Un­nat­u­ral Re­sources

Why I quit my day job to mine Bit­coin

The Walrus - - CONTENTS - by Ethan Lou

Al­berta, once known mainly for oil, is fast be­com­ing a dif­fer­ent kind of Wild West.

Last Hal­loween, I walked into my Cal­gary of­fice build­ing’s load­ing bay in search of a lost bi­cy­cle and in­stead found eight dis­carded com­put­ers. On a whim, I de­cided to rent a car to take them to my shoe­box apart­ment in Chi­na­town, strip them for parts, and build cryp­tocur­ren­cymin­ing ma­chines. I had grown up with an en­gi­neer fa­ther who in­volved me in elec­tri­cal work; I knew how to build a com­puter even be­fore my voice broke. So, although I was new to min­ing — in essence, run­ning com­put­ers that fa­cil­i­tate cryp­tocur­rency trans­ac­tions — I un­der­stood the ba­sics, and I googled the rest. Soon, I lived in constant fear that my land­lady would com­plain about the amount of elec­tric­ity my new ma­chines were suck­ing up (enough to power a house). Run­ning them around the clock pro­duced a lot of heat, to the point that, even in win­ter, I kept a win­dow open to my bal­cony and slept without a blan­ket. Back then, on top of be­ing a long-time in­vestor in Bit­coin, I was also a full-time jour­nal­ist cov­er­ing oil, and my life was tied to the en­ergy in­dus­try. Day in and day out, I would read and write about en­ergy and talk with oil­men and oil­women. Al­berta produces nearly all of Canada’s oil, and it has got­ten rich off it, fre­quently boast­ing some of the coun­try’s high­est in­comes. But the prov­ince was hit hard when, in 2014, global oil pro­duc­tion in­creased and de­mand de­clined. Per-bar­rel prices tum­bled by more than 70 per­cent over two years. Over time, as oil and gas be­came a smaller por­tion of Al­berta’s econ­omy, I re­al­ized that the prov­ince could be­come fer­tile ground for a new multi-bil­lion-dol­lar in­dus­try: cryp­tocur­rency min­ing. Min­ing is the process of run­ning com­put­ers to sup­port the dig­i­tal net­work of a cryp­tocur­rency such as Bit­coin. When some­one sends or re­ceives Bit­coins, un­like in a trans­fer of traditional cur­rency, there is no bank or payment provider to process and doc­u­ment the ex­change. In­stead, Bit­coin has min­ers, who col­lec­tively val­i­date the trans­ac­tions and add them to the blockchain, a tam­per-proof ledger se­cured with cryp­tog­ra­phy, that serves as the of­fi­cial record. Min­ers are re­warded for their con­tri­bu­tion to the blockchain with newly cre­ated units of the cur­rency, giv­ing them a sub­stan­tial fi­nan­cial in­cen­tive to do their work. Be­cause of the dig­i­tal cur­ren­cies’ use of cryp­tog­ra­phy, which keeps the ac­tiv­i­ties se­cure but re­quires com­put­ing a huge num­ber of func­tions in a short amount of time, adding new trans­ac­tions re­quires mas­sive amounts of power. One es­ti­mate shows Bit­coin min­ers world­wide use enough elec­tric­ity in a year to power more than 5 mil­lion Amer­i­can homes. A suc­cess­ful min­ing op­er­a­tion needs cheap elec­tric­ity and a cold en­vi­ron­ment. Al­berta is one of the few places in the world to have both; I was in the right place. Last De­cem­ber, find­ing it

in­creas­ingly hard to do two things at once, I quit my day job and moved my com­put­ers into a ware­house shared with a cof­fee sup­plier. On blue-and-or­ange racks that once held cof­fee, I now run rows upon rows of cryp­tocur­rency-min­ing ma­chines.

It is hard to gauge the to­tal size of Al­berta’s min­ing in­dus­try, due to its lack of or­ga­ni­za­tion. Cryp­tocur­rency in gen­eral is a no­to­ri­ously se­cre­tive busi­ness: trans­ac­tions are often hard to trace and al­ways ir­re­versible. Through con­tacts, I know the field in Al­berta is mas­sive and grow­ing. Dave Bradley, an “old-school Bit­coin guy” who has a hand in sev­eral lo­cal cryp­tocur­rency ini­tia­tives, says that “three, four years ago, there were maybe a dozen house min­ers in the Cal­gary area” — hob­by­ists who run a few ma­chines out of their homes, like me in my Chi­na­town apart­ment. “Now there’s got to be at least close to a dozen small com­mer­cial set­ups,” he says. Last year, the Bit­fury Group—one of the world’s big­gest cryp­tocur­rency-min­ing com­pa­nies, head­quar­tered in the Nether­lands — an­nounced a plan to set up pos­si­bly North Amer­ica’s big­gest min­ing fa­cil­ity in Drumheller, 135 kilo­me­tres north­east of Cal­gary. Bit­fury’s part­ner, Hut 8 Min­ing, started op­er­at­ing in late De­cem­ber. In mid-jan­uary, the com­pany had al­ready earned more than 200 Bit­coins (over $2 mil­lion). It’s now set­ting up another fa­cil­ity near Medicine Hat. The Al­berta oil-and-gas pro­ducer Iron Bridge Re­sources has also en­tered the min­ing game: a cou­ple of months ago, it an­nounced it would run com­put­ers with elec­tric­ity gen­er­ated from its own nat­u­ral-gas sup­plies. Given to­day’s low en­ergy prices, the com­pany says, cryp­tocur­rency min­ing gets more value out of its prod­uct than sell­ing it would. Iron Bridge’s stock rose 16 per­cent af­ter the an­nounce­ment. This com­ing sum­mer, right be­fore the week-long Cal­gary Stam­pede — which, among other things, brings in oil ex­ec­u­tives for a se­ries of cor­po­rate par­ties — a lo­cal startup will hold the first “Bit­coin Rodeo” in­dus­try con­fer­ence, where in­sid­ers will net­work and at­tend var­i­ous pre­sen­ta­tions about cryp­tocur­ren­cies. Al­berta, once known mainly for oil, is fast be­com­ing a dif­fer­ent kind of Wild West.

My story be­gan with oil. For six weeks in 2016, I worked in a wire news ser­vice’s New York of­fice and cov­ered the in­ter­na­tional oil mar­kets. My time there taught me to bet­ter read charts and un­der­stand mar­ket forces, but it also taught me a mind­set: be steely and un­emo­tional no mat­ter how sharply the mar­ket’s tide turns. It sounds sim­ple, but when you have skin in the game, it’s hard to di­vorce your feel­ings from the out­come. Yet the traders I spoke with in New York were mostly Zen­like, level headed even on their worst day. There is a term for that in cryp­tocur­rency cir­cles: “HODL,” a mis­spelling of “hold,” which de­scribes iron-faced sto­icism and re­sis­tance to the urge to sell in the face of sharply fall­ing prices — which are un­com­mon in traditional

mar­kets but a fre­quent oc­cur­rence when it comes to cryp­tocur­ren­cies. Just this year, Bit­coin fell 40 per­cent and re­bounded within two weeks. Oil could be called the Bit­coin of the traditional mar­kets—it is traded largely on paper, without phys­i­cal de­liv­ery, and its price fluctuations are con­sid­ered volatile. So it was on the cryp­tocur­rency hold­ings I’d had for years that I prac­tised the trad­ing lessons I’d learned in New York, and in­creas­ingly, I barely cared about or no­ticed my jour­nal­ist’s salary. I worked my last day on De­cem­ber 22, 2017, one year af­ter I wrote a story with the head­line, “In­dus­try con­fi­dence low in Canada’s oil sands as Sta­toil, Koch exit.” At the same time, the min­ing op­er­a­tion Hut 8 took pos­ses­sion of its ma­chines in Drumheller. That town has been hit hard by the com­modi­ties crash, much like the rest of Al­berta, which in 2015 alone shed an es­ti­mated 35,000 jobs. At its peak, last March, the un­em­ploy­ment rate for the greater Cam­rose-drumheller re­gion nearly dou­bled from pre-2014 lev­els to 9.9 per­cent, over one-third higher than the na­tional av­er­age, ac­cord­ing to Sta­tis­tics Canada. “Like all small towns in Al­berta, we’ve been strug­gling,” says Ju­lia Field­ing, Drumheller’s eco­nomic-de­vel­op­ment and com­mu­ni­ca­tions of­fi­cer. But also like the rest of Al­berta, pow­ered mostly by an abun­dance of nat­u­ral gas or cheap coal, the Drumheller area of­fers some of the best rates for power in the world. Sean Clark, who stepped down as CEO of Hut 8 last month, says Bit­fury and Hut 8 have ne­go­ti­ated nat­u­ral-gaspow­ered elec­tric­ity for 4.5¢ per kilo­watt hour — com­pared to the na­tional res­i­den­tial av­er­age of about 20¢, ac­cord­ing to the World En­ergy Coun­cil. The av­er­age Amer­i­can rate is 27¢, while in Europe it can eas­ily go be­yond 30¢. Cheaper power means daily sav­ings by the thou­sands. For Drumheller, the min­ers’ ar­rival has cre­ated at least thirty jobs, ac­cord­ing to both Field­ing and Clark. That’s the equiv­a­lent of an oil com­pany. Even the most bullish en­thu­si­asts say cryp­tocur­rency min­ing can never truly re­place oil and gas in Al­berta, a sec­tor that di­rectly em­ploys 140,300 peo­ple and makes up 17 per­cent of the prov­ince’s $300 bil­lion econ­omy. But Canada’s re­source­ex­trac­tion in­dus­tries have seen tur­moil — and if the prov­ince doesn’t harness the op­por­tu­nity pro­vided by cryp­tocur­ren­cies, it’s in dan­ger of los­ing its ad­van­tage. In Fe­bru­ary, as word spread of a po­ten­tial cryp­tocur­rency crack­down in China (which ex­er­cises strict cap­i­tal controls and peren­ni­ally talks about rein­ing in dig­i­tal coins), Bit­main, a min­ing com­pany there, said it was eye­ing al­ter­na­tive sites in Canada — not in Al­berta but in hy­dropow­ered Que­bec. Bit­fury and Hut 8 say they’re look­ing east as well. “We’ve got to be proac­tive,” Bradley, the en­tre­pre­neur, says. His com­pany, Bit­coin Brains, has been work­ing with “ma­jor in­dus­trial play­ers” in Al­berta to find cheaper elec­tric­ity. Mean­while, Al­berta’s gov­ern­ment — which prides it­self on be­ing a cham­pion of pipe­lines for the oil in­dus­try and, at the same time, be­ing fo­cused on di­ver­si­fi­ca­tion — has hardly said a word pub­licly about the cryp­tocur­rency boom. But it is pay­ing at­ten­tion. “Bilous was talk­ing to me about this just yes­ter­day,” a spokesman for eco­nomic-de­vel­op­ment min­is­ter Deron Bilous told me in Jan­uary. I run a cryp­tocur­rency meet-up group in Cal­gary that be­gan with a bunch of peo­ple in a pub last year and has bur­geoned to more than 300 peo­ple. My cryp­tocur­rency net­work is so big, I have a more ex­clu­sive meet-up group within that meet-up group. Ev­ery time I hold events, I see new faces, and ev­ery once in a while, I hear of new min­ing op­er­a­tions start­ing up. One fledg­ling op­er­a­tion is Novumx, run by two oil-and-gas pro­fes­sion­als in Cal­gary who met on a project three years ago. Last year, they were min­ing in a ware­house with thirty ma­chines. Now they are talk­ing about a fa­cil­ity with sixty megawatts, roughly equiv­a­lent to more than 50,000 homes. Many min­ers are like them and like me. We were trained in and be­came good at some­thing else, we ap­plied that to some­thing new, and now we’ve de­cou­pled our for­tunes from oil and gas. ethan lou is a se­nior part­ner at the Cal­gary cryp­tocur­rency firm Ocuis. He was for­merly a jour­nal­ist with Reuters.

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