Bitcoin rush: What happens when cryptocurrency miners come to town

Forget the pickaxe — the miners who have taken over Washington state don't need it.

Instead, picture shipping containers full of thousands of servers that are maxing out the power grid and setting a few bush fires while they're at it.

This is the scene of Washington state's "bitcoin rush," a boom that started in 2012 when miners flocked to the state to take advantage of low energy costs.

Unlike a traditional boomtown, the changes going on in the Columbia Basin are harder to detect. There are no open pits or wells; at most, you may notice new warehouses or converted shipping containers popping up with power transformers outside.

But the effect it's having on the local community is visible. The strain on the local power grid is so substantial that Chelan County voted in February to stop accepting new power requests from bitcoin miners for six months.

In Quebec, the town of Magog voted this week to put the brakes on future cryptocurrency mines due to similar concerns.

Paul Roberts is a Seattle-based reporter who visited these mines and wrote a story for Politico about what he saw. He tells Day 6 about his experiences delving into the strange world of small town bitcoin mining.

The boom begins

To run a bitcoin mine, you need power — and lots of it.

In its simplest terms, bitcoin mining works like this: hundreds of computer servers run continuously as they solve complex math equations. The goal is to unlock a new bitcoin, which gets released every ten minutes. Unlock the bitcoin, and make a profit. 

Sounds easy, right?

But bitcoin functions like a game: as more people mine bitcoin, the difficulty increases. The equations become more complicated, which requires more servers running, which requires more energy — and all this comes with an increasingly daunting price tag.

Around 2012, bitcoin mining really started to take off in Washington State. Gone were the days of miners operating out of their basements as a hobby; bitcoin mining was becoming a business.

There's this sort of interesting little ecosystem that's evolved where these people are pretty dedicated, and the question is: Are they deluded or are they onto something?- Paul Roberts

Roberts says this is when the miners first came to the Columbia Basin. They came from places like Seattle and Los Angeles, attracted by low energy rates.

Electricity in the region is exceptionally cheap: Chelan County's energy cost is 2.7 cents per kilowatt, while the U.S. national average is 10.27 cents.

Combine that with cool temperatures and plenty of space, and it was the perfect place to set up shop.

"People recognized all at once that central Washington state was the place to do it, and the exodus starts and the boom picks up right from then," says Roberts.

With great power comes great responsibility

Roberts says that initially, the requests for power were small enough that public utilities didn't question it.

"They didn't know what a bitcoin mine was, what bitcoin was, and certainly these mines were small enough that they weren't using more power than, say a car wash or a convenience store," says Roberts.

At the time the region was producing eight times the power it used locally, so the requests from miners weren't a concern. 

That changed in 2013, when the miners began to scale up and build larger operations. Bigger mines meant requests for considerably more power, and the towns took notice. 

Now, miners are requesting as much as 100 megawatts of electricity, enough to power around 13,000 homes. 

As bitcoin miners consume a greater share of the power grid pie, residents are becoming concerned that their power rates will go up. It's also causing public utilities to question their involvement with the miners.

"A lot of them are beginning to ask the bigger question, which is: is this where we want to [invest] this green energy? We have environmentally clean, hydroelectric power. Is bitcoin where we want to be using it?"

'A game of cat and mouse'

Not all miners are doing things by the books. There are also "rogue operators" who are running secret mining operations out of their basements or backyard sheds.

"Utilities are really concerned about the small fry, the guy who takes a couple of computers and sets them up in his basement or his bedroom and maxes out the local grid," says Roberts.

A lot of the time, no one even knows they're doing it. Utilities looks for unusual spikes in energy use, but it can be difficult to discern if those are the result of bootleg mining operations.

Roberts says utility crews spend time prowling neighbourhoods looking for them, and that they find around five every week, but adds that they expect there are hundred of others operating in the shadows that they'll never find.

"It's a bit like the cannabis growers of the past," says Roberts. "It's another reason utilities, and the community generally, are really having to wrestle with this."

A brave new future

The question on the minds of many in the basin is whether bitcoin has the potential to become something of value to them. 

Roberts puts the question they're facing this way: "Is [bitcoin] going to be a real thing or is this just sort of a way for a clever industry to extract a lot of profit without really delivering anything in return?"

Roberts says that in some ways, this is similar to other moments in history, when new technologies such as the internet or cell phones have emerged and caused uncertainty.

But the miners believe this technology will change the future, and Roberts says you have to admire their chutzpah.

"There's this sort of interesting little ecosystem that's evolved where these people are pretty dedicated, and the question is: Are they deluded or are they onto something?"

To hear more from Paul Roberts, download our podcast or click the 'Listen' button at the top of this page.