Last fall, as soaring cryptocurrency prices touched off another round of investor mania, one of the largest crypto miners in Washington state was already seeing the exits.
Malachi Salcido, a Wenatchee miner since 2013, knew crypto prices — bitcoin was close to $68,000 — were about to do what they had done several times before: tank. But instead of just riding out another “crypto winter,” Salcido stepped up plans to shift more of the business from mining to conventional computing for other clients, a less volatile business that he increasingly expects “will be a majority of that we are doing in the future.”
There’s a similar “been there, done that” sentiment these days across much of the Columbia Basin, once ground zero for the US crypto boom.
Although there is still a lot of mining going on in Chelan, Douglas and Grant counties, thanks to the abundant hydropower that miners prize for their energy-intensive processors, the basin’s crypto industry is a shadow of its former Wild West self.
Many of the miners who flocked to the pool over the past decade have either gone out of business or moved to other states, such as Texas.
And while the three public service districts still get calls from would-be miners looking for the juice to perform the complicated calculations that underlie cryptocurrencies, there’s nothing like the heyday of c. 2014 to 2017. Back then, investors were looking from as far away as China. about two-thirds of the basin’s total hydropower production. Today, cryptomining accounts for perhaps 4% of the combined production of the basin’s five hydroelectric dams.
“It’s been pretty quiet,” said John Stoll, executive director of customer services for the Chelan County PUD, which at one point had power requests for more than 200 megawatts of power, or more than the county’s existing residents and businesses were using. PUD’s current mine load is 8 megawatts, or around 3.5% of local load.
“We get calls, but we haven’t had any active applications in years,” says Stoll. (One megawatt is enough to power about 650 homes.)
Part of the new silence is forced. To shield local power grids from crypto’s dynamic and short-term investment horizons, the companies adopted new rates and other guidelines for their hydropower, which typically costs about 2.5 cents to 5 cents per kilowatt-hour, compared to about 15 cents for the U.S. average.
Chelan County, for example, charges miners about three times what it charges residents for electricity. Douglas County caps its total crypto mining load at 39 megawatts (it’s currently just under 33 megawatts) and increases cryptominer prices by 10% every six months. In Grant County, prices for customers in the “development of the industry,” as crypto miners are known, are increased a few cents if the miners’ total current and requested power needs exceed 5% of total demand in the county, as it has since March.
Even a small rate increase means a lot to crypto, given what mining entails. For example, in bitcoin, still the largest cryptocurrency by market capitalization, miners use their computers to do two things. First, they act as a kind of decentralized Venmo and process all the bitcoin transactions currently in the bitcoin network. They then compete to earn a reward – one bitcoin – by being the first to solve a very complicated mathematical calculation that is programmed to become more difficult as miners bring more computing power into the network.
These days, commercial-scale miners do trillions of high-speed calculations on tens of thousands of computers that, despite improvements in efficiency, use a lot of juice. Next to the cost of computers and buildings, a miner’s “single biggest expense over time will be electricity,” says Lauren Miehe, the Basin crypto-sector veteran who pulled the plug on his own mining operation last fall. Even interest rate increases of a few cents “are huge,” he says.
For example, when miners triggered the higher rate in Grant County in 2020, most of the county’s mining capacity was shut down, said Louis Szablya, Grant County PUD’s senior manager of large power solutions. He expects a similar effect if the supply commissioners adopt an expected tariff adjustment later this year.
Higher power rates aren’t the only thing dampening miners’ devotion to the pool. Opening a new commercial mine today requires enormous capital – $50 million and up, says Salcido. That kind of money makes many investors wary of any regulatory, bureaucratic or local political obstacles that could delay when they can turn on their mines and start earning back that capital.
“New entrants are realizing that they need to get massive capacity up and operational as quickly as possible,” says Salcido.
But public utility districts are heavily regulated and can be very deliberative when considering new requests for power, Salcido says. Local construction and electrical permitting can also be slow. That’s one reason many crypto startups are now heading to places like Texas, which have lower regulatory hurdles and plenty of private tools, Salcido says.
More broadly, in parts of the basin, crypto mining appears to have worn out a welcome that was always tenuous.
In the industry’s early days, critics complained that some crypto miners were fly-by-night. The industry’s massive electricity consumption also raised fears that residents could lose their historically cheap power, while “a relatively few [miners] became extremely rich, extremely quickly, says Miehe. The local crypto politics became “really toxic,” he says.
Boosters promised to address these concerns with better regulation. They also argued that crypto could transform the basin into a 21st century technology hub. In Douglas County, port officials proposed a “blockchain innovation campus,” focused on finding new uses for blockchain, the decentralized accounting and processing technology that underpins most cryptocurrencies.
That vision has not quite materialized. The innovation campus went nowhere, and while crypto’s fly-by-night operators were largely swept away by regulation and market fluctuations, so was the higher perception of the crypto industry, which increasingly operates like any other business.
“We don’t see as much interest in innovation [from] blockchain that we’re in right now mining cryptocurrency,” said Ron Cridlebaugh, director of economic and business development for the Chelan Douglas Regional Port Authority, which manages port leases.
The notion of “blockchain innovation” as the foundation of a fundamentally new sector “has simply fallen by the wayside.”
Douglas County continues to see a tech boom; it’s just a more conventional one: Microsoft is building a massive data center, one of many that tech companies have placed in the pool to score cheap electricity.
Another potential sign of the times: A bankrupt crypto-mining venture being repurposed as a business “incubator” is getting interest from “more of your usual industries,” such as a bakery and a coffee wholesaler, Crdlebaugh says.
Veterans like Salcido and Miehe don’t expect crypto to disappear from the pool. When crypto prices rise again, which Salcido expects could be as soon as 2024, if past cycles are any guide, investors may once again focus on the pool.
But in the meantime, Miehe says, miners can “look for ways to transfer that infrastructure” to businesses, such as computing, that are less vulnerable to changes in rates, market volatility or local politics.
Salcido agrees. While he plans to do some mining in the long term, he’s also fine with having a larger share of his business in an industry that, while it may lack crypto’s highs, doesn’t have its lows either. “No boom,” Salcido says. “But no bust either.”
