Speaker 1: I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News,
Speaker 1: and this is Bloomberg Crypto, a daily Bloomberg I Heart podcast.
Speaker 1: It's Tuesday, June. Have you ever heard the saying everything
Speaker 1: is bigger in Texas? That same ethos applies to bitcoin
Speaker 1: mining in the lone Star state. The state of Texas
Speaker 1: is flush with a new kind of prospective bitcoin miners.
Speaker 1: The city of fort Worth even started a small mining
Speaker 1: operation out of its city hall. Today, I talk with
Speaker 1: Bloomberg Report to Mike Smith about what makes Texas so
Speaker 1: attractive to crypto enthusiasts, and you'll hear from Lee bratcha
Speaker 1: head of the Texas Blockchain Council, for a look at
Speaker 1: the Council's partnership with the City of fort Worth and
Speaker 1: why Leye sees Texas as the perfect environment for bitcoin believers.
Speaker 1: First up, Mike Smith, Mike, so much for joining us,
Speaker 1: my pleasure today we're gonna talk about Texas and we're
Speaker 1: going to talk about mining in Texas, specifically bitcoin mining.
Speaker 1: But just before we dive into kind of the technicalities,
Speaker 1: is what's happening with with Texas and these bitcoin miners.
Speaker 1: Can you just explain what a bitcoin mine looks like.
Speaker 1: Have you have you been to one? What was that
Speaker 1: experience like, Yeah, I've been to one um out in
Speaker 1: Texas actually, and it's it's quite a almost a surreal experience.
Speaker 1: Most of these mining operations are located really in very
Speaker 1: sort of remote places in the middle of nowhere, so
Speaker 1: to speak, especially in Texas, and they're quite striking when
Speaker 1: you come upon them, so to speak. But they're actually
Speaker 1: quite simple in what they are. They're basically um, you know,
Speaker 1: warehouses or even sort of shipping containers filled with racks
Speaker 1: and racks and racks of computers that are all working
Speaker 1: in this together and sending the result of their work
Speaker 1: up into the to this guy to uh internet connection
Speaker 1: via satellite. And they use a lot of electricity. So
Speaker 1: imagine just dozens and dozens and dozens of very expensive
Speaker 1: computers sort of humming along solving math problems, creating bitcoin exactly.
Speaker 1: So they're they're part of a much larger pool, but
Speaker 1: they in turn are quite big in a lot of
Speaker 1: these cases, and we're talking tens of thousands of computers
Speaker 1: UH servers, bitcoin servers they call them, that are controlled
Speaker 1: or owned by the same minor if you will. In
Speaker 1: many cases and they buy how many bitcoins they actually get,
Speaker 1: which is completely related to the number of computers they
Speaker 1: have and the amount of electricity have to power them.
Speaker 1: So Senator Ted Cruz, who's one of you know, Texas
Speaker 1: is two senators, he's on the record as saying I
Speaker 1: want Texas to be the oasis on planet Earth for
Speaker 1: bitcoin and crypto, which is, you know, a pretty ambitious
Speaker 1: statements given the competition from other countries. I gotta say,
Speaker 1: when it comes to bit cool in and what comes
Speaker 1: to crypto more generally, I am incredibly bulsh. So talk
Speaker 1: talk a little bit more about what Texas is specifically
Speaker 1: doing to attract bitcoin minus to the States. Well, Texas
Speaker 1: is sort of the ideal place for bitcoin mining because
Speaker 1: there's so little regulation for just about anything, and that
Speaker 1: includes the electricity market and the government that got starting
Speaker 1: with the governor and spreading onto the federal level to
Speaker 1: sooner Cruise, for example, they really believe in in in
Speaker 1: clearing the way in terms of regulations for business to
Speaker 1: do what they need to do to make money in
Speaker 1: their state. So, um, that's kind of what they've been
Speaker 1: trying to do with bitcoin. Uh, in the last year,
Speaker 1: the state legislature passed a law and Governor Rabbit signed
Speaker 1: it that basically set up this whole legal framework for
Speaker 1: bitcoins to be sort of recognized as as legal assets,
Speaker 1: if you will, and it made it easier for banks
Speaker 1: to be able to handle That made it easier for
Speaker 1: sort of just the uniform code of doing business to
Speaker 1: include cryptocurrency assets, including bitcoins. Now, as a person who
Speaker 1: has lived in Texas and has experienced its weather extremes
Speaker 1: as well as the let's describe this charitably as the
Speaker 1: somewhat fragile power grid, what is Texas also doing to
Speaker 1: shore up it's energy reserves for you know, people and
Speaker 1: businesses that aren't crypto minors, given the constraints that it's
Speaker 1: operating with on that front, there's an issue with um
Speaker 1: the amount of new electrical generation power plants coming online
Speaker 1: and being able to get to the people that need
Speaker 1: it as as quickly as they need it. So that's
Speaker 1: sort of their big challenge trying to provide incenters for
Speaker 1: people to build more power plants. Ideally, um, you know,
Speaker 1: plants that are sustained, you know, are renewable with solar
Speaker 1: and wind. But the problem a missed there aren't enough
Speaker 1: power lines to get that electricity, the long, long distances
Speaker 1: back east to the major cities for example, like Houston, Dallas, etcetera,
Speaker 1: and to the industrial users. In other words, the people
Speaker 1: that need electricity are really far away from where it's
Speaker 1: being generated. And can we talk about the weirdness of
Speaker 1: the fact that, you know, Houston is close to other
Speaker 1: cities and other states. There's various parts of Texas that
Speaker 1: border other states in the US as well as of
Speaker 1: course other countries, but the Texas power grid isn't connected
Speaker 1: to any of these places. Why is that, Well, that's right,
Speaker 1: it's by design because Texas created this system, uh some
Speaker 1: time ago, with the idea that it would be a
Speaker 1: wholly independent system, walled off from the rest of the country,
Speaker 1: walled off from states that heavily regulated electricity because they
Speaker 1: wanted Texas to be a sort of free market energy
Speaker 1: zone in all senses of the word. So they didn't
Speaker 1: want to connect to with you know, say how foreign
Speaker 1: grid or all the way up to New York because
Speaker 1: a lot most of the country is interconnected, so that
Speaker 1: they can share energy and export energy so to speak,
Speaker 1: when they don't need it or when they need it. Texas.
Speaker 1: They wanted to make it self contained and therefore just
Speaker 1: sort of a beautiful free market example of how the
Speaker 1: market can provide what people need at the best price possible.
Speaker 1: So that's exactly why they did it, and that of
Speaker 1: course has had some challenges given as you described, when
Speaker 1: in that grid basically fell over um and made the
Speaker 1: provision of electricity and power for hundreds of millions of
Speaker 1: people just impossible. President Joe Biden declared a major disaster
Speaker 1: in Texas. It was a week of sub zero temperatures,
Speaker 1: frozen oil and gas wells, and absolutely soaring electricity prices,
Speaker 1: all of which left millions in the dark. Bloomberg's Rachel Adams,
Speaker 1: what are the bitcoin miners going to do if there
Speaker 1: are these rolling blackouts in the future, Like, how are
Speaker 1: they going to handle that disruption to their business? Well,
Speaker 1: bitcoin miners their principal argument for not being a threat,
Speaker 1: so to speak, to the electricity system is that they, uh,
Speaker 1: they can turn off their computers at a moment's notice,
Speaker 1: you know, within minutes, just like when you turn off
Speaker 1: your computer or your laptop when you're done working for
Speaker 1: the day. So they have a system in Texas where
Speaker 1: if there is a sort of a looming crisis if
Speaker 1: the you know, the total amount of electricity is a
Speaker 1: pre approaching the maximum that they can provide, and if
Speaker 1: you go past that line, you have you have to
Speaker 1: start turning off people's electricity blackouts, brownouts. The bitcoin miners
Speaker 1: have committed to UM, have promised to turn off their
Speaker 1: computers when needed UH to essentially save electricity, and there
Speaker 1: are great incentives in the in the in this free
Speaker 1: market power system the Texas have for them to do that, because,
Speaker 1: you know, when when there's shortages of electricity or when
Speaker 1: we're reaching a peak level and there's not going to
Speaker 1: be enough electricity along, the price goes up a lot.
Speaker 1: So when a bitcoin minor turns off their computers, they
Speaker 1: get paid a lot of money to do that. I mean,
Speaker 1: they can make as much money at turning off the
Speaker 1: computer for a few hours they're starting their computers for
Speaker 1: a few hours as they can you know, mining bitcoin
Speaker 1: for days and days and days. So what's interesting to
Speaker 1: me is this positivity around crypto sort of kind of
Speaker 1: came out of nowhere. UM at the highest levels of government,
Speaker 1: like you know, Governor Abbott and others have been very
Speaker 1: welcoming to people like Joe Rogan and Elon Musk, who
Speaker 1: are you know, very much embedded in various parts of
Speaker 1: this kind of tech libertarian crypto scene. But the explicitness
Speaker 1: around hey, you know, come to Texas set up your
Speaker 1: bitcoin minds is a newer development than that. And I'm wondering,
Speaker 1: you know, how much of this is attributable to lobbying,
Speaker 1: Like the Texas legislature has a very interesting relationship with
Speaker 1: with lobbyists of all stripes, and the Texas Blockchain Council
Speaker 1: has really established itself in a relatively short amount of time,
Speaker 1: is like foremost among them. As it relates to this conversation. Yeah,
Speaker 1: and um, it's interesting because the Bitcoin Council, it's almost
Speaker 1: like they don't really need lobbyists. They just sort of
Speaker 1: call up the governor and he invites them over to
Speaker 1: the mansion to talk. They're being just extremely welcomed and
Speaker 1: with remarkably little, you know, actual resources they have to
Speaker 1: throw at it. Um, the same thing with with the
Speaker 1: executives in the industry. You know, at the core of
Speaker 1: a bitcoin mining is energy. And it's interesting if you
Speaker 1: talk to a lot of the bitcoin miners in Texas,
Speaker 1: are their oil people you know, they came from the
Speaker 1: oil and gas business. You know, Bitcoin to them is
Speaker 1: just a it's another form of the oil business. Yeah,
Speaker 1: it's quite similar. Instead of instead of drilling for oil,
Speaker 1: you're looking for electricity. Well, thank you. That is a
Speaker 1: very interesting thing to think about the connection of that.
Speaker 1: What is a very true historical fact and something that
Speaker 1: feels extremely cutting edge and of the moment right now
Speaker 1: of really so glad that you could join us today, Mike,
Speaker 1: Thank you again, my pleasure. You can find more of
Speaker 1: Mike Smith's reporting on the Bloomberg terminal, on Bloomberg dot
Speaker 1: com and on Twitter at Smith Markets. We'll be right back. So,
Speaker 1: now that we have a sense of where the state
Speaker 1: of Texas currently finds itself as it relates to that
Speaker 1: overall crypto mining universe, let's look at where proponents of
Speaker 1: mining operations wants to see it heading in the future.
Speaker 1: How do we continue to have Texas lead in the
Speaker 1: space of bitcoin, bitcoin mining and blockchain in general. That's
Speaker 1: Lee Bratcha. He heads the Texas Blockchain Council, which partnered
Speaker 1: with the city of Fort Worth for the first ever
Speaker 1: city run bitcoin mining operation in the US, and he
Speaker 1: joins me now tell our listeners more about the tech
Speaker 1: this Blockchain Council. The Texas Blockchain Council is an industry
Speaker 1: association working to make Texas the jurisdiction of choice for
Speaker 1: bitcoin blockchain and we have a special emphasis on bitcoin mining,
Speaker 1: and so we work on the regulatory affairs side. We
Speaker 1: work on researching policy and advocating and educating with elected officials,
Speaker 1: and we also do your standard Chamber of Commerce type
Speaker 1: stuff with our member companies help them in business development efforts.
Speaker 1: So our listeners heard earlier that you know Senators had
Speaker 1: Cruise and Governor Abbert and others have been very enthusiastic
Speaker 1: supporters of bitcoin and bitcoin mining in the state. Can
Speaker 1: you tell us more about your relationship with them, the
Speaker 1: kinds of conversations that you know, and the education as
Speaker 1: you say that you're doing with lawmakers on legislatos. Yes,
Speaker 1: we've had several conversations with both Senator Crews and Governor Abbott.
Speaker 1: The crux of those conversations were around what's best for
Speaker 1: Texas and what'spex for UH innovation and Texas has led
Speaker 1: as an innovative state as a business friendly state for
Speaker 1: decades now, and my conversations with them are around how
Speaker 1: do we continue to have Texas lead in the space
Speaker 1: of bitcoin, bitcoin mining and blockchain in general and specific
Speaker 1: opportunity to bitcoin mining. We have conversations around job creation,
Speaker 1: tax revenue, and the Arcot energy only grate. Everyone's goals
Speaker 1: is to ensure that power reliability is maintained and that Texans,
Speaker 1: whether they live in El Paso or Dallas or in
Speaker 1: rural East Texas, they all have reliable and consistent access
Speaker 1: to power. In various other countries, you know, miners have
Speaker 1: been shall we say, less than committed. Right they find
Speaker 1: a better off force somewhere else like Texas, for example,
Speaker 1: they up sticks, they leave town because it's fundamentally a
Speaker 1: very mobile friendly operation. Like are we are we talking
Speaker 1: about jobs that are sees le that you think are
Speaker 1: these are things are gonna be around for eighteen months
Speaker 1: or folks really starting to plan longer term than that.
Speaker 1: Some of the jobs are our seasonal, especially related to
Speaker 1: the construction of the sites. You don't need to have
Speaker 1: several hundred electricians and construction folks their year round, but
Speaker 1: they do maintain a good percentage of those for maintenance
Speaker 1: and for expansion, and in some of the places in
Speaker 1: North America, and in fact, every place in North America
Speaker 1: that has an industrial scale bitcoin mine over fifty megawatts,
Speaker 1: it is very much a permanent structure. So they have
Speaker 1: hundreds of millions of dollars worth of infrastructure investment going in.
Speaker 1: The only way a bitcoin minor shuts down operations in
Speaker 1: Texas is if they go bankrupt. Now, that might not
Speaker 1: be true for say a flare Gas bitcoin minor, where
Speaker 1: they have a forty foot shipping container with miners inside
Speaker 1: their their mining using a generator from flare Gas. That
Speaker 1: would be more of a mobile structure structure, and and
Speaker 1: perhaps just a few million dollars of investment, but it
Speaker 1: is more Well, it's interesting that you mentioned the gas flaring, right,
Speaker 1: because that's been an example of something where folks are
Speaker 1: trying to make a sort of an environmental case for
Speaker 1: bitcoin mining. They're like, well, otherwise this flared gas would just,
Speaker 1: you know, it would it would be wasted as it were.
Speaker 1: But now we're finding ways to reintegrate that into another
Speaker 1: part of the industry. Um that said, there are a
Speaker 1: lot of folks who have significant concerns about generally the
Speaker 1: fact of bitcoin mining on the environment, because even if
Speaker 1: in some cases you're able to reallocate energy sources. In
Speaker 1: a lot of other cases, it's just additional new energy consumption.
Speaker 1: How are you or you know, the folks that you
Speaker 1: are talking to making a case for the potential of
Speaker 1: a more environmentally aware industry as it relates to mining,
Speaker 1: we are very conscious of the need to ensure that
Speaker 1: we're we're environmentally sustainable. Mining is top of mind, and
Speaker 1: there's two ways that we do that. The first way
Speaker 1: is through understanding that energy usage is a way that
Speaker 1: society and human flourishing progresses throughout history, and so energy
Speaker 1: usage is not necessarily a bad thing. It's just depending
Speaker 1: on what you're using it on. So we would argue
Speaker 1: that securing a global monetary system and what some would
Speaker 1: call freedom money, which is bitcoin, is a valuable use
Speaker 1: of energy, much more valuable than say Christmas lights or
Speaker 1: video games or things. All these kinds of industries use
Speaker 1: a lot more energy than things that give people joy. Potentially, Yeah,
Speaker 1: you know, and and we we don't see anything wrong
Speaker 1: with using energy on Christmas lights and video games. Um
Speaker 1: and in Texas in particular, about thirty of the grid
Speaker 1: and given time is wind and solar. Depending on how
Speaker 1: hot it is or how much the sun is shining,
Speaker 1: how much the wind is blowing that particular day. And
Speaker 1: bitcoin mining is using an outsized amount of wind and
Speaker 1: solar in Texas, so more than the average grid user.
Speaker 1: And not only that, we're actually incentivizing more wind and
Speaker 1: solar because we will go out and be an on
Speaker 1: site power off taker for a wind farm exactly, exactly
Speaker 1: allows them to build out more infrastructure with better economics
Speaker 1: because they have an on site power off taker. There's
Speaker 1: just not enough transmission capacity to get all of the
Speaker 1: wind energy from West Texas to the big power off
Speaker 1: takers and in Dallas or Houston or Austin, so a
Speaker 1: lot of that energy gets wasted. In fact, about fifteen
Speaker 1: percent of the time you have negative pricing in West Texas,
Speaker 1: which means that energy is wasted. You've mentioned a few
Speaker 1: different parts of Texas and how they're thinking about mining.
Speaker 1: Tell me more about what you are up to in
Speaker 1: fort Worth. Yeah, fort Worth. UM. We were connected with
Speaker 1: the Mayor fort Worth in the city several months ago
Speaker 1: through mutual friends and um they had an interest in
Speaker 1: fort Worth becoming a a tech city and a city
Speaker 1: that's innovation forward, and so one of the ways that
Speaker 1: we suggested that they do that is becoming a city
Speaker 1: that it's a first for bitcoin and bitcoin mining. So
Speaker 1: we um we decided to donate several machines the city
Speaker 1: of Fort Worth for them to to mind bitcoin. It's
Speaker 1: not really a substantial amount of bitcoin or a substantial
Speaker 1: amount of power. It's it's about the amount of power
Speaker 1: that would take to run two vacuum cleaners. And the
Speaker 1: amount of profit from these machines will be measured in
Speaker 1: hundreds of dollars and not millions of dollars. So it
Speaker 1: is very much a pilot study that no cost to
Speaker 1: the taxpayer because these machines were donated and the proceeds
Speaker 1: from the bitcoin that has received will offset any of
Speaker 1: the power costs and and have a little bit of
Speaker 1: profit on top of that. Thank you, leave, I really
Speaker 1: appreciate you taking the time. Yeah, thanks for having me
Speaker 1: this fun conversation On the next episode of Bloomberg Crypto,
Speaker 1: what do you do if you want to leave your
Speaker 1: crypto to your friends, family, or as after you die?
Speaker 1: What does estate planning for stable coins and n f
Speaker 1: t s even look like. Crypto as an asset class
Speaker 1: is less than two decades old, that means that most
Speaker 1: estate planners don't yet understand how to navigate this kind
Speaker 1: of digital wealth transper For more, I'll turn to Bloomberg
Speaker 1: Reports to Jill Shah for a look at how cryptocurrency
Speaker 1: holdings are proving thorny for estep planners. I'm Stacy Marie Ishmael,
Speaker 1: and this is Bloomberg Crypto, a daily podcast from Bloomberg
Speaker 1: and I Heart Radio. For more shows from I Heart Radio,
Speaker 1: visit the I Heart Radio app, Apple Podcasts, or wherever
Speaker 1: you get your podcasts. Femail your comments, questions or suggestions
Speaker 1: to Crypto at Bloomberg dot net. Follow us on Twitter
Speaker 1: at Crypto. The supervising producer of this episode is Vicky Vergelina.
Speaker 1: Our producer is Mohammed Farouk. Associate producer Zan Absudiki Desta
Speaker 1: wonder At is our engineer. Original music by Leo Sidron.
Speaker 1: Bloomberg's head of Podcasts is Francisca Levy