The price of bitcoin has cooled significantly since late last year, causing some fair-weather fans of the cryptocurrency to lose interest. But just because mining the cryptocurrency isn’t as profitable as it once was doesn’t mean that companies have stopped searching for the perfect location for massive mining farms. As we’ve pointed out in the past, places with cheap (preferably hydroelectric) energy and cheap land are considered the best candidates. For years, Chinese miners dominated the industry, but as the PBOC began its crackdown on burgeoning crypto traders and miners, investors began looking further afield. Many settled in the Scandinavian countries, while the Pacific Northwest and remote parts of Canada – Winnipeg City was briefly crowned the mining capital of North America.
While the sudden spike in property values coupled with seductive promises of untold riches and a crypto-fueled economic boom at first helped ingratiate many of these mining firms with the locals, in many cases, tensions soon emerged. But in one case recently documented by Bloomberg, the influx of crypto miners proved to be the godsend that one languishing community the hinterlands of British Columbia had been desperately seeking for decades.
The community is called Ocean Falls, and after the local paper mill closed four decades ago, it has endured an exodus that has seen its population sink from 5,000 residents in the 1970s to fewer than 100 in 2018. But as most of the town’s buildings crumbled due to neglect, one asset remained that would soon prove immensely valuable to bitcoin entrepreneurs: The dam that powered the old paper mill.
Here’s more from Bloomberg:
The security provided by the mill turned out to be fleeting. It went silent when Strebel was in his 20s. Most of the buildings in Ocean Falls that haven’t been demolished over the decades are crumbling in place, and Strebel, along with most everyone who once lived there, is long gone. A population that peaked at 5,000 has fallen below 100. But this summer, the mill began to emit a new sound. It was more of a buzz than a throb, really, but plenty loud to be heard as far away as the ferry dock and the old firehouse. It was the noise of hundreds of tiny fans blowing air past hundreds of tiny computers, keeping them cool while they ran 24 hours a day, creating Bitcoins.
The Bitcoin mine has come to Ocean Falls after almost four decades of false starts. The town went dormant once the paper industry left, but it wasn’t dead, exactly. The dam that powered the mill was still capable of producing about 13 megawatts of electricity. Some of that went to power Ocean Falls and two nearby towns, Bella Bella and Shearwater. But even in the middle of winter, their residents used less than one-third of the electricity, leaving plenty to support new industrial uses. The dam wasn’t connected to the grid, a shortcoming that could also be an advantage in the right hands. Any power-hungry business willing to set up nearby would be well-positioned to negotiate a sweetheart deal.
While some of the electricity produced by the dam helped power the town nearby, the dam’s remote location and the fact that it wasn’t hooked up to the local power grid gave any potential suitor some serious leverage: since the dam would be more or less useless for any but the production of electricity for electricity’s sake (and what is crypto mining if not an exercise in energy-cost arbitrage?) traditional industry mostly shied away. But for serious bitcoin miners couldn’t imagine a better situation.
But several years ago, employees at Boralex, the private utility that owns the dam, began getting phone calls from Bitcoin miners, mysterious people untethered from the restraints of businesses producing actual physical goods. Bitcoin and other cryptocurrencies rely on a decentralized network of computers to confirm transactions, rewarding people who do the work with new coins in a process known as mining. In essence, mining was the pure conversion of electricity into money.[…]
The best locations had cool weather, stable governments and ample hydroelectricity, a form of power that lets miners avoid awkward questions about whether computational busywork justifies significant carbon emissions. Bitcoin mining rushes took hold in Scandinavian countries, as well as parts of Canada and the northern U.S.
Boralex’s – the dam’s owner – operations manager for British Columbia, Brent Case, ended up fielding a call from Kevin Day, a Vancouver-based businessman. Soon the two were making plans to build a bitcoin mine inside Ocean Falls’ old paper mill
This wasn’t new to Case, who says there have always been “all kinds of concocted people coming through Ocean Falls.” But he was on the lookout for a savior for the town, so when he heard the seeds of a credible plan, from a Vancouver-based businessman named Kevin Day, he jumped on it. With Case’s help, Day has spent the last 2 1/2 years converting one floor of the old mill into a data center. He flipped on the first batch of servers in July.
Even with the Bitcoin mine now operating, there are more questions than answers. As other places courted by Bitcoin miners have realized, such facilities provide almost no permanent jobs and create little incentive for related businesses to locate nearby. The same would be true of data centers serving any use. But Bitcoin comes with its own set of uncertainties. When Day first contacted Case, a single Bitcoin was worth about $400; by last December it had risen to almost $20,000. If nothing else, Day’s company looked like it might become a solid, long-term customer for Boralex. Then, just as the money was about to start trickling in, Bitcoin crashed.
During the two years since Day tarted building out his bitcoin mine, things haven’t always worked out as he anticipated. Boralax, the utility that controls the Ocean Falls dam, is locked in a battle with another utility over the dam’s excess energy capacity. The problem is, in a way, self-inflicted: The demand from bitcoin miners has boosted demand, and by extension, value. So it makes sense that regulators are trying to cash in.
Day is also unable to access as much power as he had anticipated. Right now, the Bitcoin mine draws less than a megawatt of electricity. Day plans to be up to about 1.5 MW by the end of the year, a far cry from the 6 MW he was expecting. The path to growing his operation to the tens of megawatts is even less certain. Boralex still has significant surplus energy at Ocean Falls, but it is holding back due to a dispute with BC Hydro, the local public utility, over the price it charges to send energy to its residential customers. Case is worried that a potential result of that dispute, which is currently in arbitration, could be a mandate from regulators to charge Day’s group a rate high enough to drive Ocean Falls Blockchain out of town.
And unsurprisingly, this isn’t the first time that regulators have created problems for bitcoin miners.
This wouldn’t be the first time that government entities have soured on partnerships with Bitcoin miners. Regulators in Quebec are working to set higher rates for miners there as it considers how to protect access to power for residential customers. Officials in Washington state have clamped down on Bitcoin miners after they began setting up there in large numbers. The miners’ hunger for power could impact the existing markets, and the air of speculation around cryptocurrencies is a potential political liability, especially given that they provide few jobs or other traditional markers of economic development.[…]
Still, there are places where power utilities have few options for consumers, mostly remote places like Ocean Falls that have lost some other industry in recent years. BC Hydro, the same utility fighting with Boralex over Ocean Falls, has spent the last year quietly identifying sites in the region where Bitcoin miners may be the best buyers for stranded power. It recently helped another cryptocurrency company set up in Houston, a town northeast of Ocean Falls whose mill shut down in 2014.
While bitcoin miners have provoked conflict (sometimes inadvertently) with locals in other mining hotspots, the locals in Ocean Falls appear to have embraced Day with genuine optimism.
Toni Ziganash moved to Ocean Falls years after the mill closed. First, she came just in the summers, before establishing a more permanent foothold this year. She runs LeMarston Lodging, the boarding house in the old bank building. Ziganash pines for a local economy that could at least support a grocery store, so she wouldn’t have to barge in all her food. But she’s doubtful Day will be the catalyst for that transformation. “How many people does it take to keep a bunch of computers running?” she says. “Probably not many.”
For Ziganash, Day’s contribution to Ocean Falls is more intangible. His arrival in town has meant there’s at least one person looking firmly toward the future. “We have a very aging population here, and when I say aging, that means 70 and up. So there’s not a lot of energy. There’s not a lot of enthusiasm for anything new, to tell you the truth,” she says. “So I would just like to attract some younger people to come in.”[…]
Keith Cockell, an Ocean Falls native whose father was a dam operator when he was a kid in the 1950s and ‘60s, is already declaring victory of a sort. Cockell left Ocean Falls, then returned in the 1980s to help Case build the transmission line to Bella Bella. Now he has a house in town and works at his father’s old job.
Cockell has mixed feelings about working in the ruins of his childhood home; his mother saw pictures of Ocean Falls in its current state and swore never to return. Even if Ocean Falls doesn’t come back, says Cockell, he works at a dam, and so he celebrates any reason to keep those turbines running. “There’s been a lot of years where we’ve been waiting for someone to come along,” Cockell shouts over the buzzing of the computers. “The day we fired up, the miners started going, there was the humming, and I said to Kevin, ‘It’s a good feeling seeing that extra power being used.’”
The few enterprising bitcoiners who still have a bullish outlook on the original cryptocurrency should take note: If you’re looking to set up a bitcoin mine, remote post-industrial towns in the backwoods of Canada would be excellent candidates. And with the exodus of young professionals from urban centers having already begun, there’s a chance that the rural life could be the next big employment trend.