Bitcoin Miners Flock To Texas

operation out of its city hall. Today, I talk with Bloomberg Report to Mike Smith about what makes Texas so attractive to crypto enthusiasts, and you'll hear from Lee bratcha head of the Texas Blockchain Council, for a look at the Council's partnership with the City of fort Worth and why Leye sees Texas as the perfect environment for bitcoin believers.

First up, Mike Smith, Mike, so much for joining us, my pleasure today we're gonna talk about Texas and we're going to talk about mining in Texas, specifically bitcoin mining. But just before we dive into kind of the technicalities, is what's happening with with Texas and these bitcoin miners. Can you just explain what a bitcoin mine looks like.

Have you have you been to one? What was that experience like, Yeah, I've been to one um out in Texas actually, and it's it's quite a almost a surreal experience. Most of these mining operations are located really in very sort of remote places in the middle of nowhere, so to speak, especially in Texas, and they're quite striking when you come upon them, so to speak. But they're actually

quite simple in what they are. They're basically um, you know, warehouses or even sort of shipping containers filled with racks and racks and racks of computers that are all working in this together and sending the result of their work up into the to this guy to uh internet connection via satellite. And they use a lot of electricity. So imagine just dozens and dozens and dozens of very expensive computers sort of humming along solving math problems, creating bitcoin exactly.

So they're they're part of a much larger pool, but they in turn are quite big in a lot of these cases, and we're talking tens of thousands of computers UH servers, bitcoin servers they call them, that are controlled or owned by the same minor if you will. In many cases and they buy how many bitcoins they actually get, which is completely related to the number of computers they have and the amount of electricity have to power them.

So Senator Ted Cruz, who's one of you know, Texas is two senators, he's on the record as saying I want Texas to be the oasis on planet Earth for bitcoin and crypto, which is, you know, a pretty ambitious statements given the competition from other countries. I gotta say, when it comes to bit cool in and what comes to crypto more generally, I am incredibly bulsh. So talk talk a little bit more about what Texas is specifically

doing to attract bitcoin minus to the States. Well, Texas is sort of the ideal place for bitcoin mining because there's so little regulation for just about anything, and that includes the electricity market and the government that got starting with the governor and spreading onto the federal level to sooner Cruise, for example, they really believe in in in clearing the way in terms of regulations for business to do what they need to do to make money in

their state. So, um, that's kind of what they've been trying to do with bitcoin. Uh, in the last year, the state legislature passed a law and Governor Rabbit signed it that basically set up this whole legal framework for bitcoins to be sort of recognized as as legal assets, if you will, and it made it easier for banks to be able to handle That made it easier for sort of just the uniform code of doing business to

include cryptocurrency assets, including bitcoins. Now, as a person who has lived in Texas and has experienced its weather extremes as well as the let's describe this charitably as the somewhat fragile power grid, what is Texas also doing to shore up it's energy reserves for you know, people and businesses that aren't crypto minors, given the constraints that it's operating with on that front, there's an issue with um the amount of new electrical generation power plants coming online

and being able to get to the people that need it as as quickly as they need it. So that's sort of their big challenge trying to provide incenters for people to build more power plants. Ideally, um, you know, plants that are sustained, you know, are renewable with solar and wind. But the problem a missed there aren't enough power lines to get that electricity, the long, long distances back east to the major cities for example, like Houston, Dallas, etcetera,

and to the industrial users. In other words, the people that need electricity are really far away from where it's being generated. And can we talk about the weirdness of the fact that, you know, Houston is close to other cities and other states. There's various parts of Texas that border other states in the US as well as of course other countries, but the Texas power grid isn't connected

to any of these places. Why is that, Well, that's right, it's by design because Texas created this system, uh some time ago, with the idea that it would be a wholly independent system, walled off from the rest of the country, walled off from states that heavily regulated electricity because they wanted Texas to be a sort of free market energy

zone in all senses of the word. So they didn't want to connect to with you know, say how foreign grid or all the way up to New York because a lot most of the country is interconnected, so that they can share energy and export energy so to speak, when they don't need it or when they need it. Texas. They wanted to make it self contained and therefore just sort of a beautiful free market example of how the market can provide what people need at the best price possible.

So that's exactly why they did it, and that of course has had some challenges given as you described, when in that grid basically fell over um and made the provision of electricity and power for hundreds of millions of people just impossible. President Joe Biden declared a major disaster in Texas. It was a week of sub zero temperatures, frozen oil and gas wells, and absolutely soaring electricity prices,

all of which left millions in the dark. Bloomberg's Rachel Adams, what are the bitcoin miners going to do if there are these rolling blackouts in the future, Like, how are

they going to handle that disruption to their business? Well, bitcoin miners their principal argument for not being a threat, so to speak, to the electricity system is that they, uh, they can turn off their computers at a moment's notice, you know, within minutes, just like when you turn off your computer or your laptop when you're done working for

the day. So they have a system in Texas where if there is a sort of a looming crisis if the you know, the total amount of electricity is a pre approaching the maximum that they can provide, and if you go past that line, you have you have to

start turning off people's electricity blackouts, brownouts. The bitcoin miners have committed to UM, have promised to turn off their computers when needed UH to essentially save electricity, and there are great incentives in the in the in this free market power system the Texas have for them to do that, because, you know, when when there's shortages of electricity or when we're reaching a peak level and there's not going to be enough electricity along, the price goes up a lot.

So when a bitcoin minor turns off their computers, they get paid a lot of money to do that. I mean, they can make as much money at turning off the computer for a few hours they're starting their computers for a few hours as they can you know, mining bitcoin for days and days and days. So what's interesting to me is this positivity around crypto sort of kind of

came out of nowhere. UM at the highest levels of government, like you know, Governor Abbott and others have been very welcoming to people like Joe Rogan and Elon Musk, who are you know, very much embedded in various parts of this kind of tech libertarian crypto scene. But the explicitness around hey, you know, come to Texas set up your

bitcoin minds is a newer development than that. And I'm wondering, you know, how much of this is attributable to lobbying, Like the Texas legislature has a very interesting relationship with with lobbyists of all stripes, and the Texas Blockchain Council has really established itself in a relatively short amount of time, is like foremost among them. As it relates to this conversation. Yeah, and um, it's interesting because the Bitcoin Council, it's almost

like they don't really need lobbyists. They just sort of call up the governor and he invites them over to the mansion to talk. They're being just extremely welcomed and with remarkably little, you know, actual resources they have to throw at it. Um, the same thing with with the executives in the industry. You know, at the core of a bitcoin mining is energy. And it's interesting if you talk to a lot of the bitcoin miners in Texas, are their oil people you know, they came from the

oil and gas business. You know, Bitcoin to them is just a it's another form of the oil business. Yeah, it's quite similar. Instead of instead of drilling for oil, you're looking for electricity. Well, thank you. That is a very interesting thing to think about the connection of that. What is a very true historical fact and something that feels extremely cutting edge and of the moment right now of really so glad that you could join us today, Mike,

Thank you again, my pleasure. You can find more of Mike Smith's reporting on the Bloomberg terminal, on Bloomberg dot com and on Twitter at Smith Markets. We'll be right back. So, now that we have a sense of where the state of Texas currently finds itself as it relates to that overall crypto mining universe, let's look at where proponents of mining operations wants to see it heading in the future. How do we continue to have Texas lead in the

space of bitcoin, bitcoin mining and blockchain in general. That's Lee Bratcha. He heads the Texas Blockchain Council, which partnered with the city of Fort Worth for the first ever city run bitcoin mining operation in the US, and he joins me now tell our listeners more about the tech this Blockchain Council. The Texas Blockchain Council is an industry association working to make Texas the jurisdiction of choice for bitcoin blockchain and we have a special emphasis on bitcoin mining,

and so we work on the regulatory affairs side. We work on researching policy and advocating and educating with elected officials, and we also do your standard Chamber of Commerce type stuff with our member companies help them in business development efforts. So our listeners heard earlier that you know Senators had Cruise and Governor Abbert and others have been very enthusiastic

supporters of bitcoin and bitcoin mining in the state. Can you tell us more about your relationship with them, the kinds of conversations that you know, and the education as you say that you're doing with lawmakers on legislatos. Yes, we've had several conversations with both Senator Crews and Governor Abbott.

The crux of those conversations were around what's best for Texas and what'spex for UH innovation and Texas has led as an innovative state as a business friendly state for decades now, and my conversations with them are around how do we continue to have Texas lead in the space of bitcoin, bitcoin mining and blockchain in general and specific opportunity to bitcoin mining. We have conversations around job creation,

tax revenue, and the Arcot energy only grate. Everyone's goals is to ensure that power reliability is maintained and that Texans, whether they live in El Paso or Dallas or in rural East Texas, they all have reliable and consistent access to power. In various other countries, you know, miners have been shall we say, less than committed. Right they find a better off force somewhere else like Texas, for example, they up sticks, they leave town because it's fundamentally a

very mobile friendly operation. Like are we are we talking about jobs that are sees le that you think are these are things are gonna be around for eighteen months or folks really starting to plan longer term than that. Some of the jobs are our seasonal, especially related to

the construction of the sites. You don't need to have several hundred electricians and construction folks their year round, but they do maintain a good percentage of those for maintenance and for expansion, and in some of the places in North America, and in fact, every place in North America that has an industrial scale bitcoin mine over fifty megawatts, it is very much a permanent structure. So they have hundreds of millions of dollars worth of infrastructure investment going in.

The only way a bitcoin minor shuts down operations in Texas is if they go bankrupt. Now, that might not be true for say a flare Gas bitcoin minor, where they have a forty foot shipping container with miners inside

their their mining using a generator from flare Gas. That would be more of a mobile structure structure, and and perhaps just a few million dollars of investment, but it is more Well, it's interesting that you mentioned the gas flaring, right, because that's been an example of something where folks are trying to make a sort of an environmental case for bitcoin mining. They're like, well, otherwise this flared gas would just, you know, it would it would be wasted as it were.

But now we're finding ways to reintegrate that into another part of the industry. Um that said, there are a lot of folks who have significant concerns about generally the fact of bitcoin mining on the environment, because even if in some cases you're able to reallocate energy sources. In a lot of other cases, it's just additional new energy consumption.

How are you or you know, the folks that you are talking to making a case for the potential of a more environmentally aware industry as it relates to mining, we are very conscious of the need to ensure that we're we're environmentally sustainable. Mining is top of mind, and there's two ways that we do that. The first way is through understanding that energy usage is a way that society and human flourishing progresses throughout history, and so energy

usage is not necessarily a bad thing. It's just depending on what you're using it on. So we would argue that securing a global monetary system and what some would call freedom money, which is bitcoin, is a valuable use of energy, much more valuable than say Christmas lights or video games or things. All these kinds of industries use a lot more energy than things that give people joy. Potentially, Yeah, you know, and and we we don't see anything wrong

with using energy on Christmas lights and video games. Um and in Texas in particular, about thirty of the grid and given time is wind and solar. Depending on how hot it is or how much the sun is shining, how much the wind is blowing that particular day. And bitcoin mining is using an outsized amount of wind and solar in Texas, so more than the average grid user.

And not only that, we're actually incentivizing more wind and solar because we will go out and be an on site power off taker for a wind farm exactly, exactly allows them to build out more infrastructure with better economics because they have an on site power off taker. There's just not enough transmission capacity to get all of the wind energy from West Texas to the big power off takers and in Dallas or Houston or Austin, so a

lot of that energy gets wasted. In fact, about fifteen percent of the time you have negative pricing in West Texas, which means that energy is wasted. You've mentioned a few different parts of Texas and how they're thinking about mining. Tell me more about what you are up to in

fort Worth. Yeah, fort Worth. UM. We were connected with the Mayor fort Worth in the city several months ago through mutual friends and um they had an interest in fort Worth becoming a a tech city and a city that's innovation forward, and so one of the ways that we suggested that they do that is becoming a city that it's a first for bitcoin and bitcoin mining. So we um we decided to donate several machines the city

of Fort Worth for them to to mind bitcoin. It's not really a substantial amount of bitcoin or a substantial amount of power. It's it's about the amount of power that would take to run two vacuum cleaners. And the amount of profit from these machines will be measured in

hundreds of dollars and not millions of dollars. So it is very much a pilot study that no cost to the taxpayer because these machines were donated and the proceeds from the bitcoin that has received will offset any of the power costs and and have a little bit of profit on top of that. Thank you, leave, I really

appreciate you taking the time. Yeah, thanks for having me this fun conversation On the next episode of Bloomberg Crypto, what do you do if you want to leave your crypto to your friends, family, or as after you die? What does estate planning for stable coins and n f

t s even look like. Crypto as an asset class is less than two decades old, that means that most estate planners don't yet understand how to navigate this kind of digital wealth transper For more, I'll turn to Bloomberg Reports to Jill Shah for a look at how cryptocurrency holdings are proving thorny for estep planners. I'm Stacy Marie Ishmael, and this is Bloomberg Crypto, a daily podcast from Bloomberg

and I Heart Radio. For more shows from I Heart Radio, visit the I Heart Radio app, Apple Podcasts, or wherever you get your podcasts. Femail your comments, questions or suggestions to Crypto at Bloomberg dot net. Follow us on Twitter at Crypto. The supervising producer of this episode is Vicky Vergelina. Our producer is Mohammed Farouk. Associate producer Zan Absudiki Desta wonder At is our engineer. Original music by Leo Sidron. Bloomberg's head of Podcasts is Francisca Levy