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Photos: Bitcoin Miners Descend on Rural Washington

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Inside Bitcoin Asic Hosting, which has roughly 350 cryptocurrency-mining machines at its headquarters in East Wenatchee, Wash.
Photo:

Sofia Jaramillo for The Wall Street Journal

In Wenatchee, Wash., a bitcoin invasion is under way.

Home to hydroelectric dams that harness the flow of the Columbia River, north central Washington has some of the cheapest power in the U.S.

That has made the largely rural area best known for its apple orchards a magnet for bitcoin miners, who use powerful specialized computers to generate new units of cryptocurrencies—a process that requires vast amounts of electricity to run and cool thousands of machines.

“If you ask the guys at UPS or FedEx what they’re delivering to Wenatchee, I think they’d tell you it’s a whole bunch of bitcoin mining machines,” said Frank Kuntz, mayor of Wenatchee, which has a population of nearly 34,000.

If all the cryptocurrency mining operations in the works go forward, power demand could double in some areas and require expensive new infrastructure. That has become a dilemma for utilities that are figuring out how to deal with the deluge of requests without bearing the brunt of wild swings in cryptocurrency prices.

“We’re getting requests for service that are just astounding,” said Steve Wright, general manager of the Chelan County Public Utility District, which includes Wenatchee. “We do not intend to carry the risk of bitcoin prices on our system.”


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Photos: Bitcoin Miners Descend on Rural Washington

Cheap cost of power around the Columbia River is drawing companies that use powerful computer systems to generate and verify cryptocurrencies

 
 
A view of Rock Island dam on the Columbia River near Wenatchee, Wash. The dam generates hydroelectric power.
Sofia Jaramillo for The Wall Street Journal
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Four of the mining inquiries that Chelan County’s utility has received since October are for 100 megawatts each—that is enough power for more than 50 hospitals, and building the infrastructure for each mine could cost more than $40 million.

Mining operations can squeeze into small spaces. Shoebox-size computer servers that suck up as much power as roughly 1,000 homes can be packed into a 25-by-25-foot room. Miners have popped up in unexpected places in the area: an old laundromat, a former fruit-packing warehouse, apartments, and even free-standing cargo containers.

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Digital Demands

Bitcoin mines pack a lot of power consumption into small spaces. Their energy use per square foot far surpasses other users in Washington’s Chelan County.

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Power use per square foot, per year

Public

School

Residential

Home

10

12

kWh

Hotel

General Hospital

32

18

Computer Data Center*

Grocery

Store

40

2,100

*Includes crypto mining facilities

Source: Chelan County Public Utility District

Rural Washington Is a Hot Spot for Bitcoin Miners

There are already at least 30 known cryptocurrency-mining operations in Chelan, Grant and Douglas counties in central Washington After last year’s 1300% surge in bitcoin prices, more are clamoring to come—some local officials say they have been getting upward of 20 calls a week from miners.

Utilities say they have received more than 200 applications and inquiries in recent months from large or “high-density” users, mostly cryptocurrency miners.

Miners run servers constantly, which can strain electrical systems that aren’t built for such heavy use. This can melt wires and overload transformers—raising the risks of power outages. One started a grass fire last summer in Entiat, about 20 miles north of Wenatchee.

These aren’t the first businesses to come to the region for its cheap power. Aluminum smelters once flocked to the Northwest. In more recent years, companies including

Microsoft Corp.

, and Dell have built data-storage centers.

Giga Watt employs around 45 people at its bitcoin-mining operation.
Giga Watt employs around 45 people at its bitcoin-mining operation.
Photo:

Sofia Jaramillo for The Wall Street Journal

Some of the miners are commercial firms that have worked closely with the utilities as they expand. Others are hobbyists or outfits that have flown under the radar. In some cases, they have left behind damaged equipment and unpaid bills.

Some longtime residents are becoming alarmed at the influx. They worry these miners will drain the area of the surplus power that can be sold into energy markets, helping keep rates low. Electricity in the three counties costs 2 to 4 cents per kilowatt-hour compared with more than 10 cents nationwide. “We want to make sure there’s reserve for us,” said

Mike Wade,

who runs a fruit-packing operation.

Longtime miners said some early outfits gave the activity a bad reputation.

“People were trying to get in and make a quick buck,” said Lauren Miehe, who provides mining services. “They kind of left a bad taste.”

Utilities say they are obligated to try to serve prospective customers—but they worry that if cryptocurrencies turn out to be a flash in the pan, other customers could be left footing the bill for big investments. To avoid that, power suppliers say they are rethinking their rate structures, adding upfront charges or deposits and are making more customers go through in-depth engineering studies.

Rural Washington Is a Hot Spot for Bitcoin Miners

Still, some hope that mining will be the first step toward transforming the area into a business hub for blockchain technology, bringing new jobs.

“There might be a company out there that’s the next Apple or Google,” said Patrick Boss, an executive at the Port of Quincy, which promotes economic development. On the other hand, he worries “it’s hard to know if you commit a lot of resources to a miner, will they be there in a year or two or three?”

Dave Carlson, a former Microsoft developer, led the initial wave of cryptocurrency miners after he arrived in Wenatchee in 2013. Back then, “no one understood why I wanted that much power,” he said. Mr. Carlson’s company, Giga Watt, has grown from five employees to more than 45 and is spending $30 million on infrastructure. But it also faced setbacks: there have been construction delays and a lawsuit that resulted in Giga Watt agreeing to refund more than $950,000 to an investor.

Giga Watt Chief Executive Dave Carlson, a former Microsoft developer, has set up a cryptocurrency-mining operation in the area.
Giga Watt Chief Executive Dave Carlson, a former Microsoft developer, has set up a cryptocurrency-mining operation in the area.
Photo:

Sofia Jaramillo for The Wall Street Journal

Jeffrey Bishop, executive director of Port of Moses Lake, said the utilities are jammed up with requests from cryptocurrency companies, so other potential employers face longer waits.

“It reeks of a bubble,” Mr. Bishop said. “I’m really concerned we’re going to spend a lot of time and money pursuing this only for it to collapse on itself.

Even some miners are beginning to feel the area is getting crowded. Steve Schaeffer, president of crypto-capital strategies at MGT Capital Investments, which has mining operations in Washington, has started ramping up in Sweden instead.

“We’re going to see miners pay higher rates” in the region, Mr. Schaeffer said. In a year, “the whole mystique of Washington will be a distant memory.”

The Columbia River flows below Rocky Reach dam near Wenatchee, Wash. The area’s lower energy rates are a big draw for bitcoin miners that consumer a lot of power.
The Columbia River flows below Rocky Reach dam near Wenatchee, Wash. The area’s lower energy rates are a big draw for bitcoin miners that consumer a lot of power.
Photo:

Sofia Jaramillo for The Wall Street Journal

Write to Alison Sider at alison.sider@wsj.com

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