Bitcoin miners' mass migration to Texas can be explained by comparing them to ducks.
Or, more precisely, a "duck curve," a graph showing the equilibrium between energy demand and supply at different times of the day.
Create a graph that plots the nett energy needs of society against the time of day, from midnight to midnight. Lee Bratcher, president of the Texas Blockchain Chamber, has commented that the evolution of this line graph gives it the appearance of a duck.
The graph has a relatively flat beginning (the duck's tail), dips in the middle of the day (the duck's belly), and then recovers in the late afternoon (the duck's head). The point is that supply and demand for energy fluctuate throughout the day. At 5pm, our electricity consumption is higher than it is at 2am. At 9 a.m., there is a greater abundance of solar energy than at 12 a.m. "One kilowatt hour of electricity generated overnight is not the same as one kilowatt hour of electricity generated in the morning," says Bratcher.
This disparity is not lost on Texas. Texas is unique in that its power grid allows energy prices to "float" across the state and throughout the day, so that they can more accurately reflect the realities of the duck curve. The plains of West Texas, with their abundant wind and solar power but sparse population, offer cheaper electricity than the city of Houston. This may seem like common sense, but most of the country's power grids keep the price heavily regulated and (relatively speaking) fairly constant.
Bitcoin miners can take advantage of the duck curve and Texas' abundance of cheap renewable energy. When grid supplies are low, they can either lower their energy consumption or sell any unused power. In addition to the rewards for verifying Bitcoin transactions, the Electric Reliability Council of Texas (ERCOT) provides credits to businesses that use the grid.
Bitcoin miners, according to Bratcher, are "unique in that they are geographically agnostic." They're adaptable with regards to running times. Power consumption locations can change on the fly. As a result, miners have an economic incentive to locate their operations wherever cheap power is available, regardless of the availability of suitable land for mining. The nighttime mining allows them to rest and relax during the day. According to Bratcher, "waste" results in "cheap" energy. Sometimes unused energy is essentially a gift.
Because of ERCOT, businesses like Core Scientific, Genesis Digital Assets, Riot, and Marathon Digital, which mine bitcoin, have set up shop in Texas. After China outlawed gold mining in 2021, the gold rush began, and while it has slowed, it is still growing steadily. There is undeniable expansion in the mining industry in Texas. Core Scientific, which is headquartered in Texas and has 70 full-time employees in the state, continues to invest every day, as its president Adam Sullivan puts it.
Politics, goals, and human beings
Other advantages are brought by Texas. According to Sullivan, the company had three main criteria in mind when deciding in which states to invest: Is there a positive attitude towards business? How reliable is the electrical system? Is there a source of available workers? Sullivan says, "Texas was a perfect fit in every way."
Similar criteria were used by Genesis Digital Assets, a bitcoin mining company with five data centres in Texas. The "3 Ps" are what Genesis Digital Assets' Head of North America, Ankit Joshi, refers to as the driving forces behind their success. Energy costs are low in Texas. To what end? Joshi argues that "freedom" is at the heart of bitcoin. And in my interactions with the utility companies and government officials, Texas has been all about freedom. "The whole Texas story" resonated with the company because "Texas is all about hard work," he says.
SB 1751, which was initially passed by the state senate in April, is a recent piece of proposed legislation miners can point to as an example of how the state can be friendly to business. The bill would have ended tax breaks for the mining industry and reduced incentives for using the power grid by miners. (According to one estimate, Riot's share of the cost would have been close to $30 million.) After the Senate voted in favour of the bill, mining industry representatives met with lawmakers to present their case. When it comes to cooperating with bitcoin miners, "the regulators in Texas have been very open," Sullivan says. They've seen the value we add to the grid and acknowledged it. The miners celebrated when, a month after the bill passed the Senate, it was killed in the House.
These so-called "benefits to the grid" are not always easy to understand. How "voracious" Bitcoin mining is wreaking havoc in Texas, The Week writes. Bloomberg reports that at full capacity, the energy needs of the industry's Texas operations can exceed 2 gigawatts, or enough to supply electricity to about 400,000 homes.
It's true that bitcoin mining consumes as much electricity in Texas as Austin does. The miners of Texas would say that you're missing the bigger picture.
Bratcher makes an effort to provide context. He estimates that during the hottest part of the summer, Texas's statewide peak demand for electricity is around 80,000 MW. Bitcoin mining uses about 3% of a state's total electricity supply, or about 2,200 megawatts. This is a substantial amount.
However, as Bratcher points out, this is not a cause for alarm because bitcoin miners can be controlled to operate only when necessary and not at all when prices are high. The duck curve comes into play here. Bitcoin miners can "give back" supply to the system during periods of peak demand, such as the head of the duck. (It's not altruism or kindness; they get credit towards their electric bill.) According to Bratcher, "It's almost like the state of Texas has 2,000 megawatts of battery storage" because of this adaptable system.
Let me explain how batteries function. A normal battery gives you the freedom to add power to the grid whenever you like—including during those horrendous peak demand times when everyone is running their air conditioners at full blast. However, there is more to the story than just supply. It is possible to achieve the same result by encouraging miners to turn off their ASICS during the heat wave.
Okay, but wait, might counter a perceptive onlooker. You're arguing that bitcoin miners are returning supply to the network if they shut down their equipment. Is it not the case that the grid would function better without the miners? Alternatively, the "battery" idea is akin to the joke that if a criminal leaves a neighbourhood, it is safer from fires because of the criminal's departure, but the criminal probably shouldn't be awarded a medal.
Bratcher is prepared to deal with this resistance. That's not right," he argues. When demand is low, "if that demand isn't there, the generation won't be there." In other words, bitcoin miners are giving wind and solar power companies a reason to run their generators in the empty plains of West Texas at 2 in the morning, at the bottom of the duck curve. In this view, bitcoin miners are good customers for renewable energy sources when there is low demand for electricity and "give it back" (in exchange for credits) when demand is high.
Nonetheless, the ERCOT grid cannot support indefinite flexing by miners, so the state has taken measures to limit expansion. In 2022, the state of Texas instituted a policy with the incomprehensible name "Interim Large Load Interconnection Process," which meant, essentially, that prospective bitcoin miners would have to submit an application requesting flex-up and flex-down capabilities. Because of the stricter requirements of the application process, the expansion of mining has slowed. According to Bratcher, "so we're still growing, but not as much as in 2021 or early 2022," the state is adding 150 MW of mining capacity every quarter.
According to Bratcher, bitcoin mining in Texas has generated approximately 2,000 W2 jobs and 20,000 contract jobs. He claims that "the price and market incentives are still there." The business climate here remains favourable.