Why Bitcoin Mining Is Taking Off In The Lone Star State
Bitcoin mining relies on Texas’s energy infrastructure. Bitcoin miners have started to flock to Texas because of the current “goldilocks” situation for cryptocurrency mining created by three main factors:
- The state’s energy infrastructure allows for access to cheap power from its deregulated power market;
- Its growing energy source mix from renewables, particularly wind energy; and
- Its supportive policy and backing by policymakers
Bitcoin Mining: Leaning On Texas’s Energy Infrastructure
While Bitcoin mining has been criticized for being energy-intensive, Texas Governor Greg Abbott, among others, views Bitcoin mining as a solution to other related issues, such as taking advantage of untapped energy, including natural gas (such as surplus gas or associated gas) that would otherwise be flared or vented because of limited infrastructure to transport it to a destination.
It is no secret that for years , gas and oil companies have struggled with flaring, both in Texas and across the U.S. Natural gas is not like oil, which can only be transported by truck or rail. It requires pipeline infrastructure to get it to market. If a driller has no means of transporting its gas, either economically or because there isn’t available pipeline infrastructure to do so, they flare (or burn) it, and the environmental implications of doing so are substantial. Instead, bitcoin miners can tap into surplus gas, regardless of whether it’s from flared gas or bad netbacks. They can then divert it to generators that can turn the gas into electricity and use it to power their sophisticated mining equipment.
“Companies tapping surplus gas to run their cypto-mining computer banks see a double benefit – reducing the negative impacts of gas flaring and cutting their carbon footprint,” according to Argus Media.
According to research from Crusoe Energy Systems, one of the largest Bitcoin miners in the U.S., the process reduces the carbon dioxide equivalent emissions by about 63% compared to flaring, Argus Media reported. This opportunity to repurpose otherwise stranded energy and monetize it has not only been attractive to Bitcoin miners, but also to oil and gas companies to increase returns on their production while also complying with environmental, social and governance (ESG) initiatives — more specifically, the “E” component for reducing their carbon footprints.
Regardless of the energy source for the Bitcoin miner, be it the gas that would otherwise be flared or energy sourced by renewables, the Bitcoin miner essentially behaves like a power plant by purchasing power at an agreed-upon, fixed price and owning the ability to sell the power back to the grid. Opponents of Abbott’s claim that cryptocurrency mining offers financial incentives to create power infrastructure and produce more electricity have argued that it would also increase demand and stress an already unstable power grid.
Abbott’s position, however, relies on the belief that if a severe weather event occurred, such as Winter Storm Uri in February 2021, which resulted in substantial surges in power demand, miners would be forced to pause operations when ordered to do so. In other words, miners would stop their operations and return power to the grid when there is a surge in demand. This idea is supported by basic humanitarian principles, ethics, and morals, which dictate that power should not be diverted to save lives. However, it’s also supported in part by the dynamic of markets. Spot power prices can rise in the event of a surge in demand, as happened during Winter Storm Uri. The miner would then be financially motivated to sell power back to its grid instead of consuming it.
Miners have many benefits. They can source cheap power and also have the option to return power to the grid. For Texas, particularly ERCOT, the state’s power regulator, the ability for miners to “turn off” during peak demand prevents the need to turn on less efficient peak demand power plants, allowing ERCOT to stabilize the grid more effectively.
According to the Texas Blockchain Council, there are at least 27 mining operations in the state with more on the way. This growth is not only attributable to the points discussed above but also to the larger crackdown on bitcoin mining abroad, particularly in China, pushing many miners to flee to the U.S.
It’s important to note that China is heavily dependent on “dirtier” energy sources such as coal, which produces roughly twice as much carbon dioxide emissions as natural gas. Texas, however, is home to more “clean” energy sources like natural gas and wind. Moreover, within the U.S., Texas is a leader in the nation’s wind-powered electricity generation, comprising approximately 26% of the nation’s total net wind generation.
Altogether, these factors have incentivized and attracted Bitcoin miners to Texas with the Lone Star State becoming the fourth-highest hash rate (the measure of how much power is being supplied to the Bitcoin network) of any state, at approximately 14%.
Bitcoin Miners Call Texas Home, For Now
From Rockdale, Texas, home to the two biggest Bitcoin mining companies in the world, to the first city in the U.S. to mine Bitcoin, to Fort Worth, Texas, the Lone Star State is welcoming the Bitcoin mining industry with open arms.
This is a guest post by Ryan Dusek and Cooper Ligon. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.