CEO’s Report: Crypto mining 101
Crypto is like the internet of the 90s.
That’s how Brett Somsen sees the progression of digital currency. Somsen serves as vice president of BigTop Mining and recently spoke at the Heartland Annual Meeting.
When the internet first started, many people were skeptical, believing it was nothing more than a fad that would have no lasting impact. Others saw great potential for this new technology, predicting it would quite literally change the world.
Today, the skeptics have long been proven wrong as the internet is ingrained in our every day lives. We use it to communicate with others, shop, access our news and watch our favorite shows.
Somsen believes cryptocurrency is in the same position today as the internet was in the early-1990s.
Because the technology is still new, and many people don’t understand how it works, there are skeptics. But Somsen believes it will someday be part of all our daily lives, just like the internet.
Somsen helped shine some light on the world of cryptocurrency at our Annual Meeting, and I will share some of what I learned from his presentation.
What is cryptocurrency?
To understand cryptocurrency, you must first understand the blockchain.
The blockchain was created in 2008. It is used for cryptocurrency systems for maintaining a secure and decentralized record of transactions. It is essentially a digital ledger – a record of every time someone sends or receives cryptocurrency.
Cryptocurrency is a digital currency designed to be used over the internet. Bitcoin is considered the gold standard of cryptocurrency, and came about shortly after the blockchain, in 2009.
Almost all cryptocurrencies are secured via blockchain networks, which means their accuracy is constantly being verified. The blockchain enables secure payments without a third-party verifier such as a bank.
The increasing value of cryptocurrency has made them popular as trading instruments.
When making a payment with cryptocurrency, you don’t have to provide any sensitive information, so the risk of financial information being compromised is significantly diminished. Cryptocurrencies also can be an easier and faster means to transfer funds.
Crypto transactions are secure because they are all vetted via the blockchain. Each currency has its own blockchain, with is an ongoing, constantly re-verified record of every single transaction made using that currency.
What is crypto mining?
Crypto mining is the process by which new cryptocurrency is entered into circulation. It is also the means for the network to confirm new transactions. It is a critical component to the blockchain.
Miners perform calculations to verify and record every new transaction and ensure the blockchain is secure. Mining is central to cryptocurrency’s security. It verifies and secures the blockchain, which allows cryptocurrencies to function as a peer-to-peer decentralized network with need for oversight from a third party.
Miners get paid by serving like auditors, verifying the legitimacy of cryptocurrency transactions.
In the early days, cryptocurrency was mostly mined via personal computers. Today, it is handled by large mining machines and mining farms.
These machines use a lot of energy because they are constantly performing mathematical computations to verify transactions.
Because of the large amount of energy needed, crypto mining companies are looking for low energy rates and significant power capabilities when choosing a location for a mine.
They also consider climate, given the amount of heat the units put out. They also need a facility to house the machines.
BigTop Mining Co.
BigTop Mining Co. was established in 2021 by Greg Nelson and Somsen. They turned their first miners on in Howard, SD in November of 2021.
They are currently mining three different types of cryptocurrencies including Bitcoin, Litecoin and DOGE.
BigTop chose Howard for their mine because of the available space and access to industrial power. The location is in an industrial area, which limits noise pollution. With multiple machines operating at once, Somsen said they can be loud, something communities need to consider when welcoming a facility.
Heartland partnered with the city of Howard to offer BigTop a special rate as they begin operations in the city.
Heavy users of electricity typically pay a separate demand charge to always have energy capacity available. The Energy ONE Incentive offers an energy only rate for the first few years of operation, to eliminate the uncertainty that comes with demand charges during a business’s start up period.
BigTop is the first crypto mining firm to which Heartland has offered the Energy ONE Incentive.
Reward vs. Risk
Fitch Ratings recently outlined some of the risks cryptocurrency mining poses to public power utilities, as detailed in article by APPA.
Fitch pointed out the energy intensiveness of crypto mining which can significantly increase a utility’s overall electric load. The rating agency noted that crypto mining operations are price-sensitive entities that may be scaled back if mining becomes uneconomical.
Utilities can limit their risk by working with miners up front to lay out terms of power procurement, necessary system upgrades and payment.
Heartland has worked with customers receiving inquiries from miners to mitigate the risk of welcoming a crypto mining firm to your community. While crypto mining firms don’t offer much in the way of new job creation, they can serve as a significant revenue source for the utility, if capacity is available.
While the jury may still be out on whether cryptocurrency is the next internet, there is no doubt it is shaking things up. Heartland is happy to work with our customers to ensure the correct controls are in place if a crypto mining firm is interested in locating in your community.