While there is a lot being written and talked about, around the world, in regard to bitcoin or other cryptocurrency, it is also making headlines in Montana. This transforming new technology could be forging a new direction for Montana’s economy.
Already three companies have invested or are planning to invest substantial capital, building data centers, according to a recent article in the Montana Business Quarterly.
“There’s a huge potential for locations and jurisdictions around the world that are favorable to the bitcoin industry – most notably right here in Montana,” states the article written by Brandon Bridge, an economist and director of forecasting at the Bureau of Business and Economic Research at the University of Montana.
One observer has called the trend “a gold rush.”
Drawing these companies to the state are relatively low energy rates, a cold climate and lots of unused warehouse space – and some modest efforts by the state of Montana to entice them.
Bitcoin is a decentralized currency created and exchanged outside of banks and governments. There are other brands of cryptocurrency, such as zcash, Litecoin, PPcoin, Namecoin. The data centers will probably offer “mining” services to more than just one currency.
Bridge described “mining”: “When a Bitcoin transaction is made, the details of the transaction are broadcast over the entire Bitcoin network. The computers in the network then work to verify that the transaction is valid and if it is, the details of the transaction are recorded in a distributed ledger...This distributed ledge is called the ‘blockchain.’ . . .The computers that bundle verify and add transactions to the blockchain are referred to as ‘miners.’”
The first miner to accomplish the process is compensated in whatever e-currency the miner is serving.
Industry publications asking ‘why is bitcoin moving to Montana,’ cite the same reasons such as cheap electricity, cool weather, and lots of empty warehouse space abandoned by other businesses – such as lumber mills – that have had to close. Their facilities already have in place the infrastructure needed to supply large amounts of power.
But there is another reason. Free money. A year ago, Montana Governor Steve Bullock granted one firm $416,000, through Missoula County, to operate its business, along the banks of the Blackfoot River at Bonner.
And, the last Montana state legislature acted to lower property taxes for large data centers in an effort to attract them to the state.
The recipient company, Project Spokane, is touted as the first of its kind in Montana, and Montana is the first state to use public money to recruit bitcoin business. State officials were apparently inspired to do so as they observed bitcoin servers locating in Washington and Oregon. They have also been locating in Canada.
Project Spokane was founded in 2016 by cryptocurrency investor and entrepreneur Sean Walsh, under the umbrella of parent company, Hyperblock Technologies. Project Spokane is a 20-megawatt crypto mining facility, which launched business with 12,000 servers. Walsh said his company model is to use half their computing power to mine and sell the other half to other miners. He expects his data center to eventually have 55,000 servers.
Earlier this year, the Montana Standard reported that CryptoWatt LLC began business in Butte, investing $62 million, activating 2,000 computer servers at the former Mike Mansfield Advanced Technology Center. A company spokesman, Matt Vincent, said this is the first phase of the project, with expectations to launch a larger-capacity operation in April or May. The company will eventually serve between 10 and 15 other digital currencies.
Another company has announced plans to locate in Butte. Power Block Coin, LLC said it is going to invest $251 million in cryptocurrency mining.
A local new business start in the Flathead Valley, called CMH, LLC, launched by Jeff Russell, has expanded what started as his hobby into providing a service to cryptocurrency mining businesses, leasing space, infrastructure and power. He has already leased all available space.
Power is consumed at a high rate by miners as they “solve complex math equations to validate digital currency transactions.” Running high-powered computers at high processing speeds consumes great amounts of power, as do the fans that are constantly running to cool them (hence the desire for areas with cooler climates requiring less energy to cool computers.)
While dependent on equipment and software used, a year ago it was estimated that one bitcoin consumes 3000 times the amount of energy as a credit card transaction, spawning cries of concern that the business is consuming far too much energy. It was estimated at the time that there are seven transactions every second and each transaction consumes a minimum of 26 kilowatts, which is about the amount energy that one household consumes in a 24 hour period.
The amount of energy that one data center can consume in one year is comparable to what some small countries – such as Ireland or the Czech Republic – uses.
One analysis estimated that the average weekly number of Bitcoin transactions (as of a year ago) – 302,150 — consumes the same amount of energy as that providing for the daily needs of around 268,990 average American citizen homes. At the same time, others are claiming that the amount of energy being used for mining double every six months.
Montana’s “cheap” electricity is credited to the low cost of hydropower. The state has a network of dams that generate low cost, clean energy. More recent reports say that the enormous demand the data centers are placing for power in all northwestern states, is triggering the age-old law of “supply and demand”, and the power companies are increasing their electricity rates, as they vamp up to meet the demand.
Earlier this year, Flathead Electric Cooperative imposed a six-month moratorium on cryptocurrency mining, as it wrestles with the unexpected high demand for power. They have received requests for service from less than one megawatt up to 30 megawatts.
Generating uncertainty about the future of this new economic trend in the state is the entire underlying controversy about the viability of the whole concept of cryptocurrency. “Bitcoin is still not sustainable,” proclaims Internet Security News.
The uncertainty about the future of cryptocurrency places the entire industry – growing as fast as it is – in a high risk category when it comes to making investments. Its history has been one of great volatility to say the least. Bridge points out that media became most interested in the phenomenon last year when it’s price shot up from $750 in January 2017 to nearly $20,000 in December. “…no one seems to agree on what it is, if it is interesting and whether or not it is just a passing fad,” said Bridges.
In his article Bridges points out that famed economist Milton Friedman predicted, in 1999, the invention of e-cash, upon observing the rising importance of the internet.
“…some proponents have claimed that the Bitcoin network is a transformative new technology and its current adoption status is comparable to that of the internet in the mid-1990s. If true, then there’s a huge potential for locations and jurisdictions around the world that are favorable to the Bitcoin industry – most notably right here in Montana.”