A new kind of 'mining' has arrived in the Ohio Valley. What will crypto mean for the region?
Open the door of Blockware Mining’s data center in Paducah, Kentucky, and you’re met by a wall of sound. More than 5,000 machines are whirring away as they solve complex math problems, while large industrial fans keep them cool. The expansive warehouse stretches a little more than a football field.
“You don’t truly get an appreciation for the scale unless you walk it or actually be a part of building it,” said Jeremy Witten, executive vice president of engineering for the relatively new company.
As of mid-April, the warehouse was still an active construction site. More fans were being added by contractors, outdoor light shining through where gray metal siding hadn’t been added yet. Workers were bringing even more machines to eventually plug in with the rest.
Witten and his colleagues find themselves answering a lot of questions about what exactly these machines are up to in this western Kentucky industrial park. Even curious contractors building the warehouse are still learning what cryptocurrency “mining” is. It can’t be seen with the naked eye, but it sure makes a lot of noise, and investors hope, money.
With the rise in popularity of cryptocurrencies across the globe including Bitcoin, virtual currencies have needed a way to ensure online exchanges are secure and safe between parties. Servers like the ones at Blockware Mining provide that service by solving complex math problems that help verify transactions, and if their machines are the first to solve new problems, they’re rewarded with payment of some of the currency they’re providing security for – in this case, Bitcoin.
That can mean a lot of money for cryptocurrency miners, with each Bitcoin worth a little more than $40,000 as of recently.
For Blockware Mining, the investment is very real. By 2023, the cryptocurrency mining facility plans to add another warehouse and have over 10,000 machines, which the company estimates will cost about $100 million alone.
For Witten, it’s an opportunity to transition from one of oldest occupations in Kentucky–farming cattle and tobacco–to one of the newest. He says his father didn’t want him to go into farming and to go get a college degree instead. He earned a degree in mechanical engineering, spent time in the alloy metals industry, and is now on to something completely new.
“He wanted us to go do something better,” Witten said. “It's always new. And that's what keeps it fresh, and exciting for all the young guys that we have that we employ.”
But Blockware Mining isn’t alone in Kentucky. As the technology takes off, a cryptocurrency mining boom is taking place in the state that’s known for mining coal.
It’s a burgeoning industry that investors see as a cutting-edge economic opportunity. But critics say it’s compounding the world’s preeminent crisis – climate change.
A digital boom
Greater Paducah Economic Development President Bruce Wilcox says after Blockware Mining announced its move, the floodgates opened with the interest from other cryptocurrency mining ventures wanting to move into the region from across the world.
“We've had interest from New York to California, Canada,” Wilcox said in a recent interview, about five minutes before his office phone ringed again with yet another interested cryptocurrency company. “A week ago, Monday, I was meeting with a group from India, China and Cambodia.”
A big reason they want to move there, according to Wilcox: cheap power. Kentucky has a lower cost of electricity compared to other states, and cryptocurrency mining tends to use substantial amounts of power. Blockware Mining, for example, eventually wants to power 100 megawatts of electricity to its site, an amount that could power tens of thousands of homes. For comparison, the peak electricity consumption of Paducah – population 27,137 – was around 128 megawatts last year.
Big Rivers Electric Corporation, a regional utility in western Kentucky, is propping up Blockware Mining by investing more than $12 million to upgrade the transformers next to the industrial park in part to service the company.
Wilcox says Kentucky is particularly well-situated because of its connection to regional energy grids, with the ability for these cryptocurrency mining companies to get power from across the region.
Kentucky lawmakers have further incentivized cryptocurrency miners to come to the state with recent legislation. In March 2021, Democratic Gov. Andy Beshear signed a number of tax breaks for cryptocurrency miners into law. Incentives include an exemption from the Kentucky sales tax for electricity and extra incentives for companies that invest more than $1 million in equipment. Since then, at least one utility in Kentucky has seen over a hundred applications from cryptocurrency companies eager to set foot in a state with ample cheap energy.
Legislators say the industry can bring investments into rural parts of Kentucky that have bled jobs, especially as the state’s signature coal industry continues to decline.
Republican Sen. Wil Schroder, of Wilder, has over $10,000 worth of investments in Bitcoin and Ethereum cryptocurrencies, according to a financial disclosure. He says the cryptocurrency industry is part of Kentucky’s future.
“Any time we’re bringing industry to Kentucky, I think that’s a benefit to all Kentuckians,” Schroder said.
The prospect of new business has local economic development leaders excited, including Wilcox. He sees the industry as an opportunity for new jobs and county property tax revenue.
“Go ask the person who has a job that they're employing. Ask them on Friday and on payday when they received their check or for the wages they’ve earned how important it is to that individual person,” Wilcox said.
Despite the small surge of temporary construction jobs when Blockware Mining expands, there aren’t many permanent jobs, and benefits to the local economy don’t always make much of a dent.
The Lexington Herald-Leader reported that an eastern Kentucky mining facility employed only seven full-time workers. Blockware Mining currently employs about ten with hopes to have 20 to 30 onboard after a planned expansion.
But supporters, including Wilcox, say a few higher-paying jobs are better than no jobs. McCracken County’s median household income is $47,000, about $5,000 below the state average. Blockware Mining leaders in statehouse testimony mentioned some jobs they’re offering paid $70,000 or more with benefits.
A Forbes study showed that tax breaks end up costing counties and municipalities across the U.S. roughly $1 million per job.
Just up the Tennessee River from Paducah, a company called Core Scientific moved a large data center into a former steel mill in Marshall County, employing about 30 people when it opened in 2019. The steel mill that shuttered in 2016 employed 130 people.
State Rep. Steven Rudy, a Republican from Paducah who sponsored the tax break for cryptocurrency mining companies, said the incentives are worth it.
“It may not bring a lot of jobs,” Rudy said. “We have cheap electricity here in Kentucky and I think it's because of our vast natural resources.”
Energy costs and questions
Not everyone is excited about the cryptocurrency boom. The industry’s incredibly high energy use has many experts and activists concerned that it could set back the clock on attempts to use energy more efficiently by many years.
In February, a group of researchers from the Massachusetts Institute of Technology and Vrije Universiteit Amsterdam published a report detailing the Bitcoin mining industry’s substantial carbon footprint, and showing how the industry was shifting based on local regulations. Many crypto mining companies relocated to the United States after China cracked down on the industry’s high energy use, among other aspects. With the tax breaks and a friendly regulatory environment offered by Kentucky lawmakers, many of those companies chose the Commonwealth as their new home.
The paper found Kentucky had the highest carbon emissions from Bitcoin mining out of all states – 3.3 megatons of annual carbon dioxide emissions, or the same amount created by more than 650,000 passenger cars, according to the U.S. Environmental Protection Agency – largely because of how dependent the energy grid is on fossil fuels.
“They don't care about the environment. All they care about is cheap power, stable power,” said Netherlands-based researcher Alex de Vries, the lead author on the paper. “That's going to be typically the best match with obsolete fossil fuel-based infrastructure, unfortunately.”
Overall, the global network of Bitcoin miners uses about 144 terawatt-hours a year, according to an index from the University of Cambridge. That’s about half a percent of global electricity consumption, but also comparable to the annual electricity consumption of Egypt. De Vries is worried about the technology’s energy inefficiency, and consequences if the industry expands further.
“This system is so extremely inefficient,” de Vries said. “I can take a flight from here to Kentucky and the carbon emissions of that are going to be lower than that of a single Bitcoin transaction, just to think about that. The more popular it gets, the worse it gets.”
The Ohio Valley generates the large majority of its power from coal and natural gas. Climate change mitigation advocates are worried the industry could extend the lifespan of fossil fuels.
Lane Boldman is the executive director of the Kentucky Conservation Committee, a progressive environmental advocacy group.
“What makes Kentucky so attractive is the energy infrastructure we already have,” Boldman said. “The heavy energy use is a concern as far as meeting climate goals, so I'm concerned that Kentucky is going to situate itself where it may be shoring up some of their energy infrastructure at the expense of climate goals.”
Boldman said she isn’t opposed to the cryptocurrency mining industry and sees potential with companies potentially switching to a less energy-intensive computing process.
The industry has pushed back against sustainability arguments, saying mining companies shouldn’t be held to the same emissions standards as other industries that directly pollute the environment.
Witten said Blockware Mining, which also has operations in New York and Washington, is looking into using solar power, among other projects, which he says would cut costs for the company.
“Every industry is trying to find the cheapest power. I don't know what industry isn't,” Witten said. “Mining is no different.”
“I don't know many of the public [mining] companies that aren't actively looking at reducing all their carbon footprint, regardless if it's moving into sites that have higher renewable percentage, or offsetting with carbon credits.”
Witten says the large energy needs of cryptocurrency mining can also encourage more renewable energy development. He points to a study from the Bitcoin Mining Council, an industry group, that states almost 60% of the energy sources used for mining come from a “sustainable electricity mix” including renewables, hydro and nuclear, citing it as the industry well on its way to being greener.
But de Vries, the researcher from the Netherlands, is skeptical of the industry data, saying it’s not clear where they’re getting information on the renewable energy mix. The renewable energy mix of Bitcoin was only at 25% as of August 2021, according to his paper.
Elsewhere in the Ohio Valley
In the coalfields of eastern Kentucky and West Virginia, some economically troubled rural communities are also seeing a sudden influx in cryptocurrency mining operations, fueled by out-of-town and even international venture capital.
Reuters recently documented a soon-to-come operation in Belfry, Ky. which will use more power than the small town’s entire population of 358. Down the road, in Martin County, a trash incinerator on an old coal mine plans to power Biofuel Mining, a company formerly co-owned by Republican state Sen. Brandon Smith. In Harlan County, a Chinese-owned company called ANKR/ Exponential Digital recently set up shop near the town of Cumberland.
Meanwhile, a West Virginia cryptocurrency mining operation at the Grant Town waste coal-fired power plant was recently pulled by the state’s Public Service Commission. According to Gizmodo, the plant purchased its coal from a company connected to West Virginia Democratic U.S. Sen. Joe Manchin. First reported by E&E news, the proposal may have been a bid to save the plant from the bankruptcy wave impacting West Virginia’s other coal-fired power plants.
Another company has applied to build a data center near Morgantown, West Virginia, sparking outrage from local environmentalists. The data center made the community aware of its existence through an application to the West Virginia Department of Environmental Protection for an air pollution permit. The company is not strictly defined as a cryptocurrency mining company, but West Virginia University Agriculture Sciences Professor Jim Kotcon says the energy use outlined in its applications matches one.
“My concern is that if it looks like a duck and quacks like a duck and waddles like a duck, maybe it is, in fact, a Bitcoin mining operation,” says Sierra Club member and West Virginia University agricultural sciences professor Jim Kotcon. “And that is in fact what it seems to be.”
Others agree, noting similarities in cooling facilities and electricity needs. The company that owns the facility, Marion Energy Partners, LLC, plans to use natural gas from the nearby Marcellus Shale to power its operation.
Some cryptocurrency advocates say the industry’s appetite for energy, and payment for that power, could slow down utility rate increases for customers. But Kotcon believes the risks outweigh the benefits.
“One of the concerns I had was that air pollution permit authorized emissions, more pollutants, particularly nitrous oxides, volatile organic compounds, particulate matter, et cetera than our local coal fired power plants do,” he said. “And I raised the question, why are we authorizing this more polluting source if all they're going to do is generate electricity?”
Pursuing a cleaner grid
Some cryptocurrency advocates say environmental concerns could be mitigated by increasing the share of renewable energy powering the electric grid. Adam Edelen is the former Democratic state auditor of Kentucky and owns Edelen Renewables, soon to be the site of a massive utility-scale solar array in rural Martin County.
Now that the area is also soon to be home to a cryptocurrency mining company, Edelen Renewables has been fielding calls about providing power for the project.. Edelen said he believes cryptocurrency isn’t going away, and that renewable energy should power the industry. But he has some reservations, including the tax breaks that made Kentucky so attractive to cryptocurrency mining companies in the first place.
“I think a fair tax regimen where local jurisdictions are made whole is incredibly important,” Edelen said. “I think, to the extent that there is job creation, those jobs need to be sourced locally.”
Edelen says he doesn’t believe cryptocurrency is going away, which is why he’s open to working with companies. He hopes the participation of the renewable energy industry can lessen what he says are cryptocurrency’s more negative impacts, and encourage transparency.
“We are trying to figure out how to maximize those benefits to the local community, at the same time trying to figure out how to reduce the awful environmental attributes that come with these projects,” Edelen said. He says he’s been approached by dozens of companies, but has held off on signing any agreements.
Edelen Renewables is partnering with Savion, a national utility-scale renewable energy company, for its Martin County solar array. Savion was purchased by multinational oil corporation Shell in 2021, in a bid to reduce Shell’s net footprint.
Jim Kotcon said perhaps renewables-supported cryptocurrency mining is much the same–a renewable cherry on top of an industry heavily powered by fossil fuels.
“Adding major energy consumption facilities such as Bitcoin mining operations don't displace existing fossil fuels, even if they're run off of solar or wind energy,” Kotcon said. “We need to make those investments to offset our existing fossil fuels. And we need to do that very quickly.”