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The Wastefulness of Bitcoin, Part 2: The Texas Case Study

Bitcoin mining is a lucrative business, but it’s also an energy-intensive one. Despite this, miners have found ways to make the most of the power they use to increase their profit margins. This was demonstrated by Riot Platforms in Austin, Texas, on June 23, 2022. The company’s mine runs at 450 megawatts, the largest in the United States, and each day that June, its computers’ guesses were winning Bitcoin worth an average of about $342,000. However, the company had two additional ways to improve its profit margins.

Blackout insurance and reductions

The first was through the Responsive Reserve Service, a Texas power grid program that offers a way to quickly reduce strain if the grid becomes overloaded, acting as insurance against blackouts. The program pays miners, and other companies, for promising to stop using electricity upon request. In reality, they are rarely asked to shut down, but are still paid for making the pledge. From midnight to nearly 4 p.m. on June 23, Riot earned more than $42,000 from the program while continuing to mine Bitcoin. Overall in 2022, Riot made nearly $9.3 million from participating in the program nearly 85 percent of the time, the data shows, though the grid operator asked companies to actually lower their use for about 3.5 hours.

The second technique used by Riot Platforms involved avoiding fees that Texas charges to maintain and strengthen the power grid. To incentivize big customers to conserve electricity, those fees are based on how much electricity they use during several peak summer moments. Riot reduced its power use by more than 99 percent, avoiding an estimated $5.5 million in fees it would have incurred had it been fully operational all day.
From Bitcoin mining, the company earned $156.9 million last year. One final mechanism lets some companies make extra money when electricity prices spike: They can stop mining and resell electricity to other customers. That earned Riot roughly $18 million last year.

When asked whether Bitcoin companies are disproportionately able to take advantage of both programs, the Texas grid operator, the Electric Reliability Council of Texas, or ERCOT, said in a statement that it “does not discriminate based on the type or activity” of the companies that sign up.

Exploiting the system

While it is not unusual for companies in Texas to be able to anticipate moments when fees will be assessed and to reduce their demand, Bitcoin miners are unique in that they can stop using on average 5 percent to 30 percent of their electricity, according to industry consultants. However, others argue that Bitcoin mining companies are exploiting weaknesses in programs designed for different industries. Severin Bornstein, a professor at the University of California, Berkeley, who studies electricity pricing, said, “I think they’re exploiting the system. But they will say, ‘You know, the system was already there,’ and I’m sympathetic to that in some ways.”