Bitcoin mining rigs have been arriving in Kentucky by the truckload ever since Governor Andy Beshear passed two laws in March 2021 to incentivize bitcoin miners to establish roots in the southeastern state.
Senate Bill 255 extends the commonwealth’s clean energy-based incentives to miners who provide a minimum capital investment of $1 million, while Kentucky House Bill 230 provides miners a number of tax breaks.
In the year since their passage, Kentucky and mining-focused businesses alike have reaped benefits from the legislation. As of October 2021, Kentucky accounted for 18.7% of the United States’ total Bitcoin hashrate, second to 19.9% in New York, according to data from Foundry Digital, a subsidiary of the crypto giant Digital Currency Group.
Bitcoin mining is a decentralized computational process that allows miners to add new blocks of verified bitcoin transactions to the Bitcoin blockchain. Over the years, bitcoin mining has become more competitive and resulted in miners typically needing expensive equipment and low-cost electricity to profit from their efforts. Out of the 21 million total bitcoin supply, about 90% of bitcoin (about 19 million) has been mined in the past 13 years.
Blockware Solutions, a blockchain infrastructure and cryptocurrency mining firm, announced on Tuesday that it opened its flagship mining facility in Belfry, Kentucky, a town with fewer than 500 people right near the West Virginia border.
“It is my hope that a region known for mining coal will now benefit from this different type of mining,” Kentucky State Representative Angie Hatton said in a statement. “I also hope that its significant electricity needs will help stabilize our steep residential rates. It would mean the world if our families could save money while Blockware Solutions is literally creating it.”
Its Kentucky flagship location is comparable to the size of a Costco and is one of Blockware’s three planned sites in the state, Blockware CEO Mason Jappa told TechCrunch.
“In the economy and region we’re in, the fact that an energy grid exists is awesome, but there aren’t many energy consumers like us in the region, so if we can take down large amounts of energy, we’re adding stability to the grid,” Jappa said.
The data center is repurposing a coal mining site that has been abandoned for decades and will launch with 20 megawatts, which is equivalent to powering a small rural town of 5,000 people annually, he added.
“We found the perfect cocktail of everything we needed: political sustainability, low-cost energy and support in the local economy, as well as it being in an environmentally safe, sound and cool environment,” Jappa said.
Abandoned coal mines aren’t the only locations getting a face-lift. Empty real estate across the country, from steel mills in Illinois to forgotten warehouses in Oklahoma and parts of the Midwest, is being utilized, Nick Hansen, CEO of a Bitcoin hashrate management platform Luxor, told TechCrunch.
“Most of these places have the power capacity built-in by default, which is perfect for bitcoin miners to come in and start using them,” Hansen said. “These old manufacturing towns are turning into bitcoin towns.”
“One of the benefits of setting up a mining facility is that it doesn’t need to be near an urban center or location where there’s a large population,” Peter Wall, CEO of Argo Blockchain, told TechCrunch. “Instead, what you really need is to be close to power.”
“Bitcoin miners are buyers of last resort for energy — they’ll buy any energy up to a certain price and they can do it anywhere the internet is available,” Hansen said.
Argo Blockchain set up a facility in rural Dickens County, Texas, because there’s a huge amount of renewable power there, Wall said.
Similar to Blockware’s view on setting up shop in Kentucky, Dickens County, home to about 2,000 people, is one of many areas that has been economically depressed over the last 30 to 40 years because of the loss of agricultural work in the area, so bringing in miners provides economic opportunity, among other elements, Wall said.
Blockware has sold over 250,000 mining rigs and mined thousands of bitcoins since it was founded in 2017, Jappa said. Initially, the firm wanted to be known as a trusted U.S.-based organization that companies can order mining rigs from, but has since evolved beyond that to offer hosting, full-stack options and other mining-related services.
“We’re repurposing manufacturing sites and old coal plants that were abandoned and coated in dust,” Jappa said. “We clean up the area, clean up the buildings and beautify the properties to turn them into usable and inhabitable regions.”
While cleaning up the old warehouse being restored as part of the Belfry facility, Jappa said his team “removed pounds of dust to get workers back in there.” In turn, the facility aims to provide the small community and neighboring towns with well-paying and sustainable jobs, healthcare and fresh tax dollars for the state.
Blockware declined to comment on how much they’ve pumped into Kentucky’s pockets, but noted it has not yet taken any tax incentives.
Jappa said the energy usage at the Belfry facility will be “fairly sustainable,” noting that energy on the grid either gets utilized or wasted, so putting the energy to use mining bitcoins can create more use cases.
“If something happens to the local grid, we can divert our energy usage back to the grid to support it,” he said. The facility can turn on and off mining operations as needed during an extreme weather or energy event to stabilize the grid and give energy back so people have power for their homes if needed.
Jappa expects bitcoin mining to expand rapidly over the next 10 years because the majority of the remaining 2 million bitcoins not yet mined will be during that time frame, then slowly over the course of the next century. “Mining is going to grow massively,” he said.
As crypto mining continues to accelerate, other non-crypto-native players are entering the space, too. Last week, CNBC reported that ExxonMobil plans to mine bitcoin in North Dakota in an initiative to take wasted energy and use it.
Companies like Exxon have that power in the form of natural gas, which, if not fully utilized, is burned off or “flared.”
“If miners can tap into that, that’s great and an effective use of that resource, and we should expect that to happen,” Wall said.
Blue-chip companies like Exxon will continue to get involved in the crypto mining space, something market players like Wall said they always expected would happen.
“To be a miner you need three things: power, machines and capital,” Wall said. “Miners are continually getting closer and closer to those three things.
“It was always theoretical and now we are seeing it become a reality,” he said. “Their involvement is a significant development and demonstrates the maturation of the space.”
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