Crypto needs cheap energy. It found a whole bunch in Nebraska.

KEARNEY – On an 11-acre lot in Kearney sit dozens of what look like shipping containers.

Inside the metal boxes are racks and racks of computers. Thousands of them solve complicated mathematical equations around the clock.

Here on the outskirts of town, sandwiched between a solar field and a corn field, thousands of computers mine for cryptocurrency.

Together they use as much electricity as the entire city of Kearney, pop. NOK 33,790 to do so.

This is one of the largest cryptocurrency data centers in Nebraska – a host site for computers racing to verify crypto transactions and add to the digital currency.

It’s also likely the first of many such centers to set up shop in the state, as the still nascent and often volatile crypto industry makes a home in rural America.

The instability of crypto has already hit the Kearney location – in September, Compute North, the company that opened the data center, declared bankruptcy. The Kearney property was sold to Generate Capital, one of the company’s lenders.

But even free-falling crypto prices, the infamous failure of crypto exchange FTX and the arrest of its co-founder Sam Bankman-Fried have not stopped the industry’s expansion in Nebraska.

Just last week, the Hall County Board of Commissioners approved the construction of a 14 megawatt crypto data center near Grand Island.

“We didn’t actively pursue these, they came to us,” said Neal Niedfeldt, CEO of the Southern Public Power District, one of many Nebraska utility districts that have called on crypto companies in recent years.

A digital currency, crypto relies on a network of computers that maintain a blockchain – think of it as a digital ledger of transactions. The computers solve complicated math problems to verify transactions and add them to the ledger. In exchange, they receive digital “coins” – such as bitcoin or ethereum – along the way.

The currency is largely unregulated and not tied to banks. It is not backed by any government, like the US dollar or the British pound. For crypto enthusiasts, the decentralized structure is part of the appeal.

“Basically, the crypto business is converting electricity into computing,” said Gus Hurwitz, a law professor at the University of Nebraska College of Law.

Companies like Compute North in Kearney serve as a rental location for the computers that make it all run. Crypto miners ship their equipment and pay for space, maintenance, internet and – crucially – electricity.

With computers running almost 24/7, and fans running to cool them, electricity is the main cost of doing business. The companies that run these hubs need electricity. They are looking for it cheap.

About five years ago, Compute North found it in Nebraska—the only state served exclusively by publicly owned utilities mandated to deliver the cheapest electricity possible.

“They had heard that our rates are low, and they are stable,” said Nicole Sedlacek, economic development manager for NPPD. “That eventually led to them making a phone call to us.”

The company had some other criteria: They liked the power district’s mix of carbon-free energy. They needed affordable land. They sought a location with the capacity to handle their massive electrical load, and a local government open to the idea of ​​crypto coming to town.

Kearney had everything they were looking for.

The central Nebraska city had already tried to develop its technology park. It was in the hunt for a Facebook data center but lost its bid to Altoona, Iowa, about a decade ago.

A crypto data center promised jobs, but not in a way that would burden housing or take workers away from employers already in the city, said Stan Clouse, mayor for 20 years.

Clouse is also an NPPD account manager. He used the first meeting with Compute North to ask about their energy needs. What the mayor heard excited him, he said.

NPPD had enough electrical capacity to handle the data center, and would not need to generate more power specifically for Compute North. The data center would double the electrical capacity of Kearney’s power grid, making power more stable and keeping prices low. It will also mean an influx of cash.

“Increasing the load increases revenue, which goes into Kearney’s general fund,” Clouse said. “That’s a $1 million profit annually for Kearney. For a society of our size, that is quite important.”

But for some, the Kearney data center, and others soon to run in Grand Island and York, are nothing to celebrate. They are a cause for concern.

“It’s not about job creation and opportunity for Nebraska,” said Scott Scholz, a spokesman for the newly formed advocacy group Nebraskans for Social Good. “It’s about out-of-state companies exploiting our electric system for their own profit.”

Aside from Clouse, who abstained because of his utility role, the Kearney City Council voted unanimously in June 2019 to approve a development agreement with Compute North.

The company received 11 acres of free land, valued at $165,000 and paid for by the Economic Development Council of Buffalo County. The city gave the company a rebate on electricity, capped at $1.1 million. The company set the ceiling in August.

Nebraska Public Power added mobile substations to accommodate the increased load. The utility district is working on a new $12.5 million permanent substation that will exclusively transmit power to the crypto mining site.

In return, Compute North promised jobs, and delivered 11. It helped develop and increase the electrical capacity of Kearney’s technology park. In 2021, it grew to be a 100 megawatt customer.

For comparison: The entire city’s energy needs peak at 100 megawatts. The second largest user in Kearney is the manufacturing company Eaton, with a peak of 10 megawatts, Clouse said.

The data center’s load is huge and consistent — it doesn’t fluctuate throughout the day like the energy use of a home or factory, said Pat Hanrahan, NPPD’s general manager of retail services. And it is flexible. If NPPD needs more electricity from the grid to heat homes during, for example, a cold winter, the data center can easily stop.

But the huge amount of electricity use raises environmental concerns, Scholz said.

One year of global cryptocurrency mining uses more electricity than the country of Argentina, according to an estimate in a White House report on crypto and climate change — as much as nearly 1% of the world’s annual electricity consumption.

In New York, lawmakers recently passed a two-year ban on fossil fuel-powered crypto mining projects. In Montana, a coal-fired power plant was slated to shut down, and environmentalists cheered—until a crypto data center opened nearby.

In Nebraska, NPPD already had the energy capacity to power the Kearney data center, Hanrahan said. The public utility did not need to build new power generation to supply it.

About 62% of NPPD’s energy production is carbon-free, a number that remained stable before and after Compute North came to Kearney, said NPPD spokesperson Grant Otten.

Still, a data center’s constant energy use is likely to draw from all available energy sources, said Bruce Dvorak, a professor of civil engineering at the University of Nebraska-Lincoln.

“It comes from a mix of greener sources, like wind, as well as not-so-green sources, like coal and natural gas,” Dvorak said.

Over the past five years, NPPD’s economic development arm has received calls from about 25 different crypto companies interested in Nebraska, Sedlacek said. The talks increased when China banned crypto in 2021.

Some cities, like Kearney, were open to the idea, Sedlacek said. Others have been more wait-and-see. They welcomed economic development.

“But we don’t want crypto,” they told her.

The crypto market is young, widely unknown to the general public and wildly speculative and unstable. In November 2021, the price of bitcoin reached a peak of $68,764. Since then, it has crashed 75%, plunging to $16,625 in January.

In November, the crypto exchange company FTX filed for bankruptcy, shaking the already full industry. FTX founder Sam Bankman-Fried was subsequently arrested for several counts of fraud, sparking more distrust among crypto-skeptics.

“We’re definitely at a low point in the industry right now,” said Hurwitz, the law professor. “It is possible that we can get lower. Anyone entering this market right now needs to be better capitalized, and capitalized in a less risky way than they probably were a year ago.”

Compute North, the company that opened Kearney’s data center, filed for bankruptcy late last year, citing rising energy costs and profits that couldn’t keep up as bitcoin’s value plummeted. The bankruptcy did not interrupt local operations. Today, the cluster of computers between a cornfield and a solar field continues to verify transactions and mine new cryptocurrency.

“Because they can move in so quickly, they can move out pretty quickly as well,” said Sedlacek, NPPD’s economic development manager. “We spent a lot of time as a tool to really talk through that. How can we protect our taxpayers so we don’t get stranded with assets and unpaid bills?”

She thought the talks would slow down last year, when digital currencies cratered. But the companies kept calling.

A handful of other projects are now in the works in Nebraska.

The York City Council decided in April to sell land to BginUSA, an Omaha company that wants to build an $8 million mining complex. In Minden, an expansion Compute North is planned is in the process of being transferred to New York-based Foundry Digital.

In November, a group of residents opposed to a proposed crypto data center near Doniphan crowded a public hearing by Hall County Commissioners.

“This is not a walk-in farm facility,” resident Justin Gregg said during public comment, according to NTV News. “We grew up around a cornfield. All around us are cornfields, and it should stay that way.”

The interested company withdrew its request for a conditional use permit before the commissioners voted.

This week, Hall County approved a conditional use permit for another crypto project near Grand Island.

Questions linger over the cryptocurrency’s future, including possible regulation and market prices. Last year, the Biden administration released recommendations on future US regulation.

Nebraska cities and utility districts now hopefully fully understand the risks they may face with crypto companies, Hurwitz said.

“Companies, municipalities, investors, bankers, lenders — anyone who was willing to finance things — is going to do so with a lot more awareness of the risks,” he said. “I wouldn’t be willing to take anything on credit.”

With crypto’s future uncertain, Sedlacek asks companies calling NPPD: How do you see this looking in the future? And what happens if crypto disappears?

Many have told her that they may eventually turn their mass computing power to other industries, perhaps banking, finance or healthcare.

“They’re really saying that cryptocurrency is really their first step into this high data space,” Sedlacek said.

The Seacrest Greater Nebraska reporter covers issues across the state of Nebraska. It is named in honor of philanthropist Rhonda Seacrest and her late husband James, who proudly led several Nebraska newspapers through Western Publishing for 40 years.