Blocktime
Your go-to Bitcoin podcast hosted by Pierre Rochard, VP of Research at Riot. Tune in weekly for thought-provoking discussions, exclusive interviews, and a deep dive into the disruptive power of Bitcoin.
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Blocktime
Episode 43: Debunking Myths: Bitcoin Mining and Texas's Power Grid
Get the facts straight on Bitcoin miners' role in Texas's energy grid. We’ll address the misconceptions and criticisms head-on, illustrating how Bitcoin mining offers grid flexibility and supports stability. From political insights to technical clarifications, this episode lays out the real story behind Texas Bitcoin mining, correcting misleading narratives and highlighting the significant contributions of this burgeoning industry. Tune in for a comprehensive look at the symbiotic relationship between Bitcoin mining and Texas’s electricity market.
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Welcome to Block Time produced by Riot Platforms, where we take a deep dive into Bitcoin, bitcoin mining and electricity grids. Today we're taking a close look at an article that was published by the Economist. They decided to take an interest in Bitcoin mining here in Texas, so we're going to see how they did. They got some things right. They got a lot wrong, so we're going to take a deep dive and unpack it. So the headline that was published this week here we're in the last week of August was United States Bitcoin All right, so they misspelled Bitcoin there to kind of conjure up a negative connotation of con artists.
Speaker 1:I guess Bitcoin question mark why Texas Republicans are souring on crypto. Texas Republicans are souring on crypto. Playing the state's energy market has become more profitable than mining. Bitcoin is the subtitle. So first, I would object to the use of crypto here as well. There's really, you know, bitcoin is the only material asset being digitally mined here in Texas. So I think that they should have also just added mining in there as well, because there is a difference between crypto and Bitcoin mining. A lot of cryptos like Ethereum are actually proof of stake, so this whole topic is somewhat irrelevant to them. In any case, onto the subtitle of saying that playing the energy market has become more profitable than mining Bitcoin. So we're going to look at if that's the case or not.
Speaker 1:So first of all, at a high level, what they're talking about here is essentially to be selling electricity. It would have to be the case that electricity prices are generally higher than the revenue from mining Bitcoin. When we look at the so I've got a chart here from January 2023 up to April 2024. And over those months it's looking at how often were electricity prices high versus how often were they low, and what we see is that generally, electricity prices here in Texas are low and in purple, in fact at the bottom here. We have times when they were negative. We have times when they were negative. So most of the time, in fact 99% of the time, it is more profitable to mine Bitcoin than the 1% of the time where electricity prices are elevated. And you see here that what stands out really is one month, august and that is the month that the Economist decided to cherry pick, as we'll see later to talk about the relative profitability of electricity selling to the grid versus mining Bitcoin of the peak you know it's the majority of the time electricity prices are between $0 and $20 a megawatt, which is just very low pricing. And let's talk about where those peak times come from. Those peak times come from when the power output of solar panels is dropping precipitously as the sun comes down, sunsets in the evening here in Texas, and you can see here in orange the solar power output goes down and the wind is relatively low.
Speaker 1:On this particular day I took May 8th because we saw high prices on May 8th, so I wanted to make a case study here. So when wind was low, it was ticking upwards, but not quickly enough, and natural gas was basically maxed out at 40 gigawatts, and so when you're in a situation like that here on the Texas grid, electricity prices skyrocket. You see power storage in the dark red at the bottom. Power storage also did its best, but nevertheless there was price volatility. So you can see that outside of this sunset time in the evening, electricity prices were very low on May 8th, and so it really has to do with the fact that Texas has a tremendous amount of intermittent renewable generation that comes and goes depending on the weather, and that that introduces quite a lot of volatility in electricity prices under particular scenarios of high temperature combined with low wind and the sun is setting.
Speaker 1:Another interesting case study is on April 8th, there was a full solar eclipse here in Texas, and so you saw, in the middle of the day, the sun set, essentially, and so solar output went down. Electricity prices went up, and this chart here from ERCOT shows that, as electricity prices went down, electricity prices went up, and this chart here from ERCOT shows that, as electricity prices went up, you had Bitcoin miners turning off, and then they came back online after the eclipse passed, so again illustrating that we're really talking about a very small percentage of the time of particular scenarios where there's not enough generation to keep electricity prices low and so to offset that, you have loads like Bitcoin mining curtailing. The next piece of data that I want to show you is from Texas A&M, so they took a look at the correlations between total system net load, which is essentially how much electricity are people consuming net of solar and wind, so that you remove the intermittent generation from the equation because it's outside of anyone's control and what they found was that the more people are consuming electricity, the less Bitcoin miners are consuming electricity. There's a negative correlation you see here on the right, negative 0.75 between Bitcoin mining and system-wide net load, and that's really because that net load is one of the main drivers of the price of electricity, and so the more net load there is, the higher the price of electricity is, and less Bitcoin mining there is, during those particular windows of time, the subtitle, because really you know when they're making that accusation that Bitcoin mining is less profitable than selling electricity to the grid, they're really talking about a very small percentage of the time and it is very misleading to the readers to think that it's generally the case here in Texas. And let's keep going into the article after the subtitle. So the article says Cryptocurrency is now campaign talk, thanks to Donald Trump.
Speaker 1:Last month, in their party platform, republicans announced plans to bring an end to the un-American crypto crackdown and pledged to defend the right to mine Bitcoin. At a Bitcoin conference in Nashville days later the biggest such get-together in the world Mr Trump vowed to make America the crypto capital of the planet. Unlike most campaign promises, this one ought to be easy to keep, because it is already true. After China banned Bitcoin in 2021, crypto miners went looking for refuge In Texas. They found everything they needed Cheap power, an abundance of land, low taxes and a libertarian ethos that matched their own. Three years on, america is home to more Bitcoin mining than anywhere else, and Texas has more than most other states combined, but soon the Lone Star State could drive them out.
Speaker 1:So I think that you know there's definitely elements of truth in these two paragraphs. Donald Trump was in Nashville at the Bitcoin conference. His campaign promise, though, was to mine all of the Bitcoin in the United States, and so I think that that campaign promise is actually hard to keep, because Bitcoin mining is a global phenomenon. Currently, it's estimated that 40% of the Bitcoin mining is happening here in the United States. So that last part about the United States has more Bitcoin mining than anywhere else in the world. I think that's mostly true, but you have to phrase it in such a way that you're not implying that it has the majority, because it does not yet at least have the majority of the Bitcoin mining. But no other country has more 15% of the total global Bitcoin mining, and so the total global Bitcoin mining is north of 20 gigawatts of capacity, and Texas is around 3 gigawatts of that. So I'll chalk that up to being true or mostly true as well.
Speaker 1:And then the factors that have led to this. You know we could talk about the low price of electricity. There's also the fact that the electricity market here in Texas, the regulations around it, are very well designed to be market oriented, to be technology neutral and to be what's called energy only where they're really focused on making sure that generators are getting paid only if they are actually delivering electricity and that there's a free market for power generation. So in other jurisdictions, what you'll see is that you might have a vertically integrated monopoly that is regulated to such that they earn a fixed rate of return based on their power generation and that's not the case here in Texas. So ERCOT, the grid operator, is a nonprofit that is really just there to match supply and demand on the grid. They are not the supply. The supply is coming from privately owned, publicly traded many of them. Some of them are cooperatives, power generators who are operating the power plants and plugging into the grid. But ERCOT's really just focused on providing the marketplace, where you have the order book essentially that is going to clear between supply and demand, and then also the bulk transmission system that is connecting all of the supply of power generation to the demand, which is the transmission system, sorry, the distribution system. The distribution system that is the last mile between transmission and your home or a commercial business, a mall, etc. So that provides some background on there. So let's keep going.
Speaker 1:An hour's drive north of Austin, riot Platforms has converted the site of an abandoned aluminum well, so they're British, so they spell it aluminum right a smelting plant into the world's biggest Bitcoin mine Seven steel buildings house 100,000 quote unquote miners. I think they put the quotes there because these are not people. All right, these are computers, servers the size of a toaster. I don't know, maybe they have large toasters in England, but these are a little bit larger than toasters, but you know, let's say ballpark. They compete in a mathematical race to guess codes that award their owners Bitcoin. This is probably one of the least worst simplifications of Bitcoin mining that I've read, so kudos to the author. I think that's basically correct.
Speaker 1:Row upon row of miners are submerged in tanks of non-conductive oil to cool them. This is the dielectric fluid in Riot's state-of-the-art immersion systems that we have in half of the buildings in Rockdale. Dead crickets float on the surface, caught between tentacles of wires that feed energy to the machines. So the dead crickets, they are definitely there. It's an issue here in Texas that we have lots of crickets and they find their ways into these buildings and, for whatever reason, they're attracted to the warmth of the immersion tanks, so we actually have filters that catch these crickets to then be able to clean them up. So, this being the economists, you know they're very much in the camp of eating the bugs, so they're probably viewing this as problematic because they want crickets to be in our food, and here we have crickets being consumed by the Bitcoin mining facility. You'll see, though, that I'll come back to this in a minute, because we've got a solution for that.
Speaker 1:Um, now, the inaccuracy here is uh, that riot platforms has not converted this site and of an abandoned aluminum smelting plant. Uh, in fact, um, riot's facility in rockdale is on a greenfield site. So a long time ago at the time it was Windstone, an entity that Wright acquired Windstone acquired a empty or at least an empty piece of land adjacent to the former Alcoa plant, and so they cleared this piece of land and built the mining facility there, across the street from the Sandow switch. So here you've got a picture showing the Riot Platforms facility in the background that is not in the aluminum plant, and then in the foreground you do have the aluminum plant, and so this is actually where Bitdeer operates their Bitcoin mining facility. So they kind of swapped out Riot and Bitdeer in their narrative here, which is kind of troubling from a fact-checking perspective. Would think that them being a professional journalistic outfit, that they would actually go and double check what they're publishing, what they're writing, to make sure that it is accurate. But this is actually just a complete inaccuracy and wrong.
Speaker 1:But setting that aside, let's talk more about this Rockdale facility. So the aluminum plant operated formerly by Alcoa. When the space shuttle program wound down. This facility did not have one of its largest customers anymore, and so they shut down. Operations had to lay off a lot of people. Attached to this aluminum plant were two large. Attached to this aluminum plant were two large coal-fired power plants as well, and so those eventually shut down too, and the coal mining there as well, and they entered into environmental remediation and it definitely increased the unemployment in this local community. People had to leave Rockdale or commute to get jobs elsewhere, and what was left behind really was, on top of kind of the buildings of the aluminum plant, was the Sandow switch, which was now dramatically underutilized due to the lack of that industrial base. So Bitcoin miners came in and were able to plug into this existing electrical infrastructure, the Sandow switch, and put it back to use. So it goes on to the theme of Bitcoin miners identifying stranded energy assets and being able to revitalize not only that asset but the surrounding community. Not only that asset but the surrounding community. So in Rockdale, bitcoin miners, riot, bitdeer we employ hundreds of people and we've really been able to revitalize the local economy and also start to attract additional developments. So, for example, it was announced this year that there's going to be a new natural gas-fired power plant that's going to be built in the Sandow Lakes area. There's also a logistics facility industrial logistics facility that's being developed and then just a town over there's Samsung's semiconductor plant that is being built as well. So lots and lots of investment coming into this rural community, led by the Bitcoin miners. So you know, overall, despite the inaccuracy here, I think it is important to highlight that, while you know, in past decades there has been deindustrialization and kind of difficulty in rural areas. Now that's turning around.
Speaker 1:Okay, next paragraph Pierre Rochard that's me, head of research at Riot. So here they kind of gave me a little bit of a promotion. Right, I'm actually the vice president of research, but that's okay, I'll take it. It says it costs roughly $30,000 of electricity to mine one Bitcoin, and last year Riot mined nearly 7,000, implying an annual cost of some 200 million. So here the implication is actually misleading, because the cost cited here of $30,000 of electricity, that's really post-halving, whereas the Bitcoin mined last year were pre-halving. So their implied annual cost is kind of off here. But anyway, I don't expect them to get everything right. And Riot is just getting going.
Speaker 1:The company is building a second plant I don't know if plant is the correct word. I mean it's a facility, it's a data center, it's not a power plant, but in any case, in Corsicana, south of Dallas, that will be double the size. So the Rockdale facility has a nameplate capacity of 700 megawatts. Corsicana has a nameplate capacity of one gigawatt. And so here's some images from Corsicana and where we're currently at. So we've completed A1 and A2, completing B1, getting going on B2. Completing B1, getting going on B2. So all in this is each building that is A1, a2, b1, b2, each building is 100 megawatts. So by the end of the year we're expecting to have 400 megawatts operational in Corsicana. Here's some pictures inside of the this might be A1 or A2, where we've got our immersion tanks. And you'll know that these immersion tanks one of the changes we made, coming from Rockdale and learning about the crickets, is that we added some covers to the immersion tanks, and so there's plastic covers, shields that slide back and forth so that we can keep the crickets out of the immersion oil. And I don't know, maybe the economists will want to come harvest the crickets and make themselves some bug meal. But in any case, that problem has been addressed and we're all about making continuous improvement here at Riot. Okay, the ambitious plan belies a new growing pain for the industry.
Speaker 1:This summer, texas' lawmakers some of the most conservative in the nation started to show signs of turning against crypto. To show signs of turning against crypto. At a committee hearing in June, the Electric Reliability Council of Texas, ercot, the grid operator, warned that demand for energy could nearly double before 2030. An influx of people moving to Texas, harsher winter storms and hotter summers are already straining the grid and causing blackouts in cities, as Hurricane Buril did in Houston last month. But an onslaught of new data centers, including ones for Bitcoin mining and artificial intelligence, are expected to account for half the surge.
Speaker 1:So there's a lot to unpack in here, because they kind of mixed up a lot of different things. So, first of all, hotter summers. You know it's not a rule that each summer is hotter. In fact, 2024 summer was far less hot than 2023. So you know we do expect weather to change. So, depending on the season, depending on the year, you have some years that are hotter, some years that are cooler, so it's also not the case that the winter storms are getting harsher. You know, the harshest winter storm in recent memory is was three years ago, so I don't think that that's really relevant to the question of 2030.
Speaker 1:The influx of people moving to Texas that is definitely increasing demand at the retail retail level, but that's also not what was being discussed in the committee hearing, because population growth, that's just a steady, incremental growth. What was really being discussed in the committee hearing was the electrification of oil and gas in West Texas. Electrification of oil and gas in West Texas. So you have lots of oil and gas drilling operations that want to move away from using on-site diesel generation and instead they want to plug into the grid, because it's actually less expensive to consume electricity from the grid than it is to run diesel generators. And so that is kind of the main thrust of what's going on in West Texas and, as was also included in that, bitcoin mining, ai data centers for half the surge. So we'll get to that part.
Speaker 1:But first I want to address what's causing the blackouts in cities. It's really not the increase in demand. What's causing it is physical damage to infrastructure from high winds, and so when they say that demand is straining the grid, that's pretty misleading. It's tornadoes, hurricanes, knocking down transmission and distribution and cutting off supply from getting to demand, and so it seems like I might be making a very subtle point here about the difference between having insufficient supply versus having insufficiently resilient transmission and distribution. If we start saying that, if we give the misleading impression that, oh, let's cut down on the amount of Bitcoin mining happening in Texas in order to improve the reliability of electricity going to consumers' homes, they're going to be really disappointed when the power line gets knocked down by a tree branch and they're like well, we got rid of the Bitcoin mining, so why did this happen? Because they're two completely unrelated things. So if you try to create a hodgepodge and conflate different sources of resiliency needs, then you're just going to have bad policy and everyone's going to be disappointed. Scapegoating Bitcoin mining is not an effective way of improving the reliability of the grid.
Speaker 1:Now, further, if we zoom in on these demand estimates that were put forth by ERCOT. So I think we also have to put some nuance here as well. Erca is not actually making these projections. What they're doing is they're going to and they have to do this by statute and pragmatically they go to third parties. So in this case, it was S&P Global. Now S&P has a mixed track record. Right, famously, they were providing credit ratings for mortgage-backed securities that were completely wrong grain of salt.
Speaker 1:And then ERCOT has to add on top of that what's called the interconnect queue, which is a list of projects that have indicated some kind of interest of connecting to the grid and have indicated this interest to the TDSPs, the transmission and distribution service providers. And so ERCOT is just adding these two numbers up and then looking at the total and saying, okay, well, it's 150 gigawatts will be total demand in less than six years, in 2030. And that's the forecast. Now Inveris is a consultant that actually they look at the list of projects that say, hey, we might be interested in connecting to the grid here and they kind of pressure test these to see, okay, which of these are actually going to end up getting built, which of these are actually going to end up getting built, because their job is to get to real numbers so that they can be providing consulting services to the private sector. And what they found was that it's not 150 gigawatts, it's 93.5 gigawatts, so a 10% increase over the next six years, which is a completely different number than 150 gigawatts and it's a lot more realistic. And so this is kind of confirmed by a research scientist from UT Austin, joshua Rhodes, and he points out that you know these interconnect queues, we got to take it with a grain of salt. Okay, not everything is going to get built. So on top of the fact that the large load interconnect queue has projects in there Some of them are duplicates A project developer will say we might build it here or we might build it there. Then when the TDSP is added up, they include both sites. There's double, triple, quadruple counting going on just because the developer, when they're going into the interconnect queue they're trying to figure out what's going to be the best site. They haven't really made that decision yet. They don't have any skin in the game in the sense of actually putting up a deposit or something like that. It really is pretty loosey-goosey.
Speaker 1:On top of that, not only do you have the load interconnect queue, you also have the load interconnect queue, you also have the generator interconnect queue. And what's interesting is that the generator interconnect queue is actually far more gigawatts than the load queue. So I went up and dug these numbers up from ERCOT. The queue for generation capacity is 348 gigawatts. So that's far more than the load queue. And then you add on the Texas Energy Fund. Notice of intents of and these are mostly natural gas power plants that are intending to apply for a loan from the state to get a financing for building more power generation that 55 gigawatts. You add that you've got a total of 404 gigawatts and again, this number is inaccurate. Right, take it with a grain of salt, but if you're going to compare apples to apples, you have to compare the load interconnect queue with the generation interconnect queue and you see that there's far more generation in that queue than there is load.
Speaker 1:Now, of course, a fraction of the load and a fraction of the generation will end up getting built, but directionally. This is what we're looking at. Let's take a look at what has actually gotten built. So I'm just looking at the difference between 2023 and 2024. So, bitcoin mining 30% increase in load. Okay, so that's on the load side.
Speaker 1:Solar also 30% increase of solar. Now we also have to look at not just the percentage increase but the absolute increase. So when we're looking at the megawatt hours, solar went from 4 million megawatt hours in July to 5 million megawatt hours. Bitcoin mining went from, let's say, 1.8 million to 2.2 million. So there's actually more solar generation than there is Bitcoin mining generation, but in any case, both increased by 30%, and the big increase is from grid batteries, of 168% Now in absolute numbers. It's very small relative to the solar and to the Bitcoin mining. It's only going from 60,000 megawatts hours to 160,000. So it's not in the millions yet, but we have to think about batteries as serving a very particular function. Right, it comes down to that less than 1% of the time where the grid does need those batteries, and so those batteries, while it's fewer hours, it's during the most critical hours that they are providing electricity, and not just during those hours, but also where they are on the grid. So they are positioned at places where the bulk transmission system is going to have constraints, and so they're alleviating transmission constraints as well by where they're placed on the grid. So batteries have to be seen. They're not a primary source of electricity. Obviously, they don't generate electricity, but when we think about being disingenuous is that they're not looking at this growth. They're really cherry-picking some of the numbers of oh okay, here is what the load growth for 2030 is projected to be based on. You know, inflated numbers. But then they're not looking at the inflated generation queue and they're not looking at the actual generation increases that have been happening and are projected to continue to happen. Okay, going on to the next paragraph.
Speaker 1:In response to ERCOT's caution, dan Patrick, the lieutenant governor, criticized the mining industry for not creating enough jobs relative to the amount of energy. It sucks, quote. It can't be the wild wild west of data centers and crypto miners crashing our grid and turning the lights off, he wrote on X Twitter. State senators wondered out loud how they could get the miners to leave. There are too many pigs at the table who this is a quote. There are too many pigs at the table who just run out of food, said Donna Campbell, a Republican who represents seven counties in the Hill Country. If they don't come with their own trough full of food, can we just say no, all right.
Speaker 1:So, first off, in terms of job creation, I looked at how many jobs per megawatt are created by Bitcoin mining and it's equal to how many jobs per megawatt are created by natural gas power generation, and so there's thousands of jobs here in Texas being created by both natural gas power generation and Bitcoin mining. So the accusation is also kind of. It gets to the fundamental nature of energy in human civilization, which is that energy is meant to make humans more productive, right? So before we had electricity, let's say we were all plowing the fields, so you had lots of jobs for humans plowing fields. And then, once you get a combine harvester, it's consuming lots of electricity for fewer jobs, but its output is increased and it frees up people to go do other things. So the history of human civilization is creating more electricity, more energy per person. To say that we need to create more jobs and less energy, it's really backwards.
Speaker 1:But anyway, I think that the other piece of this is that the jobs are not just about the jobs in the Bitcoin mining industry. There's also the jobs in the whole supply chain. Take, for example Riot is buying Bitcoin mining rigs that are manufactured here in the United States by MicroBT, so it's creating manufacturing jobs. Texas is buying electricity from the Texas grid, from private, publicly traded power generators here in Texas. That's creating jobs there as well. And of course, you've got all of the EPC, the engineering, procurement and construction, all the construction jobs being created by building here in Texas. All of the contractors, all the suppliers that were procuring just so much plumbing from lots and lots of wires, lots and lots of electricity manufacturing as well from our subsidiary ESS, metron switchgears. So not only is there all the construction jobs that are created to build the mining facility, but then there's all the jobs that are involved in operating the facility and making sure that the crickets stay out right, and doing maintenance, doing repairs right. All of these machines. Eventually they do break down and we've got to go in and repair them. We also have to go in and refresh them so, as Bitcoin mining rigs become superseded by new models that are more efficient, we have to go in and essentially remodel, refurbish the facilities, swap out old mining rigs for new ones.
Speaker 1:All of these activities, those are jobs, right, and so for the government to have a view that, oh, these jobs don't, this is not enough jobs, so we got to get rid of these jobs by banning Bitcoin mining or slowing down Bitcoin mining. That doesn't make a whole lot of sense. On top of that, we're talking about jobs in rural areas, and so in a rural community, 100 jobs means a lot. It might not mean a lot in downtown Houston or downtown Dallas, but in Rockdale, yeah, it means a lot. It means that every family either has somebody who's employed directly or indirectly in Bitcoin mining or they're friends with somebody who is, and so in these small communities, these jobs mean a lot. And then, on top of that, you have all of the tax revenue. So Bitcoin miners in these counties are the top taxpayers. They pay taxes to the county, they pay taxes to the school districts. So now you're talking about teachers' jobs right, and providing excellent education for these students. So you know, the jobs and tax revenue are significant and material for these communities.
Speaker 1:On top of that, texas it's not like there's some kind of scarcity of energy where, okay, we've got to prioritize the highest job creation, energy consumers, because the grid is built for those peak times and so outside of those peak times, you have all of this excess capacity. It just makes a lot of sense to create as many jobs as you can with, whether it's Bitcoin mining, ai, data centers or you know. I don't know what the most energy intensive you know or the least energy intensive per job industry is, but I imagine maybe it's golf courses. Right, you've got all these people working at the golf course, but it doesn't consume a lot of electricity, so maybe we should just have golf courses in Texas. I don't know.
Speaker 1:Okay, so, moving on, dan Patrick said it can't be the wild wild west of data centers and crypto miners crashing our grid and turning lights off. So I completely agree with the lieutenant governor on this and you know I agree both on the level as a Texas resident who you know, I've got my family, my kids. We want to keep the lights on at our home, and so we're aligned on that. And then also, as Riot's business model depends on a reliable grid. If the grid crashes and the lights are off, riot makes zero revenue. Right, we are going out of business if the grid is not reliable. So I think we're fully aligned on that. And then it's a matter of how do we make sure that that does not happen? And this is where we can talk about constructive policy improvements. So, for example, further integrating Bitcoin miners with ERCOT so that there's a direct line of communication. That was a bill passed in the last session, sb 1929. The Public Utility Commission of Texas has actually just come out with their proposed form for registering Bitcoin miners so that there is that direct line of communication that is very important. Further into controllable load resource and making sure that ERCA is able to directly control Bitcoin miners to make sure that during those peak times, the Bitcoin miners are indeed following the incentives and curtailing. But you know, all of these policy improvements, they're not about getting miners to leave. They're about how do we further integrate Bitcoin miners so that they are doing exactly what they are expected to do, which is absorb excess electricity and then curtail during scarcity moments.
Speaker 1:The next quote from Donna Campbell. So this is journalistic malpractice because it goes for. I mean this is, this is slander. I mean it's just, it's a it's a false quote, because Senator Campbell was not talking about Bitcoin miners. Going to play the clip here and you'll see that, in fact, she's talking about AI and data centers that are projected to continue to come, and so it's really not. You know, if it is about Bitcoin miners, it's as a subset of overall load growth, and you know she also says that it might be about loads that we don't even know about today in terms of what new industries will come in the future. So I'll let her quote speak for itself. Other questions or comments for the panel.
Speaker 2:Senator Campbell. Thank you, Mr Chairman.
Speaker 1:Senator Gray after that.
Speaker 2:That you know technology just as it emerges? We never. We don't know, as it's emerging, how much power it's going to take, and AIs just come on the scene, but who knows what's next? Even after that, that will consume even more. Can we just say no, you can't come this enigma, whatever that may have? Just, you know 100 computers but two people, or ran remotely. Can we just say no if they have a certain you know too many pigs at the table who just run out of food If they don't come with their own trough or full of food? I mean, can we just say no, that you cannot hook up because you take too much, you're too big? No, just something, then, for us to think about, as we have to look at policies outside of, specifically how we're going to get more energy. I mean, do we just let anybody come in and they're going to energy that's just going to demand so much energy? I think it's something we need to look at as alternatives. When is what they take in too much? Thank you, mr Chairman.
Speaker 1:So, as you saw, this quote was not about getting Bitcoin miners to leave, and so it's really disappointing that the Economist misquoted Senator Campbell. Frankly, it's disrespectful, and this is part of why the United States, the founding fathers, had a revolution to get rid of the British, because they do things like this, and so hopefully this article will be retracted due to this false reporting. Okay, on to the next paragraph. Just saying no to crypto would be an ideological swerve for Texas. When running for governor in 2014, greg Abbott took campaign donations in Bitcoin before it was cool. So I'll fact check this. This is true, greg Abbott, governor Abbott, is an early proponent of Bitcoin, and I remember when he announced this in 2014, I thought it was fantastic, and you know. Then it goes on to say he has since fervently embraced miners. I don't know that this is quite accurate in the sense that Governor Abbott has embraced economic growth and freedom here in Texas, and so you know any industry that is doing legal activities that you know are good for the economy and for the state he is a proponent of, whether it's semiconductors or financial services or Bitcoin mining he embraces economic growth and freedom. So I don't think this is particular to miners, but going on, after Winter Storm Yuri in 2021 that left 4.5 million Texans without power and killed nearly 300 people, he looked to crypto as a tool to make the grid more robust. I don't know where they're getting this from, because I haven't seen any information that would confirm this. What he and the legislature and the PUC and ERCOT about the loans from the state to build more natural gas power plants and so the improvements to the Texas grid in response to winter storm Uri, I think have been significant and you know, knock on wood, we don't have another freak winter storm where you know, it is extremely cold for a whole week and everything freezes. But if that did happen again, I think Texas would have a fighting chance to weather that storm and to not have the grid go down, and it would have nothing to do with Bitcoin mining because, frankly, the policy response to the winter storm had nothing to do with Bitcoin mining. So I don't know where the economists got this from. It is a lie and just a falsehood. So you know, it's totally bizarre that they published this without fact checking it and the Texas grid has been weatherized and that's completely unrelated to Bitcoin mining, and I think that regulators and legislators deserve credit for those reforms and improving the governance at the Public Utility Commission and at ERCOT to prevent outages like that from happening again. But again, nothing to do with Bitcoin mining.
Speaker 1:Anyway, going on bringing more large loads onto the grid would incentivize power stations to produce more electricity and keep the cost of energy low, he reckoned. So I don't know if he reckoned this or not, because again, I haven't seen anything from the governor of him tying this to Winter Storm Yuri. But it's certainly the case that, in general, bitcoin mining does incentivize more power generation to come to the state and does help keep the cost of energy low. But that doesn't have anything to do with weatherization. In particular, the reason why natural gas power plants were not weatherized here in Texas is that, first of all, weatherization costs a lot of money, and so then you have to get ratepayers to pay for, you know, essentially an insurance policy against a winter storm like Yuri. And second of all, weatherization makes power plants less efficient when it's hot outside, because now you're essentially you're adding insulation to the power plant, and so now the power plant has to operate less efficiently when it's hot in order to be able to operate when it's very cold. Nothing to do with Bitcoin mining, so I don't know why Winter Storm Yuri came up in this context at all. But let's keep going.
Speaker 1:That year, mr Patrick created a working group to develop a master plan for the expansion of the blockchain industry in Texas. So if you go and read the master plan that was written from the working group, it is excellent. There is, I think, one paragraph in it about Bitcoin mining. It's probably 20 pages long. Most of it is about blockchain and DAOs and completely unrelated things, and so I don't know that this is particularly relevant to the policy landscape. But it was a good master plan and that's. I'll just leave it there.
Speaker 1:I don't know why it's important to this story, but, okay, around that time, many crypto miners, including Riot, signed contracts with energy suppliers that locked them into fixed rates for up to a decade, locked them into fixed rates for up to a decade. So there's a bit of a sleight of hand here with around that time, because Riot first of all, it wasn't Riot at the time, it was Winstone. So the company that Riot later acquired, winstone, entered into its first power purchase agreement in 2020. So that was before winter storm Yuri and it was at a time before the inflation from COVID happened, and so when we look at the inflation from COVID prices across the board whether it's eggs or other foods, or housing or electricity that inflation increased prices by about 30%, and so anybody who entered into a 10 that was not due to any kind of specific foresight, it was just due to the fact that they were managing their risk correctly by entering into a hedge and that, in any case, the article goes on several years on, that decision looks clever Only because fiat currency inflation right, the dollar lost value from COVID, and so it would have been smart on the part of the economists to mention that factor. But, of course, it seems like they've got an agenda with this article, and we also have to keep in mind that. You know, a really important word in here is many crypto miners. They didn't really quantify this, but not all Bitcoin miners enter into power purchase agreements, and so, in fact, for Riot itself, it's not necessarily the case that our hedge covers all of our electricity consumption, and so, whether it's Riot or other miners, there are megawatts that are not hedged and that, essentially, in that scenario, you're buying on the spot market in real time, and so I think that it's important to mention that because of what's written later. But let's keep going.
Speaker 1:Unlike steel factories or paper mills, bitcoin miners can temporarily shut down without harming supply chains, because, although they say, bitcoin is not just magic internet beans, there's no product that needs to get to market. This sentence is a doozy can temporarily shut down, but it does harm supply chains in the sense that when you turn off a mining rig, it is no longer generating hash rate, so there is an opportunity cost. And I don't know why they put not just magic internet beans in quotes here, because that is actually true. Bitcoin is not just magic internet beans in quotes here, because that is actually true. Bitcoin is not just magic internet beans. You know Bitcoin mining is hash rate, so there is a product that needs to get to market and then, once that hash rate gets to the mining pool, you know it is going to eventually get converted into Bitcoin. So then the last sentence in this paragraph that allows them to take advantage of two emergency schemes, and we'll see that this is also a lie. It's false. These are not emergency schemes at all.
Speaker 1:But let's first focus in on why can Bitcoin miners temporarily shut down? It's not because it doesn't harm supply chains. It's actually a much more interesting reason. So let's compare Bitcoin miners to data centers, to steel plants. Ok, so this is from Arcane Research. They published a great piece on this topic of why Bitcoin mining load is flexible, why it's interruptible. So the cost of reacting is low for Bitcoin miners, that is that there is a cost, right. So, unlike what the economist falsely reported, the cost is not zero. It's just low relative to other consumers of electricity. So the reaction time is quick, the availability is high and the granularity is high, and that you know we can turn off one mining rig at a time out of 100,000. And so it is like a dimmer switch, which is a quote that made it into the article later on.
Speaker 1:But let's dig even deeper, right, we're taking a deep dive today. So why is it so interruptible? First of all, we have to understand what a hash is. So a cryptographic hash is where you take a piece of data, you run it through a cryptographic function and then it outputs a fixed-length, random fingerprint of that piece of data. So if you change the data, you change the fingerprint, and the fingerprint is always of a fixed length.
Speaker 1:So Bitcoin mining is generating lots of these hashes. So an S19 XP, for example, will generate 140 trillion hashes per second. So if you unplug a Bitcoin mining rig and it's producing 140 trillion hashes per second, when you unplug it, it's not like you have some kind of work in progress that you need to save down, right, because it will have just finished a hash and it was just going to start on the next one, and it's basically instantaneous, and so you're not losing any work. Contrast this with a traditional data center where well, for example, if you're serving up a website, if you unplug the server unplug the server, now people can't access the website anymore. If you unplug an AI GPU, now they're not training the data anymore, and they were in the middle of training it, and so now they lose all that data and so it's not interruptible, because when you plug it back in, a Bitcoin miner will just be able to pick up where it left off right away, because it's just generating more hashes. On the next block, the AI computer will have to restart from scratch because it did not have time to save down the training model. Or if it did have time to save down, well, now you're talking about the cost of storage and the cost of memory, and those costs do not exist for Bitcoin mining.
Speaker 1:Bitcoin mining is a pure compute load, whereas AI is not a pure compute load. It is a hybrid of lots of memory, lots of storage and compute. And then a website has to have availability right, and so websites are centralized generally to where you can't just unplug a server. So what is the opportunity cost Currently? You know, if we take the hash price as kind of a proxy for what the opportunity cost is, it's $40 per petahash, which is roughly about, let's say, $50 per megawatt, whereas the opportunity cost for a website or for an AI data center, it might even be above the regulatory maximum electricity price of $5,000 megawatt. So and same thing for a steel mill. And then on top of that, with a steel mill you have the added danger of you don't want to create unsafe working conditions. So steel mills, you can't just interrupt them willy-nilly because you could actually injure a person or the machinery involved in that. So it's not interruptible. That is why Bitcoin mining is a uniquely flexible load, is that it has that low opportunity cost, interruptible, and that's, you know not what the economists reported about magic internet beans not needing to get to the market, which I don't know why they thought that would benefit their readers.
Speaker 1:So here's a diagram of how Bitcoin miners bring hash rate to market, and so at the bottom right here you have the mining facility with the ASICs, the application-specific integrated circuits that are inside of the mining rigs and that are generating the hashes for the mining pool. And sometimes mining companies are vertically integrated and so they might operate their own pool, but in any case that hashrate goes to the pool. The pool then is able to propose a block to add to the blockchain. That would add Bitcoin to the pool's wallet right. And then the nodes, the Bitcoin nodes that anybody can run. A Bitcoin node would then verify that block being proposed, and so there's definitely a supply chain here that is affected when a Bitcoin mining rig goes offline. Now the really important note here that I think that the economist should have mentioned, which is that Bitcoin mining is so decentralized that it is indeed the case you can unplug a mining rig and somebody using Bitcoin for transactions would not notice, because it is one of millions of mining rigs operating right, and so even if all the Bitcoin miners in Texas turned off and that's 15% of the network transactions on average would get finalized 15% slower, but they would get eventually finalized, and so that really shows. You know, what the dynamic is here is that, yeah, it's a decentralized supply chain, but it is affected by curtailments. So you know, the economist at best was at a half truth. But you know, that would really be stretching our generosity and charity with how they tortured the English language there and just zooming out, you know what is being provided here to the network from Bitcoin mining One is the decentralized issuance, right.
Speaker 1:So the traditional financial system has centralized issuance. This is why they have anti-counterfeiting laws. If it was decentralized, they wouldn't have anti-counterfeiting laws, right, you'd go home to your Epson printer, you'd print out some $100 bills and then go to the bar. Epson printer, you'd print out some $100 bills and then go to the bar, but it is centralized, and so if you do that, you'll get arrested. And the only people who are allowed to issue currency are those either it's the government, through the mint, or their deputies in the commercial banking system. When they lend out on fractional reserves, they're creating new money, and so they have a cartel, an oligopoly, and this enables them to get monopoly profits, and in monetary economics this is called seniorage, where their cost of producing a dollar is zero, because it's just a keystroke in a database and their benefit from producing a dollar is $1.
Speaker 1:In Bitcoin mining, the electricity cost alone of Bitcoin mining is 50% of the value of a Bitcoin, but when we look at the all-in cost, the profit margins in Bitcoin mining are no greater than the profit margins in any other commodity industry. They're actually pretty thin. On top of providing a competitive process for issuing Bitcoin to make sure that it's decentralized, bitcoin mining solves the issue of double spending making sure that the same Bitcoin are not spent twice by ordering Bitcoin transactions in sets of transactions blocks that are sequential, and that is what Satoshi Nakamoto describes in the white paper. We have a past episode about the Bitcoin white paper that you can go refer back to on that and those are the transaction fees that are paid to the Bitcoin miners, and that's about 5% of Bitcoin mining revenue is from transaction fees, and then 95% of it is from the issuance of Bitcoin onto the ledger, and so those are the services provided by Bitcoin mining. It's not magic internet beans, it's cryptography. It's some of the world's most advanced software engineering. I don't expect the economists to understand that, but you know anyway. Hopefully they watch this and learn, okay.
Speaker 1:Next paragraph On the hottest and coldest days, when demand for electricity peaks and the price soars. The Bitcoin miners either sell power back to providers or stop mining for a fee paid by ERCOT. Doing so has become more lucrative than mining itself. In August 2023, riot collected $32 million from curtailing mining and just $8.6 million from selling Bitcoin. Every part of this paragraph is incorrect. It's all false. So it's literally all lies. So let's unpack it.
Speaker 1:First clause in this paragraph on the hottest and coldest days, when demand for electricity peaks and the price soars. So this is incorrect because it's not on the hottest and coldest days. It's actually during those windows of time where, in addition to being the hottest or hot because it doesn't have to be the hottest in addition to being hot or in addition to having demand for electricity, you have intermittent renewables that are either not producing due to low wind or ramping down, in the case of solar, in the evening. So the economists did not mention the impact of these intermittent renewable generators on the electricity right. So it's not demand, it's not load, it's net load right. So demand factoring in intermittent renewable generation. That makes for a peak right. You've got to have a net load peak, not a load peak. There's load peaks where the price of electricity is very low, because it happens in the middle of the day. You've got 20 gigawatts of solar power going and you've got lots of wind blowing in West Texas and there's plenty of electricity even though you are on the hottest day with a demand for electricity peaking and the price is very low.
Speaker 1:And so for them to say that these are the factors that make for a high price completely false and it's just misinformation and they're doing a disservice to their readership. Personally, I think they're defrauding their readers, right, because when you buy the Economist, when you subscribe to it, you are paying the Economist to at least fact-check things so that they're reporting the truth, right. And so when they report a lie and they don't fact-check it, they are violating their contract and performing fraud on the reader and spreading misinformation. And so I think the readers of the Economist should open up a class action lawsuit against the Economist and sue them for not providing the service that they claim to be providing, because this sentence is just completely false, and provably so, when we look at the data and also when you talk with anybody who is familiar with electricity markets here in Texas. The second half of the sentence is also false.
Speaker 1:The Bitcoin miners either sell power back to providers at a profit, so this is false because this presumes that they are in a power purchase agreement, which is actually not always the case, as they mentioned earlier in their article. They said many, they did not say all. So they should have caught this even within the internal consistency of the article of the article, because there's lots of Bitcoin miners who turn off when the price is high, but they don't get any power credits because they are not in a power purchase agreement, and so they are doing economic curtailment purely to avoid the high price. And then they say or stop mining for a fee paid by ERCOT. This is also completely false and you know, I think, the particularly frustrating part for this it's not even frustrating for the readers who are being defrauded or for the Bitcoin miners who are being kind of portrayed here as receiving a subsidy from ERCOT. It's particularly frustrating from ERCOT's perspective because the CEO of ERCOT, more than a year ago, wrote a letter to Elizabeth Warren explaining to her that ERCOT does not enter into curtailment agreements with Bitcoin miners. Bitcoin miners are not paying to stop mining for a fee paid by ERCOT. That is just completely false, and this misinformation continues to be spread by people who claim to be speaking the truth. So it's really a frustrating situation for the grid operator, and we'll get into what ERCOT is paying for in a second here. So it says, doing so has become more lucrative than mining itself.
Speaker 1:In August 2023, riot collected $32 million from curtailing mining and just $8.6 million from selling Bitcoin. So this is also false, because that $32 million is conflating two numbers, which is the ancillary services revenue from ERCOT, which I think was $7 million, and the, which I think was $7 million, and the power credits from the for-profit power generating company. Right, that was $24 million, if I recall correctly. And so the $7 million from ERCOT was not for curtailing, in fact well, we'll get into what it was for. Million from ERCOT was not for curtailing, in fact. Well, we'll get into what it was for.
Speaker 1:The really misleading part of this is cherry picking August 2023, which is an exceptional month from a market perspective. If you look at the whole year or any other month or any other month, bitcoin mining is more lucrative than curtailing, and also, even within August, you break it down hour by hour. So I think that this is doing a disservice to their audience because they're not really looking at where the high pricing comes from, what the cause of it is, and they're not looking at the overall big picture of Bitcoin miners. They're not just getting power credits when electricity prices are high If they have a power purchase agreement and they're paying a fixed rate outside of those times, and when they're paying that fixed rate outside of those times, and when they're paying that fixed rate and the electricity price is negative, they're paying the fixed rate, so they are paying more than the spot price. Now, no journalist, I guess, would report on the months where bitcoin miners are quote, unquote, you know losing money on their hedge right, where the power company is on the benefiting end of the deal. They only report on the month where it's reverse, which is really disingenuous.
Speaker 1:Because now the reader is reading this and they're like well, wait a minute. Why would anyone enter into this contract with a Bitcoin miner? Why would you pay somebody to not consume electricity? It doesn't make any sense, right? And we see this online. People get outraged by this. They're like why are Bitcoin miners getting paid to not mine Bitcoin? The source of the outrage is that the other half of the contract is completely unmentioned here, where Bitcoin miners are paying more than the spot price on all the other months of the year when there's abundant electricity, and so it's a very misleading picture. It's completely absurd that the economists published this, and really you know.
Speaker 1:The other part of this, I think, is you know Riot being publicly traded. The power generating companies involved here are publicly traded as well. It gets into something that the SEC should look at right. If a blog like the Economist is falsifying financial records of companies by misreporting the contracts, the disclaimers that they have, you know that are publicly reported or publicly disclosed in their financial statements, that are publicly reported or publicly disclosed in their financial statements, it raises a question of is the economist actually? Should they be in trouble with the SEC for these misrepresentations? I'll leave that for brighter minds to think about.
Speaker 1:Okay, so, as I mentioned, there's three elements here. The first is just economic spot price curtailment, right, avoiding high spot price if you're not in a power purchase agreement. The second is avoiding high spot prices and earning power credits from a PPA. Because you overpay for electricity during those shoulder months, then you earn power credits during those small, less than 1% of the time where electricity prices are high. And then, third, the question of participation in ERCOT ancillary services. Okay, so I want to unpack the price responsiveness first of all. So this is a slide from ERCOT that was presented earlier this year. They took a look at Bitcoin miners large flexible loads, as they call them and they took a look at what percentage of them curtailed, what percentage of them turned off, and you see that there's a wide range of or it's not really a wideawatt which really kind of provides some data on the economic curtailment part.
Speaker 1:Now let's talk about ancillary services. So the procurement of ancillary services by a grid operator and this is not even specific to ERCOT is that they are trying to get reserves because and this happens every day so they look at the day ahead market, they look at what they forecast demand to be. So let's say they forecast demand to be 60 gigawatts during a one hour interval. Let's say, you know, at 4 pm, 60 gigawatts hour interval. Let's say you know, at 4 pm, 60 gigawatts, and they line up the generators to get 60 gigawatts of generators to be ready to meet that demand and they schedule that out. Now they also, in addition to that, want to have some wiggle room of well, what if a generator trips offline because you know they have a mechanical problem? Or what if our load forecast is incorrect because it turns out to be a little hotter than we expected?
Speaker 1:And so, in addition to the 60 gigawatts of just matching their forecast, they also procure a reserve, let's say 5 gigawatts of ancillary services. And so this reserve, the way they procure it, is through a competitive auction system, a bidding system, where they say, okay, who wants to be in reserves? So generators and loads have to make a choice of okay, are we going to be in reserve or not? And if you're in reserve, if you are bidding into ancillary services, well, you're basically saying is at this price per megawatt for this one hour interval, I commit myself as a load to stay on in reserve, to be ready for deployment, to turn off at the direction of ERCOT hour interval. I commit myself to being off in reserve, ready to be turned on by ERCOT in order to meet ERCOT's reliability mandate.
Speaker 1:And so the reserves are procured in the day ahead and there's different flavors of ancillary services that are kind of broken up by time frame. So you have regulation service, reg up and reg down, which is the most nimble and fastest reserve that they deploy within those five-minute dispatch intervals. So the five-minute dispatch intervals are when, essentially, the price of electricity gets set and they are when the scheduling system dispatches power generators. And so, within those five minutes, you've got to make sure that the grid frequency of 60 hertz stays around 60 hertz. If the grid frequency goes outside of 60 hertz, then you put the grid at risk of brownouts, blackouts, right? The system's not designed to operate outside of 60 hertz, so that's the fastest one. Reg up and reg down Bitcoin miners can participate in reg up and reg down, and there's specialized software that enables them to do this, so that they can deploy within four seconds to maintain system frequency.
Speaker 1:And earlier in the Economist they mentioned that these are for emergencies. It's not the case, okay. Ancillary services, so emergencies within power systems engineering. You have EEAs, so these are electrical emergency alerts, right? So ancillary services get deployed every day of every week of every year, not just in emergencies, but they get deployed just because you have to make sure that supply and demand is balanced every second of the day of every week, of every month of every year, right? And so these ancillary services are necessary, not just on days where it's going to be scarcity conditions, but on every day, and so it's kind of weird for the economists to say that this is for emergencies. It's not. It's for grid operations, reliability. Rrs is for kind of bigger timeframes and then non-spin for bigger timeframes. You know, 30 minutes Not on this slide.
Speaker 1:I should add it as ECRS, which is a new ancillary service. Not on this slide. I should add it as ECRS, which is a new ancillary service. And ECRS is really for the solar ramp down at the end of the day. So let's get into the solar ramp down. In 2020, you had eight gigawatts or sorry, in 2020, you had, let's call it, three gigawatts of solar ramping down at the end of the day. In 2022, you had eight gigawatts of solar ramping down at the end of the day. In 2022, you had eight gigawatts of solar ramping down at the end of the day. In 2024, you've got 20 gigawatts of solar ramping down at the end of the day. So in a grid scale power system like ERCOT, if you've got 60 gigawatts and 20 gigawatts is ramping down, that means that one third of your power generation has to get swapped out. You've got to turn on 20 gigawatts of natural gas power plants within basically an hour, and so you can imagine that if you get a little bit of cloud coverage during this time, your forecast is wrong and now you need to hit up your reserves, your ancillary services, where you were paying a Bitcoin miner to stay on or you were paying a power generator to stay off and you've got to go deploy them at that point, in which case you curtail the Bitcoin miner or you turn on the power generator.
Speaker 1:Now the economist claimed that the Bitcoin miners are being paid by ERCOT to turn off. The opposite is true. The Bitcoin miners are paid by ERCOT to stay on in reserve, and so it's really just again journalistic malpractice for them to say the opposite of the truth. I mean, I don't know how much more wrong they could be. I was going to say wronger. That would be wrong too. This is disinformation and lies that either they are knowingly lying or they are just so incompetent that they did not fact check any of this story. I mean, it boggles the mind that they got this so wrong that they and this is why it's frustrating for ERCOT, the grid operator, because then they get phone calls from people saying why are you paying the Bitcoin miners to do what they were going to do anyway. Why are you paying them to turn off? They were already going to turn off because the electricity prices are high and ERCOT has to explain to folks no, that's not what we paid them for. Here are the facts. Here's what ancillary services are. Here's why we have to procure ancillary services. And you know, we've just got to stop the spread of disinformation on the internet, right with these economist blogs or whatever.
Speaker 1:Okay, so the other interesting fact I wanted to point out, which really shows how cherry-picking the Economist was. So they took August 2023, and just yesterday I took the average price for August 2024 of electricity. It decreased by 80%. Meanwhile, bitcoin mining load increased by 30%. So the price of electricity why did it decrease by 80%? Did it decrease because load decreased? No, load. This year was essentially unchanged from last year. What changed was purely about the growth of solar, the growth of batteries, and that the weather was a little milder, and so you had less firm demand from air conditioning and more flexible demand from Bitcoin miners that turn off whenever the electricity price goes north of $50 a megawatt, and so that means that when you average out all the electricity prices now you've got a much lower average, and so the Economist did not report on 2024.
Speaker 1:If you're reading the Economist, you're stuck in the past. You're reading about things that happened a year ago and they're mischaracterizing it, they're lying about it and you know it's a combination of misinformation and stale data Going on. Next paragraph the Tech Transparency Project a nonprofit organization based in Washington DC, I would add, funded by George Soros they forgot to mention that Accuses miners of acting as an energy arbitrage business in disguise. I don't know what the disguise is. I mean, we're hedging our risk, right? You know Bitcoin mining exists at the intersection of three big volatility risks. One is the price of Bitcoin. We're bullish on Bitcoin, so we don't hedge against the price of Bitcoin. We think you know, number go up. Bitcoin's awesome and we're bullish on it. Transaction fees so there aren't really ways of hedging transaction fees. Bitcoin transaction fees are volatile due to network congestion. That's a topic for a past podcast, by the way. We talked about transaction fees, so go back and make sure you listen to all the episodes. And the price of electricity. We, as Bitcoin miners, don't want to take a directional view on the price of electricity, so that's why we try to hedge it as much as we can. So it's not like we're hedging the price of electricity because we want to be, we want to think, we think that the price of electricity is going to go up or down or sideways right, we're just trying to manage our risk so that we can continue to grow, continue to contribute to the Texas economy. We go on.
Speaker 1:The article says that this tech transparency project is holding Texas quote-unquote hostage and wasting taxpayer dollars. Okay, so, first of all, holding Texas hostage is absurd in the sense that if we're turning off at $50 a megawatt, we're off long before the grid is in scarcity condition. So if you want to talk about who's holding Texas hostage, I'll let you in on a little dirty secret it's the batteries. The batteries are bidding in at $5,000 a megawatt. They're the ones that are holding Texas hostage. But the Texas Transparency Project is not being transparent about that. They're just lying about it being Bitcoin miners because they don't like Bitcoin, right? This is just. This is a whole smear campaign that is just trying to malign Bitcoin. It's just. It's purely pretextual. They don't actually understand the facts or, if they do, they lie about them. But you know. There's no, but you know.
Speaker 1:Okay, I mentioned the batteries holding Texas hostage. But look, it's a free market, right? If regulators want to make sure that batteries are regulated and earn a regulated rate of return and sell electricity at a lower price than $5,000 a megawatt, they could do that. I think it would go against what Texas is trying to do, which is have a free market where the solution to high prices is high prices. So last summer's high prices meant that Texas ERCOT market became very attractive for privately owned battery developers to come to Texas to build battery infrastructure right To earn the returns from those high prices that they're expecting going forward, I suppose. And so there's no hostage shaking at all. You know it's the case that high electricity prices attract more power generation, attract batteries, attract more flexible loads Because guess what, those high prices are less than 1% of the time. And so if you're building up all this infrastructure for peak times, it's going to be sitting idle outside of those peak times. Infrastructure for peak times it's going to be sitting idle outside of those peak times. During that, 99% of the time, you're going to have that excess electricity. That's really attractive for large, flexible loans.
Speaker 1:The second part of the lie is that Bitcoin miners are wasting taxpayer dollars. Okay. So this is a lie on two levels. One, it's not taxpayer dollars, okay. Ancillary services are paid for by consumers of electricity ratepayers, not taxpayers. The only thing that comes to mind right now is taxpayers pay for intermittent renewable generation. That receives the production tax credit and the investment tax credit at the federal level. So we could talk about whether those are wasting taxpayer dollars or not. Of course, the tech transparency project doesn't want to talk about that because that's not part of their agenda. And then there's the Texas Energy Fund, which is from taxpayer dollars we could talk about, have a policy debate, a rational policy debate, about whether that's wasteful or whether it's offsetting the federal subsidies for intermittent generation in order to attract more firm generation. So you know, valid question there, but you know. But it's not ratepayer dollars that pay for ancillary services and it's not wasteful because ERCOT has done a fantastic job of procuring ancillary services so that we have a reliable grid. So there's no waste going on. Going on.
Speaker 1:Their ties to China make them more dubious. I don't know what they're talking about. Riot doesn't have any ties to China, but the industry is adamant that it is a stellar corporate citizen and critical to the grid's health. That's true. By acting as dimmer switches, mines offer ERCOT flexibility at a price that no one else can match, says Lee Bratcher at the Texas Blockchain Council and Advocacy Group. Excellent quote from Lee there. Completely agree with him. Riot reckons the industry is being unfairly targeted and that replacing mines with batteries would cost the state even more. Also true.
Speaker 1:Yet a business that benefits financially from the state's crisis and has lobbied against power market reforms. Okay, so there's no energy crisis in Texas. Okay, the market is functioning as it's supposed to function. There's no crisis. I don't know why they think that's the case, other than the fabrications that they have in mind. And also, riot has not lobbied against power market reforms. The only thing we've lobbied against was a bill that would have limited how much competition there is for ancillary services, which is the opposite of a reform. It's a deform right. It would have introduced a defect into the power market. So that's an absurd accusation Going on. May no longer be the governor's first choice to stabilize a grid facing mounting pressure. Okay, bitcoin mining was never the governor's first choice to stabilize the grid. I don't know where they're getting this from.
Speaker 1:It's a misrepresentation or a lie these days, assuring anxious Texans that their lights will stay on when the weather gets bad is a top priority, says Brian Korgel, the head of the Energy Institute at the University of Texas at Austin. So I looked up Mr Brian Korgel. I don't think he has any expertise on this topic. He has expertise on other topics, but I don't think he has any expertise on this topic. He has expertise on other topics, but I don't know why they quoted him on this. When the weather gets bad and the lights go off, it's due to a tornado or a hurricane. It's not due to Bitcoin mining. So it's just completely unrelated.
Speaker 1:And the last sentence is hilarious If Texans blame Bitcoin miners, rightfully or not, their leaders will too, he predicts. So these jokers write a whole article full of lies and falsehoods to try to get Texans to blame Bitcoin miners falsely. And then they're like well, you know, if Texans blame them, then the leaders will too. It's like you're trying to create a self-fulfilling prophecy here, aren't you? So this article is just the agenda is all right there. You know they're trying to demonize Bitcoin mining in order to get Texas voters to turn against them.
Speaker 1:And the last paragraph of the article last year, a bill to restrict the minors from taking part in the quote-unquote demand response scheme, which again demand response here is. I don't know. I've seen this term used for ancillary services. It's incorrect. Demand response is the opposite of ancillary services. Ancillary services is to make demand, not respond to price. Right. It's to make demand stay on when it would otherwise respond to price. So ancillary services are the opposite of demand response. But going on. Passed in the Texas Senate but stalled in the House. Crypto insiders expect lawmakers to bring more such bad bills come January.
Speaker 1:Meanwhile, brian Morgenstern, great guy Riot's head of public policy, says his team is wearing out the leather on our shoes, going office to office to persuade politicians to let them stay. Riot's trying to persuade politicians by presenting facts and the truth so that Texas has good policy for Texans and for Bitcoin miners, right. So he believes that Mr Trump will bring a sea change if elected. After all. Mr Abbott is reportedly pining for a cabinet position. There's no reports that that's true.
Speaker 1:So another falsehood in this article. And Mr Patrick, the governor's second in command, is a known Trump. Yes, man, it is surely not in their interest to chase out Mr Trump's new favorite industry here. I would just add it shouldn't be Mr Trump, it's former President Trump is his real title technically, but maybe the British don't do honorifics, I don't know. So yeah, overall the article was full of incorrect information and falsehoods, but I was glad we were able to do a deep dive on it and clear it up. So thank you for joining us today. If you have any questions, comments, let us know. Leave a five-star review like share. Share it especially with Texas legislators, regulators, policymakers, friends and family, so that the Economist does not get away with spreading this false information. So thanks all and we'll see you in the next episode.
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