Most people are down the road and there's sort of maybe hundred houses, maybe a little bit less than that. This summer, I spent some time in a remote town along the coast of Canada, about three hundred miles northwest of Vancouver. It's called Ocean Falls. He used to be a paper mill town, and so these are this was part of the paper facility. The blue building that you guys are in that. Yeah, this was so this was all buildings here and most of them were torn down
about ten years ago. The mills just downstream from a dam that was built in the early nineteen hundreds. Ocean Falls is surrounded by steep hills covered in thick forest, and it sits on a deep bay that empties out into the Pacific Ocean. Ocean Falls had been a town of about five thousand people until the mill shut down. Now it's less than a hundred. It's almost a ghost town. That's where the wood would come down and then it
would be uh, they're the big grinders in there. They would grind the wood up into With the mill gone, Ocean Falls began looking for some new business, anything to keep the community alive. It's latest hope comes from Kevin day. Kevin's a tech guy from Vancouver, and he's the one showing me around here, and do you need to use you wear a hard hats. Borre Lex is the private utility company that operates the damn in Ocean Falls, but Kevin doesn't work there. He's actually bora Lex's new customer.
Is that sound you guys, Yes, that huney you here. It's the sound of hundreds of fans blowing past hundreds of little computers. They're on twenty four hours a day cranking through complicated math problems making bitcoins. Hi, I'm Pegatari and I'm Joshua Bursting. And this week on Decrypted, we're bringing you the story of Ocean Falls, a town on a multi decade search for a savior that thought it might have found one when a bitcoin mine came to town.
This is the first episode of our new season, where for the next four months will be exploring the unintended consequences of technology. The biggest problem for Ocean Falls was its isolation. It was just too much trouble to bring workers there and too expensive to ship goods out. But those things don't matter much for bitcoin miners. All they're looking for is cold weather to keep their computers cool and enough electricity to keep them running. Ocean Falls has both.
But if a town is good for bitcoin mining, does that mean bitcoin mining is good for the town. And while it may have seemed promising when prices were soaring, what happens now that they've crashed? Stay with us. I first heard about Ocean Falls in January. I was talking to a businessman in Toronto who invested in cryptocurrency businesses, and he mentioned that bitcoin miners have been taken an interest in old mill sites in British Columbia. That immediately
caught my attention. The bitcoin gold rush was all over the news. Bitcoin stores past thou dollars for the first time. It's up, and it's up big for this about since nine thirty this morning, New York Times, six thirty R time. I think that we're going to see fifty by the end of two thousand eighteen for bitcoin. It's easy to
think of bitcoin is something that's happening just online. In fact, the price runup had set off a global race to find actual physical places that are well suited for the data centers and needed to create new bitcoins through a process known as mining. And here was a place where the crypto rush felt like an actual gold rush, so I asked for an introduction to Kevin. He agreed to talk to me, and I began checking in with him every once in a while as he traveled between Vancouver
and Ocean Falls over the course of this year. Finally, in July, I headed up there myself with Jackie Dives, a photographer based in Vancouver. And it's a trek because there's no road to get there. Yeah. From Vancouver, I took two little hops and a twenty person playing to Bella Bella, which is the closest town with an airport. Then I hitched a ride from people boating into work at a local salmon hatchery that's the only other real
business in town. The boat moves through narrow channels between the mountains and then opens up into this big bay and there you are. It's unbelievably beautiful. When we got to town, Kevin was walking up to pick us up at the dock. I wonder if this is Kevin here. Kevin is an athletic guys in his mid forties. Hey Kevin, good, how are you? Kevin says he's most comfortable when sitting in front of a computer, and he's run a handful
of start ups in and around Vancouver. He used to run a business selling ringtones back when that was a thing, and then he had a business that had to do with insurance. Kevin had first heard about Ocean Falls in twenty ten when he saw a TV documentary about it. He actually suggested to a friend of his and the hotel business that it might be a cool place to set up a resort, but nothing ever came of that. Then Kevin started getting interested in bitcoin in about twenty
twelve and twenty thirteen. Over time, Kevin became fixated on building his own bitcoin mine. That's when he remembered Ocean Falls. Ocean Falls has this nostalgic vibe of a pioneer town in decline. At least that's how it came off in a news cost you showed me from nineteen eighty one. The good old battle days in Ocean Falls. Today, they were remembered with fond regret by the last survivors of a very special kind of town. Today most of the residents are older. They have a really romantic view of
the place. Like here's Tony Zignash, who runs the small boarding house where I stayed when I was there. Every time we come around the corner into some Falls, I always think this is as close to paradise as as it gets. Still, it takes a certain type of person to live there. It may be beautiful, but it's so remote. People in Ocean Falls put up with his challenges because they seem to relish the sense of removal from the
outside world. But not Kevin. No, he immediately saw the town's the setting for his own kind of secret, technological retreat, like the ones he daydreamed about when watching television as a kid. I always love this idea of like sort of this high tech sort of layer, kind of in the middle of sort of nowhere. Maybe it's sot of because I was a big fan of like James Bond movies or something like that, where they had sort of these guys they were had these Kevin's not the first
businessman to fall in love with Ocean Falls. There's been a steady stream of proposals. The first one happened soon after the mill closed, when a businessman bought many of the biggest buildings in town, hoping to convert them into a resort and casino for people traveling up the coast on cruise ships. There have also been plans to brew beer, grow marijuana, and bottle water. At one point, it looked like Ocean Falls would be the setting for an action
movie starting Al Pacino and Hillary Swank. My personal favorite was a plan in the nineteen eighties to fill tankers up with water and ship at wholesale to California or even Saudi Arabia. Needless to say, all of those plans have fallen flat, with the one exception of the fish farming company whose employees gave you a ride. Any business plan for Ocean Falls eventually ends up in front of Brent Case. He's the operation manager for bor Alex in
British Columbia. I had talked to Brent before flying up to Ocean Falls and he spotted me and Jackie when we got off the plane. He walked over to introduce himself once we landed in Bellabella Galls. Yeah, Brent's basically Kevin's opposite. Can be hard sometimes to get Kevin to talk much, but Brent would talk all day if you didn't interrupt him. Kevin likes the city. Brent describes himself as a bush person and he loves to regale people with stories about ravens or mountain lions or bears that
he's interacted with over the years. Brent has spent decades up and down this coast, in the small towns and the woods in between them. He first came to Ocean Falls in the mid eighties when he was helping string a transmission line from the power plant at the dam to a few of the neighboring towns. He's now something of a local celebrity. He bought the biggest house Notion Falls and has poured a lot of time and money into fixing it up. His star rose even more after
he survived a grizzly bear attack. I was just finishing up my engineering and I was heading back to the truck and he uh jumped me on my arm and ripped the elbow. He bitten the humbol's arms and then ripped this out from here right over the head. If it did you google? Did you google? And google? Yeah? Yeah, so I did a show with the Animal Planet. That incident with the bear inspired a wave of local and
even international media coverage. Then around, Brent's phone suddenly started ringing off the hook in a way it never had before. The people were calling in search of places to set up bitcoin mines. Bitcoin mining was becoming increasingly lucrative as the price sword, especially if you can find a place like Ocean Falls where the cost of power is extremely cheap. A large proportion of bitcoin mining was happening in China, but for many prospective miners, the idea of doing business
in Canada was much more attractive. You know, I'm getting companies from Texas, New Jersey, California, Washington, Steed. Of course, Brenton no the first thing about bitcoin. One one company from Australia, I mean, one from Argentina, I mean. And it didn't take him long to realize that most of the people calling him had no clue how to pull off what they were proposing. A lot of the blotching
people and bitcoin people and you name it. They think they can come in and do a project without you know, doing their homework. A lot of speculation, but brent also saw himself as Ocean Fall's main booster. He knew that the longer the town went on in its semi dormant state, the bigger the chance was that it would never recover. And after seeing so many other business ideas full flat.
Brent thought these clueless people blowing up his phone to talk about some esoteric technology trend might be worth taking a flyer. On the first night we were in Ocean Falls, Jack and I walked up to Kevin's home to meet with Kevin, Brent, and one of Brent's colleagues, a guy named Alistair Howard. This is the house you mentioned earlier, the one that Brent had fixed up. Kevin recently bought
it from him. Yeah, it's a really odd place. Once you get inside the house, it feels like a suburban home. There's new floors, a nice kitchen, even a huge flat screen TV. But to get there, Jack and I walked down a street where most of the other buildings were basically just rubble, and then we bush whacked our way up a steep trail through some brush to get to the door. Is that like little deer path? Really? The
way we're supposed to get here? Could be? I've never had anyone actually comes through the front door before, even with Kevin sitting there. Brennan Alistair were pretty open about how skeptical they were of him at first. Here again, he's one another one of these I thought, hair brained ideas. So when we did we need in Vancouver first, Kevin definitely didn't change Brent's mind by coming off like someone
who knew what he was talking about. When he first called in late Kevin didn't know much about electricity, he knew nothing about dams, and he had no experience navigating the shipping channels that on up and down the sparsely populated parts of Canada's West coast. But Kevin was asking the right questions and Brent was looking for someone anyone really to get excited about Kevin would do with this foot Finally in the door, Kevin developed a pretty simple strategy.
Who just asked Brent for help with everything. A lot of the challenges that you you face here or not things that you can just sort of solve look on your own by you know, just doing a Google search and like, well how do I get this in here or do that? It's all sort of like, oh, you know, like Brent knows a guy for everything, right, so if there's a problem, it's like I know a guy who could do that. I know someone who could get this in here. I know who you could do this. So
this was really clever on Kevin's part. I think he took Brent's enthusiasm about the town and used it to turn him into a kind of spokesperson within Bora Lax for Kevin's company, which he named Ocean Falls Blockchain. It didn't hurt that Bitcoin just kept getting more and more exciting. The price rose from about four hundred dollars in late when Kevin started making his first inquiries with Ocean Falls. A year later, the price would be closing in on
a thousand dollars. Kevin wasn't the only person calling Brent, but most people would call him once realize how hard this would be and disappear. Some I call a few times before fading away, But Alistair remembers how Kevin just never stopped dialing the phone. I just remember so many times you would tell me Kevin's calling again. I'm like again. In fact, Kevin became so persistent that he turned into
something of a myth inside the company. At a certain point, Kevin went to Toronto and cold called Patrick Lamaire, the president of Bolax, to ask for a meeting. And Patrick already knew who he was when I sat down with them, and he said, like I said, well, I think we're really gonna move ahead on this project, and he said, okay, well that's why I want to meet with you, because I want to see if you were like a real person being here hearing about your name while this time.
But that's nothing's ever happened. It's been two years, so are are you real? Is it's really going to happen. Patrick had a decision to make. Should he agree to sell cheap electricity to Kevin? The bitcoin mine might work out well as a business, but it was unlikely to make much of a difference to Bora ax Kevin's plans were to make just under six million dollars in revenue. Bora axes annual revenue is about three fifty million, but the utility didn't have a lot of other options for
ocean falls. Bora lex Is only using two of the dam's four turbines because there would be nowhere else to send the electricity they'd produce. So Kevin secured his deal to buy hydro electric power from Bora Lax at a heavily discounted rate. This was basically an incentive to get him to set up his business in a place that would otherwise not make much sense. Neither Kevin nor Brent wanted to discuss the specific price. That's probably because it's
so low. According to a presentation and showed investors in February, it was less than four cents per kill a lot hour. That's less than half the rate boro Lex charged to ship power to Bella Bella even back in the rates solo that the head of another bitcoin mining operation in the area described it as almost free. The power from
the Ocean Falls Damn had another advantage. Bitcoin miners are coming up for increasing criticism for burning through massive amounts of energy just as the world is trying to fight climate change. But hydro electricity doesn't create carbon emissions, and this power literally had no other use. Now, all Kevin had to do was figure out how to get hundreds and eventually thousands of computers from China, along with heavy equipment to power them all the way to Ocean Falls.
We brought them in Vancouver and then we trucked them up from there. There's a truck road somewhere if you need it. No, there's no road into Ocean Falls. Uh um, you can come in on the on the ferry, which is what we did. It's kind of a full day things. As I mentioned, before you know. We loaded them on the truck at the airport and then set the operation up in an old paper mill that had been falling apart for decades. But he did it. Finally, this July,
Kevin flipped on the first few servers. Kevin's bitcoin mine has been reverberating through Ocean Falls ever since Kevin first came to town, and not just because you can hear the humming of the fans far away from the building. I kind of assumed the cryptocurrency boom would have passed Ocean Falls by completely, but that wasn't really true. One day, Kevin and I visited one of the only public businesses in town. It's a local bar. It's open every Monday, Wednesday,
and Friday from four pm. The seven pm gets packed, and the guy sitting next to me said he had a friend who was mining cryptocurrencies in Asia. Still, a lot of people didn't really seem to know what it was. Yeah, even like my granddaughters understand it. Yeah, not me. Know. It's a new technology. Yeah, and as you get older, you don't at least I don't pick up on it very fast. Well, I mean you gotta, it's gonna be something you're interested into yeah, like right now, especially now,
because it's very techy right now. It's just like the Internet was in the early nineties. It was there, but it was really techy, you know it six I took computer programming, yeah, all right on, so I was like, uh like fortran kind of stuff for right for now, many residents are hopeful that the bitcoin mine will help turn things around. Kevin's construction work did provide a handful of jobs, but those went to crews that came in
on boats from the Vancouver area. That's been good for Tony, the woman who runs the boarding house, but she framed the main impact as more psychological than economic. It always puts that air of positivity in in into the mix, and that makes a big difference. We have a very aging population here, and when I say aging, I mean seventy and and up. So there's not a lot of energy, not a lot of enthusiasm for anything new, to tell you the truth, So I just would like to attract
some younger people to come in. There is a post office and a government run ferry stop in town, but Ocean Falls doesn't have enough people to support any private businesses except for the bar. Really if you can believe it. There isn't even a grocery store in Ocean Falls right now. We're barging in all of our groceries from Port Hardy. It's a two week process to get from time you order your groceries to the time you get them here. Kevin's business isn't changing that for now. It's too small.
He's currently using under a mega watt of power at Ocean Falls. Big bitcoin mining operations are measured in the dozens or hundreds of mega watts. But even if Kevin's business does take off and gets bigger, it's not clear that it's impact on Ocean Falls will grow. He is tony again. If Ocean Falls become in the meantime more recognizable to outsiders who see it as a place to come that's viable, it may be just that springboard that they need, you know, to come in, and and it
can perpetuate after that. So do I see blockchain is being the I think once it's up and running, it's probably not going to have a lot of people that are needed. They haven't said, but I don't know how many people does it take to keep a bunch of computers running? Probably not more than just a couple, and maybe they don't even have to be here full time.
This is something of a pattern. Governments and other places that have attracted attention from bitcoin mine is have been frustrated once they realize how little chance there is for anything resembling real economic development. This isn't just a bitcoin problem. A bitcoin mine is basically just a data center, and companies that run data centers for other purposes have also offered mixed benefits for the out of the way locations
they've set up. In another version of the story have been the places where a defunct shopping mall, let's say, will be filled with computer service and buildings that used to house dozens or hundreds of retail jobs have become places where wealth is generated for people living elsewhere, while offering basically no employment opportunities for the locals. Now, to be fair to Kevin, he didn't promise to create lots
of local jobs, but he did have plans to expand. Yeah, he said he wanted to grow the size of his existing mind and even to get into other types of businesses, like he wants to use the heat from the computers to warm up the water and the fish hatchery or to develop novel technology for cooling computer servers that he
could presumably sell to other businesses. He's also talked about using the paper mill as a kind of working retreat for coders working on cryptocurrency projects, and now that might be pleasant, but it's not clear how likely it is to happen. Some of these ideas might work out and bring new life to ocean falls, but Kevin's got lots to worry about before then, throughout there was this incredible run up in the price of bitcoin. It surpassed nineteen
thousand dollars at the end of last year. This year has been brutal, though. The cryptocurrency is now sinking below eight thousand and down more than six percent in the last week, and it's getting technical analysts spooked that maybe bitcoin has further to fall than we've even seen this week, or people are gonna become very fearful and you're going to see even further liquidation as people begin to understand
that the bloom is off the rose. As of this taping, the price of bitcoin is around six thousand, four hundred dollars.
Last year, a handful of bitcoin mining companies had raised money by going public on Canada's junior stock exchanges, Ocean Falls Blockchain had plans to do the same thing, and that presentation that Kevin showed investors in February, it based its financial projections on bitcoin being worth eleven thousand dollars back in April, when the price had fallen to about I asked Kevin whether he was worried at the time. He shrugged it off. You know, like Warren Buffet doesn't
look at stock traces every day. You know, he looks at the long term sort of picture of where potential for companies. Looking at someone like that as an example, you know, he expands his business when you know people aren't interested to concerning companies that he sees the longer term potential. But it's clear that the price of bitcoin has impacted his plans. Kevin's company decided against going public because the interest in businesses like his had largely dried up.
He says this shouldn't be a problem and he'll find money elsewhere as he needs it. But investors know that there's a point at which it would become unprofitable to keep mining bitcoin. Mosaic, a research firm focused on the cryptocurrency industry, puts that price at five thousand dollars on average. I asked Kevin if there was a low price at which it wouldn't be profitable for him to mind bitcoin anymore.
He said he didn't have one in mind, and instead he offered an optimistic rationale for how dropping prices might actually be a good thing for him. Here's the thought process. New bitcoins are dolled out regularly. The more minors there are competing for them, the fewer bitcoins each minor gets for the same amount of work. If the price drops low enough that some people turn off their computers, the remaining miners will have an easier time their profits rise
even if the price doesn't so. In theory, this helps the entire system constantly find the right equilibrium, and Kevin thinks he can power through the lean times when weaker businesses will have to drop out. It's good for everybody when the first goes up. From competition standpoint, it's actually helps separate us a little bit, because we again, efficiency
is our big thing. Before leaving Ocean Falls, I discovered that Kevin's dealing with a second complication to his business plan, even though he's one Brent over bora lax is an actually selling Kevin as much power as he was hoping for. His initial plans called for them to sell him six megawats of power by the end of this year. He's not gonna get anywhere close to that, and that's because Bora Lax is facing questions about the economics of operating
the damn in Ocean Falls. Situation is complicated, but it involves the rate that bore Alex charges to sell power to the town of Bellabella. We said earlier, the rate is far higher than what Kevin's business pays. Bor Alex is currently having a dispute with BC Hydro, that's the public utility in the area that buys the power headed for Bellabella, and until that is settled, bor Alex doesn't want to commit to selling Kevin the amount of power
that would allow him to grow Ocean Falls blockchain. Now. As we said, Bora Lax is giving Kevin a steep subsidy for power because it needs an incentive to get him to come to Ocean Falls. But one upshot of the negotiation with BC Hydro could be that regulators require Borelax to charge Kevin much more. You know, you do your best to sort of navigate sort of those those those political type of waters. But at the end of the day, it's not something we have, you know, we
don't make the final say and things like that. This speaks to a bigger question facing utility companies, especially utilities that have facilities in remote places like northwestern Canada, what is their policy on cryptocurrencies? In Quebec, regulators want to increase the rate that miners pay for power. I think
right now you're seeing it all over the place. You look at what's happening in places like Washington State where there are a lot of minors on the on the Columbia River there, and you know, there's a lot of there were there. There's a lot of pushback from from the government and from other businesses and that type of thing. And so that gets us back to this original question of what the public gets out of having a bitcoin
mine in town. Right in a place like Ocean Falls, the utility seems to have a clear incentive to bring a new customer in. It has this power, it can't sell it, and here's someone who's willing to buy it, so that it's just good. But what if there's other people who want to buy the power? Too, And that's a question that many utilities, many small towns in other
places are facing. Right. And once you've decided we're going to sell this power to a data center because there's some sort of economic benefit, there really is a question what the benefit is. These places don't employ people, it's not clear why another business would have to set up nearby, and you may just end up having energy consumer and
nothing else. Right, there's no need for dependent businesses like restaurants or hotels to spring up um And it's a pertinent question now that towns are falling over themselves to offer incentives to tech companies that are promising to bring investment. And there is one bitcoin specific question that we should
deal with here too as well. Though I think most people think that Amazon's data centers or whatever are going to definitely be around in a couple of years, but there's a question about whether or not a bitcoin mine would be around in a couple of years. This is a really volatile asset. It's speculative business, and it's not clear if selling your energy to a company like Kevin's is going to be any good for you in two or three years down the road. And is that something
you asked Kevin about Yeah, I did. He is an optimistic guy and said that, of course it would be bad if bitcoin went to zero, but no one thinks that's going to happen, and he's in it for the long haul. It took a long time to a lot of work to set this up. You know, I don't I don't want to build another substation somewhere else like this is. You know, I want to start running the business now. You know, obviously, if a bitcoin collapsed and when it came nothing, obviously that's not going to be
good for us. It's not gonna be good for for anybody. But I think that that's uh. I think everybody agrees that that that's that's very unlikely, but it's good at the same time, you know, we believe it's it's going to do very well in the long term, but it's not going to be a straight line and it's gonna go up, and it's kind of in the way down,
and he's taking Ocean Falls along for the ride. Three of a century made its place and his to read it will never be in that emold Oan Falls, but it delves into every sodden daughter that's been in the Martin. People are gone, but the sphere lives on. I was born right here in this very spot. You can see the pride in their eyes. I remember this. Do you remember that? Here? The school caught fire? And that's it for this week's Decrypted. Thanks for listening. We always want
to know what you think of the show. You can get in touch by emailing Decrypted at Bloomberg dot net or I'm on Twitter at Joshua Burwstein and I'm at pagat Cary. Please subscribe to our show wherever you like to listen to podcasts, and if you haven't already, please leave us a rating and a review. It really helps us find new listeners. This episode was produced by piagod Carry and Magnus Hendrickson, with help from Austin Weinstein. Our
story editor was Emily Busso. Thanks to Big Jim Lewis for letting us use his song about It, which can falls in this episode. I also wrote an article about Kevin and Brent. You can read it at Bloomberg dot com slash tech and thanks to Robin Agello, my editor on that story. Francesca Levie is head of Bloomberg Podcasts. We'll see you next week.