'Sleepy Rural Settlements' Becoming Crypto Boomtowns In Cheap-Power States

From the outside, 5295 Brook Hollow Parkway in Norcross, Georgia, is like many of the flex office buildings that dot the Atlanta suburbs: The single-story brick building sits in the center of a sprawling parking lot, surrounded by pine trees.

But this nondescript piece of real estate raised eyebrows last summer when Las Vegas-based Cleanspark purchased it to turn it into a Bitcoin mining operation, the second such facility the company operates in Atlanta.

Why Cleanspark chose this innocuous building is simple: It is big enough to house 6,000 of its high-powered computers, which guzzle power 24 hours a day, seven days a week to do nothing but mint new Bitcoin, the most valuable and popular cryptocurrency; and, being in Georgia, it has access to some of the cheapest energy in the country.

Companies that seek to mint cryptocurrency amid a rush to invest in the digital investment require critical physical infrastructure, and they are largely looking to locate it in places that offer two things: low-cost power and local and state governments willing to offer tax incentives. That combination has led to data centers with racks of mining rigs springing up in small towns and rural enclaves across the U.S.

“Every miner wants to have the lowest cost of production. Sleepy rural settlements are converted into crypto boomtowns when those optimal traits are found,” said Corey Tyner, founder of the land brokerage firm Buy Yo Dirt. “You've undoubtedly gotten a call from a crypto miner if you work as an industrial broker in a place where the average electricity cost is less than $4K per Bitcoin produced.”

The surge in the activity in the U.S. over the past year — spurred in large part by China banning all crypto mining activity — has resulted in operations like Cleanspark's popping up with more regularity in Georgia, Texas, New York and other states.

But it has also drawn criticism over concerns that the industry’s heavy energy usage is accelerating climate change and extracting resources from small towns to distribute wealth to far-flung investors. As crypto mining companies race to open to extract a finite resource, they are now striving to establish goodwill with local communities and governments as the industry comes under increased scrutiny.

“You don't want to appear like a robber baron. What’s wrong with adopting a highway? What’s wrong with partnering with local schools?” said Tony Tate, the CEO of LitChain Corp., a Bitcoin mining operator that houses its rigs in converted shipping containers in states like Georgia, Pennsylvania, Florida, Colorado and South Carolina. The company has mined roughly 2,500 Bitcoin, Tate said.

To mine a unit of cryptocurrency, miners attempt to solve a random fixed-length block of code called a hash, using high-powered computers called rigs to change a single letter or number in a string of code that will add to the transaction history of a specific blockchain. To uncover the right code, miners use algorithms to search combinations, an effort that can take millions of attempts.

Once they hit on the right code, miners establish a new transaction and are awarded a new unit of cryptocurrency in which they can invest or sell for real capital. Miners also get fees for their output.

The supply of Bitcoin, the most popular and valuable of all cryptocurrencies, is finite — no more than 21 million Bitcoins can be minted, and just over 2 million are left to mine — which has led to Bitcoin miners racing to build up their mining networks to grab those last coins.

Crypto mining has tripled in the U.S. just over the past year, from 17 quintillion hashes a second to 54 quintillion per second, according to CoinShares' 2022 Digital Asset Outlook.

Nearly 70% of all hashrates mining Bitcoin emanate from Georgia and three other states: New York, Kentucky and Texas, CNBC recently reported, citing data from Foundry USA, the world’s largest pool of cryptocurrency miners.

In 2019, MGT Capital established a mining facility in LaFayette, Georgia, over 100 miles north of Atlanta, with more than 600 pieces of equipment. In September, Mawson Infrastructure Group leased more than 27 acres with the local economic development agency of Washington County, Georgia, to establish a collection of Bitcoin mining facilities inside shipping containers.

Mining for new cryptocurrencies is a power-consuming task. Mining a single Bitcoin consumes 1,544 kilowatt-hours of power, or the equivalent of 53 days of power used by the average U.S. household, CNET reported last year.

Experts say the site selection process for miners focuses almost entirely on the cost of power, as well as the resiliency of its grid. Georgia has some of the lowest electricity rates in the country — between 9 and 10 cents per kilowatt-hour, lower than the national average of 10.66 cents) That was one of the primary reasons Cleanspark gravitated toward Georgia.

“Obviously, getting that as low as possible is what any miner wants to do,” Cleanspark CEO Zach Bradford said. “Georgia, we believe, has quite a robust resiliency in the power grid. It's a little more robust than some of the other states, actually.”

Low power costs have also helped states like Wyoming, Kentucky and Utah capture their share of crypto mining operations.

“[Miners] are going to go to states where, in some instances, states are subsidizing cryptocurrency mining,” BCS Data Center Operations Chief Marketing and Sales Officer Chad Giddings said. “They're following where there is availability and where they can get … low cost related to power.”

Miners’ need for more and more power has opened the industry up to a variety of criticisms. Economists say the industry’s need for cheap power leads to heavy usage of coal-powered electricity, which releases high levels of carbon emissions. For every $1 of Bitcoin value created, miners created nearly half the cost in health and climate damages, according to a 2020 paper published in the journal Energy Research & Social Science.

“With each cryptocurrency, the rising electricity requirements to produce a single coin can lead to an almost inevitable cliff of negative net social benefits,” three professors from the University of New Mexico wrote in the paper.

Bradford said miners’ carbon footprints were a bigger issue in the early days of cryptocurrency. He said the industry has evolved as more capital has flowed into it, allowing for operators to grow in scale and sophistication.

At Cleanspark’s Bitcoin mining facility outside Downtown Atlanta, nuclear power is the main source of energy, Bradford said, and at its rural New York State facility, Cleanspark uses power mainly generated from hydroelectricity. Access to renewable energy is driving its next site search in Texas and Kentucky, where Cleanspark plans to eventually expand, he added.

“We think there's more than enough sustainable and carbon-free power out there to sustain us,” Bradford said.

Business-friendly governments are a major factor in cryptocurrency site selection as well, experts say, especially states and municipalities willing to dole out incentives to help offset the mining capital costs. Tyner, whose firm has seen an increase in land searches from crypto miners since the Chinese crackdown, said one miner chose Texas because of the state’s exemption for sales and use tax for electricity consumption.

The search for incentives often has miners locating facilities in tertiary and rural markets, places that may be hungry for new business that promise a modicum of investment and new jobs.

“You're going into economies that have been decimated,” said Mason Jappa, CEO of Blockware Solutions, a crypto mining firm whose flagship facility is in eastern Kentucky, near the Illinois border. “You need the perfect cocktail where you're going to lay foot with your mining operation.”

Blockware received a package of incentives for its $28M operation in Paducah, which was expected to create 10 jobs with an average wage of $23 an hour, the Lexington-Herald Ledger reported last year. The deal has prompted state legislators to consider establishing even more incentives for the industry, especially since they are gravitating toward rural towns that lost coal industry jobs.

Incentives were part of the lure for LitChain Corp. to locate its mobile Bitcoin mining operations in sites where local governments are friendly, CEO Tate said.

Tate said he chooses areas for new operations where power is cheap, especially with the help of incentives. His average power rate among his chain of Bitcoin mining rigs is between 2.5 cents and 4 cents a kilowatt-hour, he said. Last year, Bitcoin mining averaged 9 cents a kilowatt-hour globally, Fortune reported.

“It has everything to do with the local communities and the legislature,” Tate said. "That's probably the most important, the community and welcomeness."

But that chase for incentives has prompted critics to question the industry’s real benefit to a community. A number of states have enacted tax breaks and other incentives to lure crypto mining operations and other data center operators, despite policy fellows at the Center for Global Development writing in April that "Bitcoin mining is bad for the world" because its values are highly volatile and its relative anonymity, which make it a magnet for illegal transactions.

Some communities have complained that mining operations consume so much power they force energy companies to raise prices on residents to compensate. That creates a perception in some communities that crypto mining companies are leeching off the local economy while sending their money elsewhere, Tate said.

Bradford said bigger operators like Cleanspark rely less on local and state incentives, and instead are more apt to invest in the local community. At its facilities, Cleanspark spent its own money to upgrade substations and power lines in the area, he said.

“For us, we don't rely on community incentives. We would actually rather have it go the other way,” Bradford said. “We don't need the community to pay for the upgrades.”

Tate said LitChain is sensitive to the industry’s criticism, and it is pursuing renewable power sources as well as investing in the local communities where it operates, including partnering with local school systems to train students on its equipment.

“If [a student] can work in Eden, North Carolina, while going to Appalachian State [University] and take care of his mom, he'll do that all day,” Tate said.