Two of the biggest bitcoin mining companies in the world are battling it out in a Texas town of 5,600 people
- Bitdeer – a firm spun off from Chinese bitcoin mining giant Bitmain – is four-tenths of a mile down the road from Riot Blockchain, one of the biggest publicly traded mining companies in America.
- Both are tenants of property once occupied by aluminum maker Alcoa.
ROCKDALE, Texas – In this rural Texas town of 5,600 people, two of the biggest names in bitcoin mining are battling it out for market share and cheap electricity.
These rivals also happen to be next-door neighbors.
Bitdeer – a firm spun off from Chinese bitcoin mining giant Bitmain – is four-tenths of a mile down the road from Riot Blockchain, one of the biggest publicly traded mining companies in America. Both are tenants of property once occupied by aluminum maker Alcoa, but they share little else in common.
Riot's Whinstone mine is run by a team that thrives on transparency and throws open its doors to media on a daily basis, while Bitdeer is aloof, steeped in mystery, and definitely not keen on visitors.
"In this industry, everyone's like, 'Ooh, top secret, we have proprietary information!' Well, actually, you don't," Whinstone CEO Chad Harris told CNBC.
"You take a cable, you plug it into a machine that somebody else built, you turn it on, you add a pool, and you mine bitcoin."
Located an hour northeast of Austin, Rockdale looks like classic rural America. There are rolling hills, pastures of green grass, hay bales, a Walmart – which Mayor John King says is the main driver of sales tax, a key revenue stream for the city's annual budget.
But to the more discerning eye, Rockdale offers all the fixings of a bitcoin miner's dream home: Crypto-friendly politicians, large swaths of land, previously abandoned industrial infrastructure ripe for repurposing, and the ability to plug into Texas' power grid.
The Electric Reliability Council of Texas, or ERCOT, is the non-profit organization that operates Texas' grid. The grid is deregulated, meaning that customers can choose between providers.
Because miners at scale compete in a low-margin industry where energy is their main variable cost, they have reason to migrate to the world's cheapest sources of power. The competition among power providers in Texas is a good thing for miners, since it typically translates to lower rates.
Rockdale was once home to the largest aluminum plant in the world, run by Alcoa. But starting in 2008, it began to shut down its operations, meaning that energy capacity was going to waste, due to the prohibitive cost of building the transmission capacity necessary to carry it to major population centers, according to Lee Bratcher, president of the Texas Blockchain Council.
The arrival of the crypto miners resolved that imbalance.
In addition, miners can be flexible in the face of fluctuating power supplies and prices. Unlike an aluminum smelter or just about any other business, miners can deal with an outage without suffering major financial damage.
This resilience is significant to a state that has recently struggled with the reliability of its power grid, which is separate from the rest of the country.
ERCOT sometimes asks consumers to conserve energy amid heat waves. The state also infamously suffered blackouts earlier this year after severe winter storms.
Mayor King says today's arrangement between miners and ERCOT is pretty simple and mutually beneficial. Not only do miners make use of power otherwise going to waste, they also function as "interruptible load," meaning they are able to turn off all of their machines with a few seconds' notice when the grid is in a pinch and needs the extra power. Miners volunteer to do this because of financial incentives.
"Miners are committed to buying a certain amount of power and what they do is they sell it back at market [value] and make a profit," explained King. "They have a contract of two cents or three cents...and they can sell it for $9 a kilowatt hour."
"There were lots of things that went wrong," Sen. Ted Cruz, R-Texas, said of the winter storm in early 2021 that devastated much of the state. "But I do think that bitcoin has the potential to address a lot of aspects of that."
Cruz, whose views on bitcoin and the mining industry more widely, have proven prescient, recently weighed in on the topic at the Texas Blockchain Summit in Austin. During his main stage interview, Cruz pointed to the importance of the ability of bitcoin miners to turn on or off within seconds – a feature that is hugely beneficial during times when energy needs to be shifted back to the grid to meet demand.
"A lot of the discussion around bitcoin views bitcoin as a consumer of energy," said Cruz. "The perspective I'm suggesting is very much the reverse, which is as a way to strengthen our energy infrastructure."
Rockdale's economic development director, James Gibson, says the town has 160 acres ready for the taking.
King has already fielded close to 40 inquiries from mining companies keen to set up shop there, many of whom are Chinese miners. Earlier this spring, Beijing cracked down on its domestic crypto mining industry. Exiled miners have since begun to seek refuge in places like the United States, which recently became the top mining destination on the planet.
"They have money. They have equipment. They just need a place – and power, quick," said Gibson.
David vs. Goliath
At the main entrance to Bitdeer's Rockdale mine is a small tin shed accented with light blue trim, staffed by a smiling, upbeat guard. There is no gate, nor are there any spike strips on the pavement to deter unwelcome vehicles. Considering how secretive Bitdeer is as a company, it seems relatively welcoming – and surprisingly easy – to gain entry to the property.
But the company is still fairly closed off. CNBC asked for a tour and an interview, and we were told that while they "valued" the meeting, the person in charge was traveling for several weeks, and it was hard to define their schedule.
The mayor, whose son landed a full-time job with Bitdeer this year, shared a bit about the operation.
Unlike Riot's Whinstone mine, built in what was once thickly wooded forest, Bitdeer took over the closed Alcoa smelter, which was conveniently still hooked up to major electrical lines. King says most of the football-length buildings that Bitdeer now occupies were constructed in the fifties and had to be retrofitted – a process that included filling concrete into the concaves in the floor where smelting pots once processed aluminum.
According to King, Bitdeer is "expanding as fast as it can be built."
Not much else is known about the specifics of how Bitdeer's bitcoin mining operation works. CNBC reached out to ask how many mining rigs and employees they have on site, as well as how much cryptocash they mine in a given month, and the company did not respond.
When Whinstone first broke ground in Rockdale in January of 2020, many saw it as the David to Bitdeer's Goliath. Harris, the Whinstone CEO, hailed from New Orleans, where he was known for selling pre-decorated Christmas trees to wealthy families. The CTO, Harris' youngest son, had blue hair and had just dropped out of college after his freshman year.
It was easy to underestimate the team. But Harris thrives as the underdog.
"No matter what Alcoa told us, we agreed to it," said Harris, of the initial negotiations.
"They were like, 'You need this amount for a deposit,' and we were like, 'Absolutely, no problem.' They said, 'You need a Moody's graded guarantor,' and I'm like, 'Absolutely, no problem,'" described Harris. After leaving these meetings, his business partners would remind him that they were broke and had no guarantor, but Harris' response would always be the same: "This is the easy stuff. They said yes."
Harris' leadership style isn't just about improvisation. The Whinstone CEO tells CNBC that his greatest skill is sending money to suppliers as fast as he can. "I always joke that when a million dollars lands in a company's account, there is no way accounting is sending it back. They'll force the people to do it – whatever it is."
That strategy has repeatedly borne fruit for Whinstone as the price of bitcoin has skyrocketed over the last year or so.
"We bought all the orange conduit in the United States. Every last stick of pipe you could get your hands on," Harris recounted. "And then they call back a week later saying they made a mistake. 'We can't deliver all this.' We're like, 'Just send the money back.' And then they say, 'Hold up, I think we can solve it.'"
Harris broke ground in Jan. 2020 when bitcoin was $4,100, they turned on the mine when it was at $6,100, and Harris remembers thinking that if bitcoin could just hit $8,000 a coin, they wouldn't go bankrupt. The coin recently touched a new record price of nearly $67,000 in mid October.
"When we showed up here, this place was a forest," Harris told CNBC from his office – one of many inside a prefab roofed trailer that sits adjacent the mine. "We didn't have power lines...crazy stuff."
183 days later, in June of 2020, Whinstone began mining. Harris estimates that on day one, they had 300% more capacity than Bitdeer.
But Harris doesn't see it as a competition, nor does he feel the need to hide any trade secrets from his neighbors up the road.
"There is no IP in this business. That's nonsense," said Harris, though he clarified at multiple points that this was only his opinion.
Harris says that before Bitdeer was in town, Bitmain used to come over all the time to take a look around. They were most interested in Whinstone's shelving and racking system.
"We brought them over, gave them the pictures, told them what machine to buy, told them how to do it. It still took them like eight months to plug the machine in," he said.
Harris has publicly documented the whole process of building Whinstone, posting videos from in and around the Whinstone facility to YouTube. He also shares drone footage to give interested parties a sense of how expansion is going.
"It just doesn't matter, because what we're working on will take them two years to catch us," Harris said. "We're always two years ahead of what other people are doing."
Inside America's biggest bitcoin mine
When someone mines for bitcoin, they're actually lending their computing power to the bitcoin network. Roughly every ten minutes, 6.25 new bitcoin are created. In order to mint these new tokens, a global pool of miners compete against each other to see who can unlock a batch of new bitcoin first.
The more machines a miner has online, the greater its share of the network's hashrate, and the better its chances at winning bitcoin.
Whinstone has multiple buildings on site, each stacked 20 feet high with rows of computer hardware designed specifically for this purpose. Harris estimates that at its current capacity, it's producing more than 500 bitcoin per month, which at today's prices, is about $30.7 million, or $368 million a year. The firm claims to have around 100,000 machines on site.
Riot acquired the Whinstone mine earlier this year for $80 million plus stock, and it is now billed as the biggest in North America. The company is still expanding, and once the build-out of the 100-acre plot of land is complete, the crypto mine is expected to have a total power capacity of 750 megawatts.
To put that in context, Gibson says that downtown Dallas uses just 200 megawatts. "So it's like having downtown Manhattan, downtown Dallas, all in our backyard," continued Gibson.
The grid has that amount of power to give. The tricky part is in physically tapping into it. Mines need special equipment to adjust the voltage to a usable level. Transformers take the power from a substation and convert it to a lower voltage that can then be used to power bitcoin miners.
"Transformers you can get in about 12 weeks if you were hot to try and had cash, but you've still got to get the power off of the lines," said King. The wait for a substation is 16 to 18 months, according to King.
Whinstone builds its own substations which gives the firm an advantage over other would-be miners looking to head to Rockdale. They are in the process of installing three 100-megawatt transformers now.
"The irony in that is if you want that transformer today, and you haven't ordered it, it's 64 weeks," said Harris.
Whinstone is also in the business of trying out cutting-edge tech.
When rigs are mining, they run a computer program which crunches millions of math equations. Doing all those computations is hard work, which is why the hardware gets hot, fast. To make sure they don't overheat, a facility will typically install fans to cool them down. At the Whinstone site, this hot air is blown by individual fans into a central chamber known as the "hot aisle."
Harris took CNBC inside to feel out the temperature, which can hit 150 degrees.
But now, Riot is trying out immersion cooling in a couple buildings at Whinstone. The computers are submerged in a specialized fluid that keeps the integrated circuits operating at lower temperatures. The heated fluid is subsequently pumped and circulated to help with dissipating the heat, at which point the cooled fluid is then pumped back in.
The company says it's the first time it's been done at an industrial-scale. All in, the immersion-cooled buildings are expected to host approximately 46,000 S19 series Antminer ASICs. (The term originally referred to the specialized integrated circuits most useful for mining but now is often used as shorthand for a mining rig or computer.)
Riot CEO Jason Les thinks this will be a game changer for the company's bottom line.
"We anticipate observing an increase in the company's hashrate and productivity through 2022, without having to rely solely on purchasing additional ASICs," Les said in a statement.
Whiplash in Rockdale
Mayor King is a crypto miner himself. He has 37 five-terabyte hard drives plugged in all around his house, and he uses those machines to mine for chia, an eco-friendly cryptocurrency. The mayor tells CNBC he generates about .035 chia a day, or $4.68.
King has spent years teaching himself about how crypto and blockchain works, mainly because the town of Rockdale really needed this bitcoin experiment to work out.
For a long time, Rockdale was a one-company town. Alcoa employed thousands of residents, up until it was forced to close.
Then there was Bitmain. The China-based company said it would invest $500 million to build a massive mining facility at the decommissioned Alcoa power plant in Rockdale in 2018 and create 400 local jobs in the process. But as the world descended into crypto winter, so too did the company's ambitions. Bitmain soon put its plans on ice.
It didn't help that the city's only hospital abruptly shut down in 2018. At the same time, Rockdale was in the thick of battling a problem with its water system, where residents complained of smelly red water coming out of their faucets. Rockdale seriously needed a break.
But then in came Whinstone and a newly invigorated Bitdeer, which had recently split from Bitmain following infighting at the top. Whinstone has spearheaded multiple efforts at job creation and local community outreach.
"The Rockdale economy was devastated for several years until the bitcoin miners showed up," said Bratcher.
Some remain skeptical after years of whiplash. But King thinks this time really is different.
Beijing exiling all of its crypto miners was a black swan event for the industry. For years, China dominated this business, boasting 75% of the world's bitcoin miners at its peak. But after its crackdown, a mass migration of humans and physical hardware got underway and many began to head to Texas.
This migration is still happening now and many want to plant their flag in Rockdale, which is just fine by King.
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