How Bitcoin mining devastated this New York town

How Bitcoin mining devastated this New York town

If, in 2017, you had taken a gamble and purchased a comparatively new digital currency called Bitcoin, today you would be a millionaire many times over. While the industry has brought in some big bucks, it has also cost local communities a lot.

Cryptocurrency is created by computers solving complicated mathematical equations–a process that took off after a Chinese company called Bitmain started selling a machine in 2016 with application-specific integrated circuits that made it possible to do this specialized computing much more quickly. “Almost overnight,” says Colin Read, a professor of economics and finance at the State University of New York at Plattsburgh, “a crypto-mining arms race began.”

Each Bitcoin transaction consumes 1,173 kilowatts

People began scouring the world for cheap sources of energy to run large Bitcoin-mining farms using these circuits. Cryptocurrency notoriously devours electricity; each Bitcoin transaction consumes 1,173 kilowatts–more than the average American uses in a month. In 2020, the world’s crypto mining required more energy than the whole of Switzerland. At the time, Plattsburgh had some of the least expensive power anywhere in the United States, thanks to cheap hydroelectricity from the Niagara Power Authority.

It didn’t take long for a subsidiary of the popular mining firm Coinmint to lease a Family Dollar store in Plattsburgh. Joe McMahon (the city’s building inspector) recalls that Prieur Leary, the man who signed the lease in question, wanted everything to be done quickly. McMahon states that Prieur Leary wanted power on overnight. “We were all uneasy about it but didn’t know the harm.”

Coinmint filled the building with servers, running them 24 hours a day. When the miners wanted to expand into a nearby shopping center, Bill Treacy, the manager of the Plattsburgh municipal lighting department, told them that they would have to invest $140,000 in new infrastructure. He was surprised that they didn’t become discouraged. Soon, the company was regularly drawing over 10 megawatts, enough power for about 4,000 homes.

Other miners were quick on their heels. Treacy recalls a prospector calling to ask if he could get five megawatts. Treacy said, “Excuse me. It’s a quarter off what New York uses on a given date!” Plattsburgh soon received a major mining application each week.

Plattsburgh, NY
In 2018, Plattsburgh was receiving a major crypto-mining application every week.

GABRIELA BHASKAR

Colin Read, professor of economics and finance at SUNY Plattsburgh
“I’m pro-economic development,” says Colin Read, professor of economics and finance at SUNY Plattsburgh, “but the biggest mine operation has fewer jobs than a new McDonald’s.”

GABRIELA BHASKAR

In January 2018, there was a cold snap. People turned up the heat and put in space heaters. The city quickly outgrew its hydropower quota, and had to purchase power from other sources at much higher rates. McMahon says his Plattsburgh home’s energy bill jumped by $30 to $40 a month. McMahon says that people felt there was an issue but didn’t know why.

As the long winter wore off, neighbors noticed a new disturbance. Mining servers generate extreme heat and require extensive ventilation to prevent shutoffs. McMahon said that the fans produced a constant, high frequency whine. It was not just the decibels but the pitch. “It registers at a strange level, like a dentalache that won’t go away.” Carla Brancato lives next to Zafra, a crypto mining and hosting company run by Ryan Brienza, a Plattsburgh resident. According to Brancato, her condo vibrated from the noise for many years. It was almost as if someone was constantly running a vacuum upstairs. The new mines created few jobs in the area due to the automated nature of the servers. Read states that “I’m pro economic development”, but the largest mine operation has fewer local jobs than a new McDonald’s. Plattsburgh does not have an income tax and most miners lease buildings. This means they don’t pay property taxes. Elizabeth Gibbs, a councilor from the city, was stunned when she visited one of the mines. She says that she was shocked by the heat and loudness of the operation. She describes a warehouse with hundreds of servers stacked in stacks connected by umbilical-like wires. Doors and windows were left open to let in cool air.

Cointmint server racks
Once it was online, Coinmint was regularly drawing over 10 megawatts, enough power for about 4,000 homes.

GABRIELA BHASKAR

Read, who became mayor in 2017, decided to impose a moratorium on new crypto mines until the city could figure out what to do. First, the New York Public Service Commission established a rider that required high-density users pay higher rates. To ensure that bills were paid, the rider required crypto companies to pay upfront for specialized infrastructure and to make a security deposit. Based on two months of electricity use, Coinmint’s deposit was $1,019,503. The appeals process with the New York State Department of Public Service took two years. Treacy states that they lost the appeals.

Next, Plattsburgh revised its noise ordinances and building codes. Coinmint, an established business, voluntarily agreed to cooperate with the city.

Brienza, for his part, doesn’t think the moratorium was necessary. He says that the city could have attracted many businesses. He says Zafra’s new facility has made noise reduction a priority. Brancato claims that after Zafra turned down its fans last summer, Brancato’s home is now quiet.

Plattsburgh now accepts new crypto-mine applications. Despite the new regulations, they have not seen much interest. Coinmint signed a long-term leasing agreement for an Alcoa aluminum plant. Instead, mining has exploded in Massena. In 2021, Massena also halted new crypto-associated businesses. “Our goal isn’t to stop business, but make sure that the character and safety are protected,” wrote a member of the town board in an emailed statement.

From 2016 to 2018, crypto mining in upstate New York increased annual electric bills by about $165 million for small businesses and $79 million for individuals, a recent paper found. McMahon states that investors see the value of crypto, but individuals living in this community don’t. I don’t.”

Economist Matteo Benetton, a coauthor of the paper and a professor at the Hass School of Business at the University of California, Berkeley, says that crypto mining can depress local economies. In places with fixed electricity supplies, operations suck up grid capacity, potentially leading to supply shortages, rationing, and blackouts. Even in areas with abundant power supply, such as upstate New York and New Jersey, mining can obstruct other potential industries that could have employed more people. Benetton states that while there are some private benefits to the electricity market, there are also social costs.

These impacts are already being felt across the nation. Benetton claims that there are strong profit incentives for servers to be kept running. He is now calling on the government to provide more transparency about energy use in these companies. This is not a popular opinion in the industry. Benetton says that if you are doing something really good, you should not be afraid to share the data The federal government doesn’t currently monitor cryptocurrency’s energy consumption. However, Gary Gensler, chair of Securities and Exchange Commission, acknowledges that there are regulatory gaps. In a 2021 speech at the Aspen Security Forum, he referred to the industry as “the Wild West.”

As long as mining is so profitable, Read warns, crypto bans just shift the harm to new locations. When China banned crypto mining in 2021 to achieve its carbon reduction goals, operations surged in places like Kazakhstan, where electricity comes primarily from coal. As a result, a recent study found, Bitcoin’s use of renewable energy dropped by about half between 2020 and 2021, down to 25%.

Even though the industry invests in renewable energy it still contributes significantly to carbon emissions.

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Read discredits the claims that green investments and greater efficiency can solve this problem. In a recent working paper, he found that cryptocurrency’s energy usage will rise another 30% by the end of the decade–producing an additional 32.5 million metric tons of carbon dioxide a year. He says that as long as Bitcoin’s price rises, mining will increase, which in turn encourages energy use. He refers to this situation as “the Bitcoin Dilemma.”

Those 32 million metric tons of carbon dioxide will make the climate crisis even worse, whether the emissions are coming from upstate New York or Kazakhstan. Read says, “We all suffer as the consequence.”

Lois Parshley is an investigative science journalist.

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