Apr 06, 2018 — A few months ago, people were talking about the North Country becoming the Silicon Valley of something called bitcoin mining. Big companies wanted to build warehouses full of computers and promise hundreds of jobs.
What drew them to the North Country was cheap electricity to run all those supercomputers. And that’s what put the brakes on the bitcoin mining boom before it even started.
Local officials worry all that electricity use could spike rates for North Country homes. Plattsburgh passed a moratorium. So did the New York Power Authority, the state entity that manages all that below-market power. Because of that decision, one bitcoin mining company, Blockchain Industries already dropped plans for a $500 million investment in Massena.
But could bitcoin mining leverage the region’s cheap electricity to create lots of jobs and local investment? We went to a functioning bitcoin mining operation in Massena to find out.
A big vision for bitcoin mining’s future in the North Country
In the physical world, Digital Skynet Ltd.’s cryptocurrency mining operation is just five stacks of computers in what was an abandoned factory floor in Massena’s industrial park. That and lots and lots of fans to keep the computers cool.
“And as you can hear, they make a lot of noise,” shouts Tina Barksdale above the din of those fans. The computers are the miners, unlocking bitcoin or other cryptocurrencies through a complex mathematical formula, competing with thousands, perhaps millions, of others around the world.
Digital Skynet is a firm based in Hong Kong. But Tina Barksdale and her six siblings involved in the business are local North Country people, from Richville in St. Lawrence County. She went to Herman-Dekalb high school. Her family owns a local construction company.
But they got into bitcoin mining, and it’s working. Barksdale says the operation is profitable and employing almost 20 people. “These machines, they run twenty-four hours [a day],” Barksdale says. “That’s why we are able to offer as many jobs as we do, because we need a day shift and a night shift.” All of the employees are local residents; at least one was unemployed before being hired.
Digital Skynet currently uses a quarter megawatt of electricity, or enough to power about 150 homes. Massena’s electric company says that hasn’t hurt the grid or rates yet.
But Barkdale imagines something much bigger – far more bitcoin mining computers, with the heat from those machines warming greenhouses situated above the stacks of machines, “creating other jobs in the area. And it would not just be techies that we’re employing. It would then be gardners, people training people how to grow. Sales people. Fix-it people. Distributors moving local produce to restaurants and schools. Hundreds of jobs.
But of course, it all depends on the power, on state and local officials betting Digital Skynet and these other bitcoin miners will create jobs with the North Country’s allocation of cheap electricity.
An emerging technology that’s a perfect fit for Massena?
Massena town supervisor Steven O’Shaughnessy is willing to make that bet, especially since General Motors and Alcoa have laid off hundreds of people over the years. “They need lots of power, and they need to be able to count on it,” says O’Shaughnessy. “And we can provide that.”
O’Shaughnessy says Massena has all the ingredients to build the economy around this new industry: affordable land, “and we have plenty of it. We have employable trainable people here that had worked at some of the smelters and at GM’s foundry. And we have the capacity to bring the power in, so it’s perfect.”
O’Shaughnessy says he’s relying on the New York Power Authority to do the due diligence on whether this industry could actually create lots of jobs. According to the New York Times, the largest bitcoin miner, in China, only employs about 50 people. NYPA recently put a moratorium on power allocations while it studies up on bitcoin mining.
“Where’s bitcoin going to go over time?” asks State Senator Joseph Griffo, who represents Massena and many other towns where bitcoin mining firms have gone prospecting. He also chairs the Senate Energy Committee. He considers himself a healthy skeptic of whether bitcoin mining can actually help the North Country’s economy long-term.
The dollar value of Bitcoin and other digital currencies fluctuate wildly. Griffo says it’s great any businesses are coming to call on Massena, “so I wouldn’t sit on it. But I also think you have to have good judgement and act wisely.”
Forecasting a future with “existential risks”
If you talk to cryptocurrency experts, the people who know and are excited about this industry, even they say bitcoin mining comes with a bunch of what Lex Sokolin of Autonomous Research calls “existential risks”.
Based in London, Sokolin calls himself a futurist who studies how cutting edge stuff like virtual reality, blockchain and cryptocurrencies will affect the financial world. “All the weird stuff falls to me, which is a lot of fun,” he says.
He says lots of companies in China, Russia, Iceland, South Korea, and more are rushing into the mining game. There’s increasing competition. “You can be pushed out of your position pretty quickly.” And cryptcurrencies have proven to be highly volatile and speculative so far. “What are these guys going to do if bitcoin goes down 50%?” says Sokolin.
And then there’s the issue of the massive amounts of electricity needed to power the whole bitcoin system. Alex de Vries, author of an influential blog called the Digiconomist, has written a lot about how bitcoin’s complex transactional process gobbles up as much energy as many countries. He argues for a more sustainable cryptocurrency.
Another factor localities considering whether to offer tax breaks or low-cost power to bitcoin miners need to take into account, de Vries says, is that fewer and fewer bitcoins will be mined over the years. There are a finite number. “Even though mining is profitable now, the profitability quickly decreases. So if you’re taxing these companies, there won’t be much left in due course.”
Sokolin believes a more efficient system will evolve. “It just seems preposterous to me because the amount of electricity that’s being used in it is growing and growing and growing,” Sokolin says, “and there’s just going to be a natural limit where the community will try to find a different way to do this.”
A local bitcoin mining company that wants to think big
But Tina Barksdale of Digital Skynet in Massena says it’s short-sighted to just think of the mining itself.
She envisions the greenhouses, but also other computing facilities, call centers, firms specializing in a related technology called blockchain, a complete technological and economic ecosystem that could transform Massena, “from being just Massena, New York, to being a cryptocurrency Silicon Valley, to be a place where people in cryptocurrency come.”
And not just for the cheap electricity.