Last fall, as soaring cryptocurrency prices touched off yet another round of investor mania, one of the biggest crypto miners in Washington state was already watching the exits.
Malachi Salcido, a Wenatchee miner since 2013, knew that crypto prices — bitcoin was near $68,000 — were about to do what they’d done several times before: tank. But rather than just ride out another “crypto winter,” Salcido stepped up plans to shift more of his business from mining to conventional data processing for other customers, a less volatile business that he increasingly expects “will be a majority of what we’re doing in the future.”
There’s a similar “been there, done that” vibe these days across much of the Columbia Basin, once ground zero for the U.S. crypto boom.
Though a lot of mining still happens 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 Basin during the last decade have either gone out of business or moved to other states, like Texas.
And while the three public utility districts still get inquiries from would-be miners looking for juice to run the complicated calculations that underlie cryptocurrencies, it’s nothing like the heyday from about 2014 to 2017. Back then, investors from as far away as China were eyeing about two-thirds of the Basin’s total hydropower output. Today, crypto mining accounts for maybe 4% of the combined output of the Basin’s five hydroelectric dams.
“It’s been fairly quiet,” says John Stoll, managing director for customer utilities at 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. The PUD’s current mining load is 8 megawatts, or around 3.5% of local load.
“We do get calls, but we haven’t had any active applications for several years,” Stoll says. (A megawatt is enough to run around 650 homes.)
Part of that new quietude is forced. To shield local power grids from crypto’s boom-bust dynamic and short-term investment horizons, the utilities adopted new rates and other policies for their hydropower, which typically goes for around 2.5 cents to 5 cents per kilowatt hour, compared to around 15 cents for U.S. average.
Chelan County, for example, charges miners roughly triple 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 steps up rates for crypto miners 10% every six months. In Grant County, rates for “evolving industry” customers, as crypto miners are known, get bumped a few cents up if miners’ total current and requested power demand exceeds 5% of total county demand, which it has since March.
Even a small rate increase matters a lot to crypto, given what mining involves. For example, in bitcoin, still the biggest cryptocurrency by market value, miners use their banks of 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. Next, they compete to earn a reward — a bitcoin — by being the first to solve a very complicated mathematical computation that is programmed to get harder 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 “biggest single expense over time is going to be power,” says Lauren Miehe, aveteran of the Basin crypto sector who pulled the plug on his own mining operations last fall. Even 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 shut down, says Louis Szablya, Grant County PUD’s senior manager of large power solutions. He expects a similar effect if the utility commissioners approve an expected rate adjustment later this year.
Higher power rates aren’t the only thing dampening miners’ affections for the Basin. Opening a new commercial mine today takes huge capital — $50 million and up, says Salcido. That kind of money makes many investors wary of any regulatory, bureaucratic or local political hurdles that might delay when they can switch on their mines and start earning back that capital.
“New entrants recognize they’ve got to get massive capacity up and operational as fast as possible,” says Salcido.
But public utility districts are highly regulated and can be highly deliberative when considering new requests for power, Salcido says. Local building and electrical permitting can also be slow. That’s one reason many crypto startups now head to places like Texas, which has lower regulatory hurdles and lots of private utilities, Salcido says.
More broadly, in parts of the Basin, crypto mining seems to have worn out a welcome that was always tenuous.
In the industry’s early days, critics complained about the fly-by-night nature of some crypto miners. The industry’s massive power consumption also raised fears that residents could lose their historically cheap power, while “a relatively few [miners] were getting extremely rich, extremely fast,” says Miehe. The local politics of crypto became “really toxic,” he says.
Boosters promised to address those 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 the blockchain, the decentralized accounting and processing technology that underlies most cryptocurrencies.
That vision hasn’t quite come to be. The innovation campus went nowhere, and while crypto’s fly-by-night operators were largely swept away by regulation and market swings, so too was that loftier conception of the crypto industry, which more and more operates like any other business.
“We’re not seeing as much interest in innovation [from] blockchain as we are in just straight out mining cryptocurrency right now,” says Ron Cridlebaugh, director of economic and business development for the Chelan Douglas Regional Port Authority, which administers port leases.
The notion of “blockchain innovation” as the basis of a fundamentally new sector “has just kind of fallen by the wayside.”
Douglas County is still seeing a technology boom; it’s just a more conventional one: Microsoft is building a massive data center, one of many that tech companies have located in the Basin to score on cheap power.
Another potential sign of the times: A bankrupt crypto mining venture that is being repurposed as a business “incubator” is getting interest from “more of your mainstream industries,” such as a bakery and a coffee wholesaler, Cridlebaugh says.
Veterans like Salcido and Miehe don’t expect crypto to disappear from the Basin. When crypto prices surge again, which Salcido expects could be as soon as 2024, if past cycles are any guide, investors may again focus on the Basin.
But in the meantime, says Miehe, miners may be “looking for ways to transition that infrastructure” into businesses, such as data processing, that are less vulnerable to rate changes, market volatility or local politics.
Salcido agrees. While he plans to do some mining 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, also doesn’t have its lows. “No boom,” says Salcido. “But no bust, either.”