlson reckons the basin will have a total of 300 megawatts of mining capacity. But that is nothing compared to what some hope to see in the basin. Over the past 12 months or so, the three public utilities reportedly have received applications and inquiries for future power contracts that, were they all to be approved, could approach 2,000 megawatts \u2014 enough to consume two-thirds of the basin\u2019s power output.<\/p>\n Just because miners want power doesn\u2019t mean they get it. Some inquiries are withdrawn. And all three county public utilities have considerable discretion when it comes to granting power requests. But by law, they must consider any legitimate request for power, which has meant doing costly studies and holding hearings \u2014 sparking a prolonged, public debate over this new industry\u2019s impact on the basin\u2019s power economy. There are concerns about the huge costs of new substations, transmission wires and other infrastructure necessary to accommodate these massive loads. In Douglas County, where the bulk of the new mining projects are going in, a brand new 84-megawatt substation that should have been adequate for the next 30 to 50 years of normal population growth was fully subscribed in less than a year.<\/p>\n Many also fear that the new mines will suck up so much of the power surplus that is currently exported that local rates will have to rise. In fact, miners\u2019 appetite for power is growing so rapidly that the three counties have instituted surcharges for extra infrastructure, and there is talk of moratoriums on new mines. There is also talk of something that would have been inconceivable just a few years ago: buying power from outside suppliers. That could mean the end of decades of ultracheap power \u2014 all for a new, highly volatile sector that some worry may not be around long anyway. Indeed, one big fear, says Dennis Bolz, a Chelan County Public Utility commissioner, is that a prolonged price collapse will cause miners to abandon the basin \u2014 and leave ratepayers with \u201can infrastructure that may or may not have a use.\u201d<\/p>\n The reality is, whatever its flaws, bitcoin\u2019s success and fame thus far makes the whole crypto phenomenon harder to dislodge with every trading cycle.<\/p>\n<\/blockquote>\n But Bolz, a longtime critic of cryptocurrency, says local concerns go beyond economics: Many residents he hears from aren\u2019t keen to see so much public power sold to an industry whose chief product is, in their minds, of value only to speculators and criminals. \u201cI mean, this is a conservative community, and they\u2019re like, \u2018What the hell\u2019s wrong with dollars?\u2019\u201d says Bolz. \u201cIf you just went out and did a poll of Chelan County, and asked people, \u2018Do you want us to be involved in the bitcoin industry, they would say not only \u2018No,\u2019 but \u2018Hell no.\u2019\u201d<\/p>\n The basin has become a proving ground for the broader debate about the future of blockchain technology. Critics insist that bitcoin will never work as a mainstream currency \u2014 it\u2019s slow and far too volatile. Its real function, they say, is as a \u201cstore of value\u201d \u2014 that is, an investment asset, like gold or company shares \u2014 except that, unlike these traditional assets, bitcoin has no real underlying economic value. Rather, critics say, it has become merely another highly speculative bet \u2014 much like mortgage-backed derivatives were in the prelude to the financial crisis \u2014 and like them, it is just as assured of an implosion.<\/p>\n The counterargument is that the blockchain economy is still in its infancy. The \u201cmonetized code\u201d that underlies the blockchain concept can be written to carry any sort of information securely, and to administer virtually any kind of transaction, contractual arrangement or other data-driven relationship between humans and their proliferating machines. In the future, supporters say, banks and other large institutions and even governments will run internal blockchains. Consumer product companies and tech companies will use blockchain to manage the \u201cinternet of things.\u201d Within this ecosystem, we\u2019ll see a range of cryptos playing different roles, with bitcoin perhaps serving as an investment, while more nimble cryptos can carry out everyday transactions. And the reality is, whatever its flaws, bitcoin\u2019s success and fame thus far makes the whole crypto phenomenon harder to dislodge with every trading cycle.<\/p>\n \u201cWhat you can actually do with the technology, we\u2019re only beginning to discover\u201d \u2014 Malachi Salcido<\/em><\/p>\n<\/blockquote>\n Still, even supporters acknowledge that that glorious future is going to use a lot of electricity. It\u2019s true that many of the more alarming claims \u2014 for example, that by 2020, bitcoin mining will consume \u201cas much electricity as the entire world does today,\u201d as the environmental website Grist recently suggested <\/a>\u2014 are ridiculous: Even if the current bitcoin load grew a hundredfold, it would still represent less than 2 percent of total global power consumption. (And for comparison, even the high-end estimates of bitcoin\u2019s total current power consumption are still less than 6 percent of the power consumed by the world\u2019s banking sector.) But the fact remains that bitcoin takes an astonishing amount of power. By one estimate, the power now needed to mine a single coin would run the average household for 10 days.<\/p>\n All of which leaves the basin\u2019s utilities caught between a skeptical public and a voracious, energy-intense new sector that, as Bolz puts it, is \u201clooking at us in a predatory sense.\u201d Indeed, every utility executive knows that to reject an application for a load, even one load so large as to require new transmission lines or out-of-area imports, is to invite a major legal fight. \u201cIf you can afford 100 megawatts,\u201d Bolz says, \u201cyou can afford a lot of attorneys.\u201d<\/p>\n For all the peril, others here see the bitcoin boom as a kind of necessary opportunity. They argue that the era of cheap local power was coming to an end even before bitcoin arrived. One big reason: The region\u2019s hydropower is no longer as prized by outside markets. In California, which has historically paid handsomely for the basin\u2019s \u201cgreen\u201d hydropower, demand has fallen especially dramatically thanks to rapid growth in the Golden State\u2019s wind and solar sectors. Simply put, the basin may soon struggle to find another large customer so eager to take those surplus megawatts \u2014 particularly one, like blockchain mining, that might bring other economic benefits. Early data from Douglas County, for example, suggest that the sector\u2019s economic value, especially the sales tax from nonstop server upgrades, may offset any loss in surplus power sales, according to Jim Huffman, a Douglas County port commissioner.<\/p>\n A pub in Sydney, Australia accepts bitcoin as a form of payment alongside traditional means | Cameron Spencer\/Getty Images<\/p>\n That opportunity may not last. Huffman, who is also a former utility executive, argues that ever-cheaper power rates in other states, like California, could undercut the basin\u2019s appeal to blockchain miners, who may begin to look for other places to mine. For that reason, Huffman argues that the basin should be actively recruiting more miners, even if it means importing power. \u201cI think there\u2019s a window here,\u201d Huffman says, \u201cand it\u2019s unknown how long that window will be open.\u201d Yet he, too, knows that any such talk will lead to criticism that the basin is yoking its future to a volatile sector that, for many, remains a chimera. \u201cSome folks think that bitcoin is just a scam,\u201d Huffman concedes. \u201cAnd in the conversation, you usually don\u2019t get past that.\u201d<\/p>\n Meanwhile, the miners in the basin have embarked on some image polishing. Carlson and Salcido, in particular, have worked hard to placate utility officialdom. Miners have agreed to pay heavy hook-up fees and to finance some of the needed infrastructure upgrades. They\u2019ve also labored to build a case for the sector\u2019s broader economic benefits \u2014 like sales tax revenues. They say mining could help offset some of the hundreds of jobs lost when the region\u2019s other big power user \u2014 the huge Alcoa aluminum smelter just south of Wenatchee \u2014 was idled a few years ago.<\/p>\n As in oil or gold, prospectors never stop \u2014 they just move on.<\/p>\n<\/blockquote>\n More fundamentally, miners argue that the current boom is simply the first rough step to a much larger technological shift that the basin would do well to get into early on. \u201cWhat you can actually do with the technology, we\u2019re only beginning to discover,\u201d Salcido says. \u201cBut the technology requires a platform.\u201d And, he says, as the world discovers what the blockchain can do, the global economy will increasingly depend on regions, like the basin, with the natural resources to run that platform as cheaply as possible.<\/p>\n ***<\/p>\n Even in the recent price crash, the miners have maintained their upbeat attitude, in part because they\u2019ve died this death a few times before. In February, a day after bitcoin\u2019s price dipped below $6,000, I checked in with Carlson to see how he was dealing with the huge sell-off. In a series of long texts, he expressed only optimism. The market correction, he argued, had been inevitable, given the rapid price increase. He noted that mining costs in the basin remain so low \u2014 still just a little above $2,000 per coin \u2014 that prices have a way to fall before bitcoin stops being worth mining there. Carlson is, he told me, \u201c100 percent confident\u201d the price will surpass the $20,000 level we saw before Christmas. \u201cThe question, as always, is how long will it take.\u201d<\/p>\n In the meantime, the basin\u2019s miners are at full steam ahead. Salcido says he\u2019ll have 42 megawatts running by the end of the year and 150 megawatts by 2020. Carlson says his next step after his current build-out of 60 megawatts will be \u201cin the hundreds\u201d of megawatts. Over the next five years, his company plans to raise $5 billion in capital to build 2,000 megawatts \u2014 two gigawatts \u2014 of additional mining capacity. But that won\u2019t all be in the basin, he says. Carlson says he and others will soon be scaling up so rapidly that, for farsighted miners, the Mid-Columbia Basin effectively is already maxed out, in part because the counties simply can\u2019t build out power lines and infrastructure fast enough. \u201cSo we have to go site hunting across the US & Canada,\u201d Carlson told me in a text. \u201cI\u2019m on my way to Quebec on Monday.\u201d As in oil or gold, prospectors never stop \u2014 they just move on.<\/p>\n \u201cMy entire data center was built with bitcoin, from nothing. I\u2019ve already won enough for what I was looking for out of mining\u201d \u2014 Lauren Miehe<\/em><\/p>\n<\/blockquote>\n But not everyone is going along for the ride. Back in East Wenatchee, Miehe is giving me an impromptu tour of the epicenter of the basin\u2019s boom. We drive out to the industrial park by the regional airport, where the Douglas County Port Authority has created a kind of mining zone. We roll past Carlson\u2019s construction site, which is swarming with equipment and men. Not far away, we can see a cluster of maybe two dozen cargo containers that Salcido has converted into mines, with transformers and cooling systems. Across the highway, near the new, already-tapped out substation, Salcido has another crew working a much larger mine. \u201cA year ago, none of this was here,\u201d Miehe says. \u201cThis road wasn\u2019t here.\u201d<\/p>\n Miehe still runs his original mine, a half-megawatt operation not far from the carwash. But his main job these days is managing hosting sites for other miners and connecting outsiders with insiders \u2014 and he\u2019s OK with that. He sold off some of his bitcoin stack, just after Christmas. He\u2019s still bullish on crypto, and on the basin\u2019s long-term prospects. But he no longer has any appetite for the race for scale. Gone are the glory days when commercial miners could self-finance with their own stacks. Today, you need outside financing \u2014 debt \u2014 which, for Miehe, who now has two young children, would mean an unacceptable level of stress. \u201cI\u2019ve already done it,\u201d he says. \u201cMy entire data center was built with bitcoin, from nothing. I\u2019ve already won enough for what I was looking for out of mining.\u201d He pauses. \u201cThe risk and reward is getting pretty great,\u201d he says. \u201cAnd I\u2019m not sure I want to be on the front line of that battle.\u201d<\/p>\n Paul Roberts is a journalist in Seattle who writes about technology, business and politics.<\/p>\n Original Article<\/a><\/p>\n [contf] [contfnew] EAST WENATCHEE, Washington \u2014 Hands on the wheel, eyes squint..<\/p>\n","protected":false},"author":1,"featured_media":68752,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[50],"tags":[],"class_list":["post-68751","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-tech"],"yoast_head":"\n![](\"https:\/\/www.politico.eu\/wp-content\/uploads\/2018\/03\/h_54129347-714x476.jpg\"\/)
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