Digital gold: How a coastal Alabama partnership has led to a growing bitcoin mining operation
Alex Owen has spent a lot of time explaining to his parents and anyone curious about his expanding mining business in rural Foley.
But instead of pickaxes and shovels, Owen and his partners are mining for digital cash or cryptocurrencies – Bitcoin and Ether to be exact. The operation is occurring inside a non-descript warehouse they recently leased for the sole purpose of operating dozens of computers with the hopes of adding to the so-called “block chain.”
“A lot of people hear too much on TV that it’s used in nefarious situations and different things like that,” said Owen, who is part-owner of Natural Block Chain, an expanding crypto-mining venture with partner, Rick Fletcher, CEO of Fletcher Petroleum in Fairhope.
“I try to explain to them that it’s not and that big banks and retailers of all kinds are taking Bitcoin,” Owen said. “That means that we are transitioning to where everyone else is accepting it.”
While Bitcoin and other digital currency are terms more commonly used in the past few years, the “mining” of it remains a somewhat newer and complicated riddle.
Mining is the process in which ordinary people with computers run specialized software to verify a cryptocurrency transaction.
For Bitcoin miners, verification is handled by cracking a complicated mathematical code and adding a record of a Bitcoin transaction to a shared online ledger, called the blockchain.
If the miner adds to the ledger, it can bring in a lucrative haul: The standard reward is 6.25 bitcoins, which is placed into the miner’s “wallet.” One bitcoin, as of Friday, was valued around $23,700.
Natural Block Chain belongs to Slush Pool, the oldest Bitcoin mining pool established in 2010, in which rewards are divvied among cooperating miners based on their “hash” power, or the power and speed in which their operation is running.
“The computer, itself, is doing (the calculations),” said Owen. “You just plug it in, and it runs itself. You want to make sure you have the settings inputted that you like. We have linked to our pool and every time a pool finds a block, (the rewards) are distributed to you.”
He said, “We get bitcoin paid to us every single day.”
Roller coaster complexities
Bitcoin – the leader of the cryptocurrency universe, founded in 2009 – has an expanded reach that, in recent years, includes PayPal, AT&T, and Overstock. Even those who use the Starbucks app can dip into their crypto wallets to pay their latte or other specialized drinks.
Celebrities are in on the action. Quarterback Tom Brady and his wife, supermodel Gisele Bundchen, have appeared in an ad touting cryptocurrency. Actor Matt Damon, in a commercial for Crypto.com, declared that “fortune favors the brave.”
But roller coaster values, an outright ban of cryptocurrencies in China and eight other countries, and restrictions in mining-rich areas like Texas, has generated unwanted attention for cryptocurrencies and their miners in the past year.
The energy-intensive nature of the mining process – not to mention, the noise the operation creates – has also put the next-generation currency in a negative light.
Bitcoins are also not a tangible product, meaning cryptocurrencies do not exist in physical form, and its supply is not determined by a central bank.
It is also hard to understand for people long used to a centralized monetary system.
Wonky terminology is also part of it all: Ever heard of “halving”? That is pivotal event for Bitcoin demand because, when it occurs, it knocks down the reward for mining it. The next halving is not slated until 2024, with the last one occurring in the year 2140 — the final year for Bitcoin mining.
For those who are tech-savvy, and unafraid of using sophisticated hardware to solve complex calculations, the painstaking process of mining for cryptocurrencies can be rewarding.
“It’s really hard for people to understand,” said Owen. “You cannot see a Bitcoin other than on an electronic device. And the only way you send it is through a phone or a computer. It’s a newer and more convenient way of sending money that is safer.”
He added, “You have all these miners set up all over the world. You cannot forge Bitcoin.”
Natural Block Chain
So, what is Natural Block Chain doing?
The process of mining involves the use of unique computers – Owen estimates each of their Bitcoin computers costing $10,000 each, and slightly more expensive for the graphics processing units that are mining for Ether – to verify the legitimacy of cryptocurrency transactions.
Ether, part of the Ethereum network, is second in cryptocurrency market capitalization behind only Bitcoin.
Cryptocurrency mining is considered only sporadically rewarding, but it has a growing appeal for investors who seek the potential reward.
The process is often compared to the modern equivalent of the California gold rush of the 1840s, in which tens of thousands of people flocked the West Coast and engaged in an equally painstaking task by panning for gold.
The California Gold Rush was also criticized for being environmentally harmful. The same has also been said about mining for cryptocurrencies, because of its drain on the electrical grid and the noise and heat that computers emit.
For Natural Block Chain, timing and good luck might mitigate some of those effects.
Foley-based Riviera Utilities, in fact, has given the operation the go-ahead.
“We found this warehouse in Foley that was easy for (Riviera Utilities) to bring us electricity and it’s got a lot of room to grow,” said Owen.
Scott Sligh, chief engineer with Riviera Utilities – which provides electricity to portions of Foley, Daphne, Magnolia Springs, Elberta and Lillian – said the site had “some large transformers out there doing nothing” and that it was easy to assist them in getting up and running.
“We generally look at electric plans (for a business) and size the transformers on that,” said Sligh. “These guys do it in reverse. They asked how much capacity to give at this spot and back into the numbers themselves. They are cognizant of capacity needs. Yes, they are energy intensive, but they approached it in the right way with us.”
Sligh said that Natural Block Chain utilizes 5 megawatts of electricity, representing a “holdover” from the previous warehouse tenant meaning that it’s currently not emitting any more energy than what was being utilized at the site before.
But more power is expected to keep the expanding number of machines operating on a 24-hour cycle.
Natural Block Chain has 32 Bitcoin machines constantly running, 24-hours a day. Because prices have dropped, and machines have gotten a bit cheaper, Natural Block Chain anticipates adding 18 more by next week.
An additional 24 machines are mining for Ether.
“They are asking if we can give them 15 megawatts at that site,” Sligh said. “‘Yes,’ has been the response. Our typical substation is 30 megawatts. We’re talking about a half of a substation and that is lightly loading. We can do it without straining our system.”
A substation can power from 1,200 to 1,500 homes, Sligh said.
Owen said the goal is to keep adding more machines. “Thousands,” he said. The operation’s first phase involves adding 500.
“We were very fortunate to find this particular space with the transformers already here,” said Owen. “If you were to go out and look for a transformer of this size, it could be two-year time frame for one to become available. Riviera was able to help us out and get that for us.”
In June, Fletcher and Owen took a big step toward mitigating the noise and heat produced inside the warehouse.
During one hot day in June, the two constructed a large “wind tunnel” out of foam board and connected it to their operation. The tunnel is meant to remove excessive hot air produced by the computers.
The tunnel also muffles the noise the machines produce to the point where it’s not overly noticeable outside the warehouse.
The additions are timely. Criticism about the industry’s massive carbon footprint, and noise pollution in rural areas, has captured media attention in recent years.
In Texas, cryptocurrency mining was shut down this summer because it was taxing the state’s power grid. The Lone Star State is one of the five most popular states for crypto activity, while large-scale activity in Alabama has been sparse.
“We are not trying to do anything negative to the environment, by any means,” said Owen. “We are also trying to take advantage of a cheaper electricity rate.”
In Alabama, cryptocurrency mining has been mostly smaller-scale operations. The activity received attention in May, when former Mobile Mayor Mike Dow announced that the GulfQuest Maritime Museum in downtown Mobile will be home to a future cryptocurrency mining operation.
Dow, on Monday, said the GulfQuest mining system is being configured for 100 bitcoin miners. Installation should take place within the next 30 days.
“I think it was a good idea for them if they are trying to increase revenues,” Owen said. “If you have the space and you have the ability to get power and if you have the capital to get it started, Bitcoin mining can be profitable.”
He added, “For us, we firmly believe that Bitcoin will be used in the future and will be around for our world moving forward.”