Bitstream Mining, a new downtown San Antonio-based cryptocurrency mining company, is building a cryptocurrency “mine” in the Permian Basin, backed by $ 3 million in capital funding from the parent company Ecoark Holdings.
A cryptocurrency mine is a collection of computer servers that compete with other computers around the world to solve complex mathematical problems that require specialized computers and immense amounts of electricity. The more computing power invested in a mine, the more money a mine can earn.
The company is part of a modern Texas gold rush. The newly established The Texas Blockchain Council, a trade association for the thriving industry, estimates that there are around 20 small-scale mines and five or six large-scale mines, including the country’s largest mine located in Rockdale, outside of ‘Austin.
Texas’s comparatively unregulated energy grid and cheap electricity are beacons for energy-hungry cryptocurrency miners, competing against each other in a market almost defined by its volatility.
âThe only thing you can be sure about in all of this space is your cost of electricity,â Bitstream chairman Britt Swann said from his office at Geekdom. “The lower the cost of electricity, the lower the risk.”
And the more energy that is invested, the more money is likely to come out. To understand why, you need a brief explanation of cryptocurrencies.
Take Bitcoin, the largest cryptocurrency in a field of hundreds this includes others like Ethereum and Dogecoin. Although advertised as a digital currency and sometimes used as such, Bitcoin most often functions as an investment product. Computers participate in a decentralized network that distributes the complex algorithmic work required to create a public ledger of all transactions on the network. The more a computer contributes to this network, the more Bitcoins it receives.
However, the value of Bitcoins fluctuates wildly depending on variables such as energy costs, the degree of competition, and speculation on regulations, making it difficult for miners to predict their returns. For example, in May the price of Bitcoin fell 30%, although it has since rebounded. In September, the price of a single Bitcoin fluctuated between $ 50,000 and $ 40,000.
Bitcoin mining has become a more difficult market as more computers join the network. In the beginning, about ten years ago, these algorithms were largely processed by personal computers. But as the network grew, the duration and amount of energy needed to generate a bitcoin, just like the number of business enterprises looking to generate bitcoins and other cryptocurrencies on a large scale with specialized platforms, such as Bitstream Mining.
Swann, who has a background in finance with a specialization in oil and gas, first became interested in cryptocurrency in 2016. He held onto the idea of ââa cryptocurrency mine for a few years. until he got involved with San Antonio-based Ecoark Holdings (Nasdaq: ZEST) Diverse holding company formed in 2020. There, he said, he found an audience receptive to cryptocurrency firms.
Swann said he told a business manager at Ecoark: “If we can solve the energy problem, there is a business here to be formed.”
Bitstream was formed in May as part of Trend Discoveries, a subsidiary of Ecoark, a limited partnership that invests in start-ups. Ecoark also has two other subsidiaries: Zest Labs, an agricultural technology company focused on reducing food waste in the supply chain, and Banner Midstream, which is involved in oil and gas exploration.
Bitstream employs a team of entrepreneurs and employees, although Swann declined to provide figures, saying the company is moving too fast.
Mine from Bitstream will be a collection of toaster-sized computers that run day and night to generate bitcoin and other cryptocurrencies. These computers, specially tuned for this purpose, will operate up to 12 megawatts of electricity, according to a press release from Ecoark. That’s enough to power an average of about 2,400 homes in Texas on a hot summer day. Going forward, Bitstream said it plans to expand the mine’s capacity to 50 megawatts, which will allow it to mine cryptocurrencies faster.
The mine, which will engage in a variety of cryptocurrencies, is expected to generate a monthly income of $ 4.4 million by January 2022, according to Ecoark’s press release. Swann declined to say where Bitstream is building its mine.
Because the Bitcoin network as a whole uses more energy than many small countries, cryptocurrency mining may seem unsuitable for a state whose energy grid nearly suffered a catastrophic collapse earlier this year. But energy experts say the industry’s predictable energy needs and its ability to shut down in an emergency can add stability to the grid, provided the right agreements are in place.
Bitstream said it plans to participate in an ERCOT program in which it promises to cede its energy use during times of peak energy demand – such as sweltering summer days or freezing winter nights. The deal would give the company a discount on its energy rates.
Joshua Rhodes, an associate researcher at the University of Texas at Austin Energy Institute who studies the effect of cryptocurrency mines on the network, said agreements in which cryptocurrency miners shut down operations during peak hours can help network operators at ERCOT to better balance the offer. and demand.
âAnytime you have the opportunity to turn loads on and off, it can help stabilize the grid,â he said.
But if cryptocurrency mines don’t offer this flexibility through formal agreements, he said, they could actually exacerbate the network’s problems.
Peter Cramton, former ERCOT board member, echoed Rhodes’ assessment when he told the Washington Post over the summer that cryptocurrency mining adds welcome flexibility to Grid. But, he said, “the problem is, it consumes real resources, does a function that has no value.”
Questions about the value of Bitcoin and other cryptocurrencies have elicited dramatic reactions from political leaders around the world in recent years. In September, El Salvador adopted it as legal tender. China’s recent crackdown on cryptocurrency, part of a larger attempt to curb financial risk-taking, resulted in a complete ban on all cryptocurrency trading and exploitation last week.
While Bitstream may be the first San Antonio-based cryptocurrency trading company, Swann is just one of a growing number of people who see cryptocurrencies as an attractive investment vehicle.
One measure comes from the number of bitcoin “vending machines”, which are public machines that allow a user to purchase Bitcoin in cash or with a credit card. Some also allow users to sell Bitcoins. As of October 2019, there were around 31 Bitcoin ATMs in San Antonio, according to the San Antonio Express-News. Today, they are around 236.
Andres Gonzalez, co-founder of the San Antonio Crypto Network, an advisory group for individuals and businesses founded by local investors, said that in recent years his group has received more and more requests for small San Antonio businesses asking if this was the case. worth putting their capital in Bitcoin – not as an investment, but as a hedge against inflation. Gonzalez tells them yes. (Swann also called Bitcoin an âinflation shelterâ).
But that doesn’t mean it’s become normal. To many, the concept still smells of criminal activity due to its high-profile use in drug dealing and money laundering.
Gonzalez said his bank contacted him after noticing activity with a leading cryptocurrency service. They wanted to know if he was doing “nasty stuff,” Gonzalez said. He wasn’t, but he had to meet with a bank representative to explain his transactions.
When asked if the service made him rich, Gonzalez said, “Let me put it this way. Maybe I could pay off my law school debt sooner than I thought.”