The Miners Next Door How Cryptocurrency Production Affects Communities and the Environment By Dr. Colin Read, Professor of Economics and Finance,SUNY Plattsburgh
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onald Rumsfeld once famously stated that “There are known knowns. We also know there are known unknowns — that is to say, we know there are some things we do not know. But there are also unknown unknowns—the ones we don't know we don't know. And if one looks throughout (history) ..., it is the latter category that tends to be the difficult ones.” There are a number of potential industries that will significantly change the way we do things. Sustainable energy, electric cars, artificial intelligence and others come to mind. But there is no sector in history that has gone from nothing to trillions of dollars of activity in such a short time as we now see in cryptocurrency. The problem is that while innovation occurs at the speed of light, humans adapt much slower. And the regulatory bodies, the planning boards and councils, and our legislatures are simply unable to address issues that arise until sometime after the problems become apparent. Often that is too late. Cryptocurrency mining was thriving in China for almost a decade, partly because they manufacture most of the machines that mine Bitcoin and other coins, and partly because the Chinese government offered very low electricity prices as a tool for economic development. But, with the bulk of China’s electricity generated from coal, and with their concern for pollution and carbon dioxide emissions, China has since decided that this industry does very little for job creation and does a lot for environmental degradation. They recently kicked the miners out. The industry in the U.S. saw that coming and have been scrambling to create locations here to house the containers filled with mining machines that are being shipped en masse from China to the U.S. Any community with affordable electricity, relatively weak fire code, health and safety, noise code, and heat dissipation rules, and desperate enough for even a handful of jobs is now on the cryptocurrency miners’ map. Those communities in New York State with the very lowest industrial electricity rates anywhere, approaching 1.9 cents
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per kilowatt-hour in Plattsburgh, for instance, were the canaries in the coal mine. Before local officials realized that data processing really meant mining, one of the world’s largest bitcoin operations had already taken root. A new mayor, a six-month moratorium on new mining, followed by a set of building and zoning codes, and a successful petition of the NYS PSC to ensure the costs of purchasing additional power in the spot market must be covered by the operators rather than the entire rate base, was a sufficient response for miners to move on. The problems arising from these plants: noise from heatdissipating fans, high room temperatures, danger to firefighters from ultra-concentrated fires, ratepayers sharing the cost of sufficient expensive electricity to power these plants, could not have been imagined. There is no industry that takes in so much power—an average of 20% of all power consumed in Plattsburgh—all in one former shop in a strip mall, and releases that enormous concentration of power in the form of heat, and a few electrons over the Internet. These problems will correct themselves over time. Some jurisdictions are proactive and are considering the steps Plattsburgh took to protect its ratepayers and the local economy. And, the growing trend of cryptocurrency mining to move from a model called Proof of Work, which requires hundreds of thousands or millions of individual machines to compete against each other, toward Proof of Stake, which does all the mining by a handful of highly trusted and protected machines. Once this transition is complete, there will be no need for large scale mining and the diversion of 3% of the world’s electricity to cryptocurrency. Those jurisdictions that realize promised jobs are mostly in the construction and build-out phase, with few jobs necessary to monitor the mines as they whirl away, will develop their codes to protect their communities in the long run. The protections are not just in the nuisances described earlier, but also in the potential damage to tourism and other activities, or the decommissioning of plants converted by LLCs that quickly disappear once Proof of Stake takes root. Cryptocurrency is here to stay. It’s up to us to decide whether there will remain lasting legacies in our communities.
