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The bubble dynamics of bitcoin
Plattsburgh, New York, doesn't look like ground zero for a gold rush. But cryptocurrency prospectors have installed thousands of energy-gobbling mining machines while taking advantage of dirt-cheap electric rates. And the invasion has some locals up in arms, while offering opportunity for others. Economics correspondent Paul Solman reports on the impacts of bitcoin mining.
You have probably heard about the rise and fall of Bitcoin and other cryptocurrencies. But what you may not have about is the incredible amount of energy computers need to get Bitcoin and other currencies in the first place.
That demand, in turn, is affecting the prices of electricity in some places.
And that's where our economics correspondent, Paul Solman, comes in to help explain these connections.
It's part of our weekly series Making Sense.
Bucolic Plattsburgh, New York, 20 miles from the Canadian border. It sure doesn't look like ground zero for a gold rush.
But in this mall alone, cryptocurrency prospectors have installed thousands of mining machines, small computers that gobble energy just to find new cryptocoins in a vacated space behind the Family Dollar store.
And it's all because Plattsburgh has bargain basement electric rates. The invasion has the locals up in arms.
These guys that are mining the Bitcoins are riding into town, taking advantage of the situation.
And the situation, it turns out, Plattsburgh is the Klondike of New York. That's because the cost of mining is all in the cost of energy.
And as Mayor Colin Read says-
We have some of the lowest energy costs in the world.
That's because this is hydroelectric land, where dams powered mills like this one last century. And, these days, electric rates in Plattsburgh are barely a third of the national average, courtesy of a long-term deal for cheap electricity from Niagara Falls.
But there's a catch. Plattsburgh has a monthly megawatt limit. Exceed it, and they have to pay much higher rates on the open market.
If we go over the quota, we can all of a sudden see a huge spike in our electric rates in the winter. It very rarely happened, but it's happening on a regular basis since the Bitcoin operators came to town.
How much higher?
Thirty percent, 40 percent higher.
And that proved a real budget-buster for the residents of chilly Plattsburgh.
They're used to paying, you know, $100 a month in the middle of winter to take care of all their electricity and heating needs, to the point where most people in our city, the vast majority, heat with electricity, because it's very inexpensive.
And then there are local companies who have relied on cheap energy.
Our electric bills changed overnight.
Here at the company, you mean?
Yes, 20 to 30 percent increase in the electric bill.
Tom Recny of Mold-Rite Plastics, where 500 workers churn out 11 million products every day.
Caps, closures, jars, and more recently child-resistant caps for the cannabis market.
But margins are thin. They were even thinner once Mold-Rite's electric bill jumped by $22,000 in March. Plattsburgh was driven over its monthly quota, says Recny, because miners were gobbling energy.
More than twice what we consume. The impact that they're having is extraordinary, for sure.
A simple video explains what they use the power for.
Miners use special software to solve math problems and are issued a certain number of Bitcoins in exchange.
The software runs on super fast, super-power-hungry computers, explains MIT's Neha Narula.
They're trying lots of different random numbers to see which one is a solution to the puzzle. And the first computer that figures out the right random number that's a solution to the puzzle publishes its answer, and gets Bitcoin in return for the answer.
The mayor has a few right in his office.
They're just cranking away doing tens of millions, hundreds of millions of calculations a second, and then hooked to all kinds of other machines around the world, and they're all sharing in the profits, in trying to find the next cryptocurrency solution.
To find the solution, and then add it to the so-called blockchain, a running record of all transactions. That takes more power.
This machine of Read's is just a stack of graphics cards, like those used for gaming. It's mining for other cryptocurrencies.
And this machine?
This here is an actual state-of-the-art Bitcoin machine.
The energy use of all these machines is immense.
This miner here will use as much power as my house does a month.
Nineteen-year-old Plattsburgh native Ryan Brienza deferred college to run Zafra out of the defunct Imperial Wallpaper Mill.
He hosts 200 machines from clients all over the country.
It's going to cost you more to plug it in, in New York City, California, or Boston than to host with us.
Just to plug it in?
Yes. What you're paying for power there is more expensive than what our hosting rate is.
Moreover, Brienza's clients don't have to cope with the machine noise and the heat. That's about as long as I can hold my hand there. And then it starts to burn.
Sometimes, when I wash my hands, I use that to dry them off. So…
Brienza's operation is a drain on Plattsburgh's cheap energy. But it's dwarfed by Coinmint, a Puerto Rico-based operation, which first set up shop around the corner from Brienza, and then in this strip mall. No signs. Just open doors and immense fans to vent the heat.
Thousands of machines inside suck up about 10 percent of the whole city's electricity. Worldwide, the energy footprint of Bitcoin alone is expected to double by year's end, devouring an incredible half-a-percent or more of the world's electricity, as much as all of Austria.
The potential impact on global warming is obviously profound. But the allure to miners of cheap energy outposts like Iceland, Washington state, and small, unassuming Plattsburgh is understandable.
The cheaper the power is, the more profitable that you can be.
How much is any given miner making at the moment?
On average, I think mine are yielding like $150 a month per miner.
Per mining machine, that is.
And, argues David Bowman, Plattsburgh gets something out of this too.
There's not a lot of opportunities here. They have a really hard time retaining young people.
Bitcoin mining is a reason to stay.
To get some investment in here in the tech sector, hopefully retain young people that are interested in this whole — because, really, it's a young people's game.
But Mayor Read, who is also an economist, says the benefits to Plattsburgh are indiscernible.
Our city gets really nothing out of it. The industry typically leases space, so we're not receiving any property taxes from them. And they employ very, very few people.
So, is Plattsburgh-bred miner Ryan Brienza feeling the heat?
Does anybody give you a hard time about this?
I do know some, like, old teachers and stuff who complain that I made their electric bill go up. But…
But it wasn't just his teachers.
We shouldn't be burdened with this on our backs.
In March, residents stormed a city council meeting to complain. Soon after, the council voted to ban all new mining operations for 18 months.
We have got a substantial investment in this stuff.
Electrical engineer Greg Brienza is Ryan's father and business partner. The moratorium mothballed the new switchgears he'd helped install at the old mill to host more mining machines.
How much do these things cost a piece?
Several hundred thousand dollars.
Who's investment? Yours, or…
So, he must not be very happy with the moratorium.
Well, like, I'm not either.
They're not giving up that easily, though.
We have just been looking for other places that we can put an operation in, and we have been pursuing that. So…
Places that don't have a moratorium.
We know a bunch of locations that there's cheap power at.
While hoping the ban here will be lifted, the Brienzas have come up with a seductive alternative: Recycle the heat from the computers.
So this is that solution I was talking about for the city.
The Brienzas have concocted a box to house 108 machines, on building rooftops, say, to vent and recycle the heat free of charge.
A greenhouse, a pool, a spa, a community center, something along those lines.
Mayor Read, the economist, finds the idea downright intriguing.
Imagine a hothouse tomato indoor growing facility that's heated by abundant excess heat from a Bitcoin operation.
So, Plattsburgh, New York, could become the model for efficient Bitcoin mining?
Exactly. That's my goal, to figure out a way to turn this liability into a huge asset for us and communities all around the world.
For the "PBS NewsHour," this is economics correspondent Paul Solman in Plattsburgh, New York.
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Paul Solman has been a business, economics and occasional art correspondent for the PBS NewsHour since 1985.
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