Texas was dying for electricity. A winter storm had knocked out power plants across the state, leaving tens of thousands of homes in frigid darkness. By the last hours of February 14, 2021, nearly 40 people had died, some from the freezing cold.
Meanwhile, at a former aluminum smelter plant outside Austin, rows of computers used enough electricity to power 6,500 homes as they raced to win Bitcoin, the world’s largest cryptocurrency.
Computers were performing trillions of calculations per second, looking for a combination of numbers that would be accepted by the Bitcoin algorithm. About every 10 minutes, a computer guesses correctly and wins several Bitcoins worth about $170,000. (Bitcoins now sell for around $30,000 each.)
In Texas, the computers continued to work until just after midnight. The state power grid operator then ordered them shut down, under an agreement that allowed it to do so if the system was about to fail. In return, he began paying Bitdeer, the Bitcoin company, an average of $175,000 per hour to keep the computers idle. Over the next four days, Bitdeer would earn more than $18 million for not operating, fees that ended up being paid by Texans who had suffered from the storm.
The New York Times has identified 34 such large-scale operations, known as Bitcoin mines, in the United States, putting pressure on the power grid and most coming up with novel ways to profit from it. Your operations can incur costs – including higher electricity bills and huge carbon pollution.
Until June 2021, most Bitcoin mining was in China. But then it kicked out Bitcoin operations, citing its energy use among other reasons. The United States quickly became the world leader in the industry.
Since then, it has been unclear how much electricity Bitcoin mines in the US are using and its effect on energy markets and the environment. The Times, using public and confidential records and the results of studies it commissioned, produced the most comprehensive estimates to date of the energy use of the largest operations and the ripple effects of their voracious demand.
In Texas, where 10 of the 34 mines are connected to the state grid, increased demand has caused power customers’ electric bills to rise nearly 5 percent, or $1.8 billion annually, a simulation found. Made for The Times by Wood Mackenzie, an energy research and consultancy company.
The additional energy use across the country also causes as much carbon pollution as adding 3.5 million gasoline-powered cars to America’s roads, shows an analysis by WattTime, a nonprofit technology company. Many of Bitcoin’s operations promote themselves as environmentally friendly and are based in areas rich in renewable energy, but their power needs are too great to be met from those sources alone. WattTime found that coal and natural gas plants come in to meet 85 percent of the demand that these Bitcoin operations add to their networks.
Its enormous power consumption, combined with its ability to shut down almost instantly, allows some companies to save money and make money by cleverly leveraging the US energy markets.
They can avoid fees charged during peak demand, resell their electricity at a premium when prices rise, and even get paid for offering to turn off.
Several companies objected to the method used by The Times and WattTime to estimate their emissions, which calculated the pollution caused by the extra power generated to meet mine demand, showing that it came overwhelmingly from fossil fuels.
“The cited analysis could be used to attack any industry that consumes energy,” said David Fogel, a director at Coinmint, which operates in upstate New York. “Targeting specific industries like this is unfair.”
“They’re adding hundreds of megawatts of new demand when we’re already faced with the need to rapidly reduce fossil power,” said Jesse Jenkins, a professor at Princeton University in New Jersey.
Using so much electricity can also be a business model.
Times of extreme weather provide particularly stark examples. One example is June 23, 2022 – the eighth straight day of temperatures near 38 degrees around Austin, which allowed Riot Platforms to demonstrate various ways it can turn electricity into money.
Like many industrial buyers, the company had pre-purchased its power at a fraction of the price available to residential customers. Riot’s mine operates at 450 megawatts, the largest in the country.
Every day that June, his computer searches were earning Bitcoin worth around $342,000 on average. But the utility had signed up for Responsive Reserve Service, a Texas power grid program that offers a way to quickly reduce pressure if the grid becomes overloaded, acting as blackout insurance. The program pays miners and other companies for promising to stop using electricity if asked to do so.
In reality, they are rarely asked to close, but still get paid for making the promise.
From midnight until almost 4:00 p.m. on June 23, Riot earned more than $42,000 from the show while continuing to mine Bitcoin.
Around this time, the company switched to the second technique: avoiding the fees Texas charges to maintain and strengthen the power grid. He did so by briefly blacking out almost completely.
By 6:30 p.m., the company had resumed mining.
If Riot had been running fully all day, it would have incurred an estimated $5.5 million in fees, costs that are largely covered by other Texans. Over the course of the year, this saved Riot more than $27 million.
A final mechanism allows some companies to earn extra money when electricity prices rise: they can stop mining and resell electricity to other customers. That netted Riot about $18 million last year.
The company made $156.9 million last year from Bitcoin mining.
Riot told investors that its cost of electricity in 2022 was 2.96 cents per kilowatt-hour. By comparison, the median price for other industrial businesses in Texas was 7.2 cents.
For residents, it was 13.5 cents.
