April 26, 2014 in Business, Region

Northwest’s cheap power drawing bitcoin miners

By The Spokesman-Review
 

MegaBigPower CEO Dave Carlson poses inside what he believes is North America’s largest bitcoin mine.
(Full-size photo)

What is bitcoin?

Bitcoin is digital currency made up of long, unique strings of digital characters. It’s exchanged globally between those who collect it and those who accept it as payment. The value fluctuates; each is worth about $500 now.

When two Stanford University grads wanted to start a bitcoin company, they looked for the lowest power rates in the country.

A map comparing energy rates led them to Central Washington, where hydroelectric dams churn out electricity that costs industrial customers less than 3 cents per kilowatt.

HashPlex, the business launched by Bernie Rihn and George Schnurle, is one of several bitcoin mining companies operating or preparing to launch in Grant, Chelan and Douglas counties. All three counties have public utility districts that offer very low power rates to industrial customers.

In this case, mining has nothing to do with metals. It’s the term in the tech world for how the virtual currency bitcoin is made.

Bitcoins are a form of currency composed of long, unique strings of digital characters. Each bitcoin can be used or exchanged by people who accept it as a form of payment. Its value fluctuates with supply and demand; each bitcoin currently is worth about $500.

It can’t be easily counterfeited and is owned anonymously, making it popular for digital and international transactions.

Explaining the complex system of how many bitcoins are “mined” reads like a course in cryptography and electrical engineering. In short, a person can mine bitcoins by using computers to crunch vast amounts of data until they generate a unique code or “block.” That block has to be compared against all other existing blocks and then validated.

At that point the operator has created a set of valid bitcoins that are registered across the worldwide network of bitcoins. Currently, the bitcoin mining rules limit global production to about 25 every 10 minutes.

Rihn and Schnurle and others in the bitcoin mining industry never announce grand openings or open houses. Because they generate a virtual currency that has real monetary value, the managers of bitcoin mining firms don’t disclose locations.

Patrick Boss, government affairs specialist with the Port of Quincy, said the heightened interest in Central Washington stems from a word-of-mouth awareness among entrepreneurs.

“I am only personally aware of two bitcoin mining firms locating in Grant County,” Boss said. “But I’ve been told that at least five others are in the process of locating in the area.”

Until a few years ago, no one in Grant County – or most other places – knew what a bitcoin is. Now business leaders there understand that bitcoin mining is the latest wave of technology business chasing dirt-cheap power, following tech companies like Dell, Microsoft, Intuit and Yahoo, which erected large data centers in Grant County.

Emily Braunwart, accounting and communications manager with the Grant County Economic Development Council, said her group is not actively recruiting bitcoin mining firms.

“We have been getting some calls of interest by those companies and most of that is because they’re finding us,” Braunwart said.

In a warehouse near Wenatchee in Douglas County, Everett entrepreneur Dave Carlson runs a bitcoin business called MegaBigPower. It’s one of three MegaBigPower sites, including one in Poland.

Inside the 5,000- square-foot building are long rows of racks and shelves holding computer boards connected by cables to hundreds of other computer servers that keep track of what the boards are doing.

Carlson has been featured in several major publications, where he’s said his business is likely the largest bitcoin mining business in the United States.

Like Rihn, he doesn’t want to disclose his specific location.

Carlson said his facility, which has about 10 employees, has roughly 1 million computer chips working together churning through huge piles of data. On average, his company produces around 100 bitcoins per day, or at the current dollar-to-bitcoin exchange, roughly $50,000 per day.

Carlson quickly explained that most of the revenue goes to a principal investor, a European businessman who invested most of the capital to start the company.

In a recent online article, Carlson said his own take is roughly 10 to 20 percent of the coins generated.

Mining those bitcoins is costing Carlson roughly $50,000 per month in PUD power bills. That’s for the energy to drive the computer chips and operate hundreds of fans that pull heat from the building.

Because of how the bitcoin universe operates, as more and more miners worldwide compete against each other to produce bitcoins, the computational effort for each new set of bitcoins requires more time and more power, he said.

Two years ago people could download software on their home computers and generate bitcoins, even though the process took lots of time, Carlson said.

Carlson said the arms race among bitcoin miners isn’t just to find the cheapest power rates.

“It’s also about designing computer boards and processing chips that are even more efficient than what we have now,” he said.

Rihn and Schnurle’s business plan is to be a server farm or host for bitcoin miners who don’t have the space or access to low-cost energy to operate efficiently.

HashPlex invites those miners – whether large-scale or mom-and-pop size – to send their customized mining computers to its Washington facility. HashPlex won’t own those machines, but its staff will manage the equipment and keep them linked to the bitcoin network and working properly.

HashPlex will charge a fee based on the amount of electricity the individual mining machines consume, Rihn said. He didn’t have a date for when the new HashPlex building will open. The company recently opened a mining facility in south Seattle, Rihn said.


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