A new law in Missoula County could help write the future of cryptocurrency regulation in the U.S. In February, county officials adopted what they believe to be the first permanent zoning policy for cryptocurrency mining operations, which requires them to generate renewable energy and stay clear of residential areas.
Jason Vaughan used to be the site manager for Hyperblock, a Bitcoin mining company in Bonner, MT that closed last year. He says walking into the 250,000 square-foot building was almost like stepping into a giant erector set.
“Most of it’s, you know, steel and metal. There's a lot of noise from the fans of all the machines and whatnot, but there’s just likehere's hundreds of thousands of little blinking lights and whatnot.”
The blinking lights belonged to computers mining the cryptocurrency Bitcoin. They do that by solving complicated mathematical problems that require intense amounts of computational power. The first computer to solve the problem is rewarded by the network with bitcoin.
Vaughan says Western Montana was a perfect location for a growing mining operation, because like your computer at home, the mining machines can run hot, and the cool climate keeps costs down.
Electricity is also cheaper in Montana than in most of the country, and cryptocurrency mining uses a lot of energy.
Hyperblock’s giant data center opened in 2016 and quadrupled in size. According to county officials, Hyperblock’s energy usage at its peak was comparable to the energy usage of about a third of all households in the county.
Vaughan says plans were in place for the company to keep growing when 2020 hit.
“You know, it was kind of a perfect storm of circumstances that ended up leading to the bankruptcy in the end.”
The price of Bitcoin took a major hit with the outbreak of the coronavirus pandemic, and the size of the digital mining operation drew attention from the county.
Missoula county’s Sustainability Program Manager Diana Maneta says, “It turned out that the cooling fans on the roof of the facility were generating this loud and constant buzzing noise that was really bothering some of the neighbors.”
In February of this year, Missoula County implemented new zoning policies that require cryptocurrency mining operations to set up shop outside of residential areas.
The new rule also says companies must discard electronic waste through recycling firms approved by Montana Department of Environmental Quality, and generate new, renewable energy to make up for the energy they took off the market.
Hyperblock’s existing data center would have mostly been exempt from the regulations, but anything it added on wouldn’t have been.
“We thought quite a lot about this, not wanting to prohibit this industry in the county, but wanting to figure out how do we make this compatible with the county's values and the county’s goals — especially the goal related to climate change,” Maneta says.
The energy needed for cryptocurrency mining is a growing point of debate in the new industry.
Nikhilesh De, the managing editor of global policy and regulation at CoinDesk, says Missoula County’s regulations are at the forefront of how local governments could respond to the digital mining operations.
“I haven't seen anything like this yet, but it wouldn't surprise me if this is a model that gets followed. “You know, these companies are drawing a lot of power and they require a lot of energy from nearby power plants.”
De says the numbers on bitcoin’s energy consumption are stark, and that putting the burden on the companies to reduce their energy demand could mitigate the problem.
Still, he says it’s a complicated debate. Many in the industry say digital currency miners are singled out in the wide world of high-powered technology advances.
“I do think that part of the reason that Bitcoin and other cryptocurrencies do get a lot of this attention is because it is somewhat easier to approximate how much power they are using versus tech companies or other systems.”
Alex de Vries is a data scientist for the Dutch Central Bank and the founder of Digiconomist, a financial outlet that covers digital trends. He says global bitcoin mining only uses about 40% renewable energy and that the renewable energy it does use could displace other customers, pushing them towards higher fossil fuel usage.
He also says the total carbon footprint of bitcoin is equal to that of the country of Hungary, while generating electronic waste equivalent to that of Luxembourg. He says with bitcoin prices skyrocketing, those impacts aren’t likely to decrease. When Hyperblock in Missoula County closed its doors in Missoula County in May of 2020, one bitcoin went for about $9,000. Now it’s worth about $55,000.
“If cryptocurrency mining becomes more profitable, people will add more machines for as long as it's profitable,” de Vries says. “The only bottleneck there is that it takes some time for these machines to be produced.”
Bitcoin could one day join several other cryptocurrencies in moving to greener mining methods, but de Vries says that’s hard to pull off.
“It's a distributed network. Nobody's in charge, which means that nobody can say ‘as of tomorrow we'll be running this new green version,’”
The infrastructure in the data center in Bonner has been completely dismantled and another tenant is using a fraction of the building. Meanwhile, Diana Maneta with Missoula County says she’s already heard from residents in other parts of the country who are interested in advocating for similar cryptocurrency mining rules in their own communities.