National Post (National Edition)
BITCOIN BOOM REACHES GHOST TOWN IN B.C.
Most of the buildings in Ocean Falls, B.C., that haven’t been demolished over the decades are crumbling in place, and almost everyone who once lived there is long gone. A population that peaked at 5,000 has fallen below 100.
But this summer, the longdormant mill began to emit a new sound. It was the noise of hundreds of tiny fans blowing air past hundreds of tiny computers, keeping them cool while they ran 24 hours a day, creating Bitcoins.
The Bitcoin mine has come to Ocean Falls after almost four decades of false starts. The town went dormant once the paper industry left, but it wasn’t dead, exactly. The dam that powered the mill was still capable of producing about 13 megawatts of electricity. Some of that went to power Ocean Falls and two nearby towns, bella bella and shearwater. But even in the middle of winter, residents used less than one-third of the electricity, leaving plenty to support new industrial uses.
For most industries, the remoteness of Ocean Falls offsets the benefits of cheap power. It’s about 500 kilometres up the coast from Vancouver, accessible only by boat or seaplane. And so almost every plan — for casinos, breweries, marijuana-growing operations and water-bottling plants — came and went with little tangible impact. The only substantial business for now is a salmon hatchery.
But several years ago, employees at Boralex, the utility that owns the dam, began getting phone calls from Bitcoin miners. Bitcoin and other cryptocurrencies rely on a decentralized network of computers to confirm transactions, rewarding people who do the work with new coins in a process known as mining. In essence, mining was the pure conversion of electricity into money.
The biggest location for Bitcoin miners has been China, where coal-powered data centres cranked away in such places as Xinjiang, Inner Mongolia and Heilongjian. But the challenges of doing business in that country set off a global race for other suitable locales. The best locations had cool weather, stable governments and ample hydroelectricity.
Miners who inquired about Ocean Falls were mostly routed to Brent Case, Boralex’s operations manager for British Columbia. Case is a self-described bush person who will happily regale listeners about what it’s like to live on a boat for a month stringing power lines through the wilderness, or that time a grizzly bear nearly scalped him alive.
He was on the lookout for a saviour for the town, so when he heard the seeds of a credible plan, from a Vancouver-based businessman named Kevin Day, he jumped on it. With Case’s help, Day has spent the last 21/2 years converting one floor of the old mill into a data centre. He flipped on the first batch of servers in July.
Even with the Bitcoin mine now operating, there are more questions than answers. As other places courted by Bitcoin miners have realized, such facilities provide almost no permanent jobs and create little incentive for related businesses nearby.
There are other uncertainties. When Day first contacted Case, a single Bitcoin was worth about US$400; by last December it had risen to almost $20,000. Then, just as the money was about to start trickling in, Bitcoin crashed.
For kilometres, the only sign of human presence in the boat ride to Ocean Falls is a single power line stretching out from the dam. As visitors approach the dock, one of the first things they see is a large, abandoned hotel. The roof has partially collapsed, but the structure is still in better shape than the building directly across the street.
The old mill complex stretches out to the right behind a locked gate, and the dam is a 10-minute walk up a hill. The buildings along that stretch are in progressively worse condition, and soon, most of the lots are just tall grass. Most residents live down a road that hugs the coast, away from the ruined former downtown. The one real business is Saggo’s Saloon, which opens on Monday, Wednesday and Friday from 4 p.m. to 7 p.m.
There’s still a post office; the government recently built a new ferry dock and is planning to connect Ocean Falls to a fibre optic broadband line. But outsiders mostly think of Ocean Falls as a ghost town.
Kevin Day first heard about Ocean Falls in 2010. By 2015, he had dreamed up a handful of startup ideas based on blockchain, the technology underlying decentralized computing projects such as Bitcoin. At the top of the list was running his own Bitcoin mine.
Day is an athletic type in his 40s with an entrepreneur’s unflappable optimism. Beyond that, there was nothing to indicate he’d be qualified to build a data centre in the middle of the wilderness. When asked what he knew about electrical engineering, Day says the answer was: not much.
“I know computers use electricity,” he offers.
Day pestered Case constantly by phone, then began travelling to Ocean Falls from Vancouver.
He developed a strategy that was notable for its simple elegance: He’d just have Case figure out technical problems for him.
This was clever, and not just because Case had answers. Once enlisted as a co-conspirator, Case began advocating for Day within Boralex. Eventually, the utility agreed to sell power to Day’s company, Ocean Falls Blockchain, at a steeply subsidized rate for a five-year period. The preferred price was all that made Day’s operation financially viable.
Neither Ocean Falls Blockchain nor Boralex will discuss the financial terms. But in February, Ocean Falls Blockchain prepared a presentation for investors claiming it would pay less than five cents per kilowatt hour of energy. That’s a strikingly low rate, less than half the rate Boralex charged to send power to the towns of Bella Bella and Shearwater, even back in 1986. (The current rate Boralex charges is not public.)
Ocean Falls Blockchain told investors it would start small, and would be buying six megawatts of energy from Boralex by the end of 2018, bringing in about $5.7 million in annual revenue from the Bitcoins it created. By 2021, it said, it’d have over 17,500 Bitcoin mining units drawing over 30 MW of power.
Day began shipping hundreds of specialized computers from China whose sole purpose is to run the calculations needed to create Bitcoins. He bought a transformer that weighed over half a ton and had it transported as far as possible by truck and then barged the rest of the way. He took over one huge room in the structurally soundest building left in the paper mill complex, where he installed huge fans on either side to pull cool wind through, offsetting the heat the machines would produce.
Despite the local buzz it created, Ocean Falls Blockchain was facing significant headwinds.
In 2017, the company began preparations to raise money to buy equipment and cover construction costs by going public on Toronto’s junior stock market. This was a popular tactic among Bitcoin companies at the time. It let them offer themselves up as vessels for people who wanted to speculate on cryptocurrencies without actually buying them. But shares in those companies crashed once the price of Bitcoin stopped rising, and Day’s team pulled back. In Day’s mind, he dodged a bullet, and he says he has other ways to fund the business.
There was little way around the issue of the price of Bitcoin itself, though. When it approached investors in February, Ocean Falls Blockchain had made its financial projections based on a Bitcoin price of US$11,000. A lower price would mean Day’s business was less valuable in the non-bitcoin economy, even if it created the same number of coins. By the time it actually turned its first servers on in early July, the price was under $7,000. Over the last year, Day has consistently shrugged off the big drops in prices, noting that Warren Buffett doesn’t fret over shortterm moves in the stock market, either. He says he knew Bitcoin was volatile, and expects prices to rise over time.
This year’s cryptocurrency crash is pushing some miners to reconsider their plans. Harry Pokrandt, the chief executive officer of Hive Technologies, a larger mining firm, has begun exploring how to flip his servers between mining and other cloud computing tasks such as video processing, depending on what’s more profitable at any moment. Pokrandt says smaller miners without efficiencies of scale are being squeezed even harder.
“We get approached pretty often from guys who want to sell their operations,” he says. Pokrandt says Ocean Falls Blockchain hasn’t been one of them.
Day is also unable to access as much power as he had anticipated. Right now, the Bitcoin mine draws less than a megawatt of electricity. Day plans to be up to about 1.5 MW by the end of the year, a far cry from the 6 MW he was expecting. The path to growing his operation to the tens of megawatts is even less certain. Boralex still has significant surplus energy at Ocean Falls, but it is holding back due to a dispute with B.C. Hydro over the price it charges to send energy to residential customers. Case is worried that a potential result of that dispute, which is currently in arbitration, could be a mandate from regulators to charge Day’s group a rate high enough to drive Ocean Falls Blockchain out of town.
This wouldn’t be the first time that government entities have soured on partnerships with Bitcoin miners. Regulators in Quebec are working to set higher rates for miners there as it considers how to protect access to power for residential customers. Officials in Washington state have clamped down on Bitcoin miners after they began setting up there in large numbers. The miners’ hunger for power could impact the existing markets, and the air of speculation around cryptocurrencies is a potential political liability, especially given that they provide few jobs or other traditional markers of economic development.
Still, there are places where power utilities have few options for consumers, mostly remote places like Ocean Falls that have lost some other industry in recent years.
B.C. Hydro has spent the last year quietly identifying sites in the region where Bitcoin miners may be the best buyers for stranded power. It recently helped another cryptocurrency company set up in Houston, a town northeast of Ocean Falls whose mill shut down in 2014.
Day does have plans beyond a mining facility. Ocean Falls Blockchain is developing a method for cooling computers that entails immersing them in non-conductive liquid instead of blowing air past them. Day also wants to experiment with redirecting the heat from his mine to the salmon hatchery, providing it an inexpensive way to warm the water in its tanks. Both types of technology could theoretically then be sold to other Bitcoin miners and data centre operators. Meanwhile, the people Day would hire to develop them would spend at least some of their time in Ocean Falls, working at the data centre and — maybe — buying groceries.
APPROACHED ... FROM GUYS WHO WANT TO SELL THEIR OPERATIONS.