Bitcoin miners increasingly rely on government handouts to compete

Bitcoin miners have evolved from the beginning when anyone could mine with their CPU at home to a model mostly dominated by sophisticated conglomerates, many of whom employ media relations staff and use lawsuits, lobbyists and other corporate tactics to increase their profits. to increase.

NASDAQ-listed miner Riot Blockchain recently joined a lawsuit against the US Department of Energy in an attempt to prevent the release of survey data on Bitcoin miners’ energy use. That data would have helped the Department of Energy recommend better electricity use policies, but miners wanted to hide their energy use from the public, so they filed a lawsuit at a courthouse in Waco, Texas.

Keep Bitcoin electricity usage private

The lawsuit filed by the Texas Blockchain Council (which has Bitcoin miners as members) claimed that the recording would cause irreparable damage to their business. Additionally, council members alleged that the Department of Energy violated the Paperwork Reduction Act by failing to provide 60 days notice and by threatening “criminal fines and civil penalties” against members of the Texas Blockchain Council.

Texas Blockchain Council President Lee Bratcher said in a press release announcing the lawsuit, “The EIA’s actions represent a troubling precedent of government intrusion into private industry operations without just cause or due process.”

In addition to these legal arguments, it is not difficult to see an agenda for these miners’ political actions. Not only would the survey have given foreign competitors visibility into mining operations, but the disclosure could have had negative media consequences, with the potential to affect their access to grants and subsidies.

Their lawsuit worked. Government officials have vowed to destroy all data the Department of Energy has collected in an apparent settlement with the Texas Blockchain Council. A court order also blocked any attempts to continue the survey until the matter could be litigated or settled.

Read more: Illegal crypto-mining installations found in Poland’s Supreme Court

Bitcoin miners become lobbyists

Many Bitcoin miners rely on favors from state and municipal governments. Advocating for government handouts such as zoning rights, noise variances and subsidies has become a major business priority.

Bitcoin mining in the United States uses as much electricity as the state of Utah. Wherever they set up shop, miners add a huge burden to power grids. For example, a power grid in Texas failed during unusually frigid weather in February 2021. At the time, state governor Greg Abbot asked Bitcoin miners for help, and soon instituted policies to pay them to stop mining on demand during future emergencies.

Since then, politicians have criticized bitcoin mining companies with facilities in Texas for gobbling up energy, contributing to higher electricity bills for local residents and emitting greenhouse gases. Eight Democratic members of Congress signed a letter to major Bitcoin mining companies expressing concern about their energy consumption.

Texas residents have also complained about the noise from bitcoin mining facilities. When miners operate their rigs, they also have to run large fans to keep their facilities cool. One Fort Hood resident near a Marathon Digital facility compared it to living near an airport with jets constantly taking off. Other protesters pointed to a drain on local funding and the likelihood of higher electric rates for existing residents.

Profitable because of the subsidies

Many miners disguise their otherwise loss-making mining business through cleverly crafted earnings announcements, reporting mixed revenues that include subsidies.

To put it bluntly, many Bitcoin miners are profitable because the government pays them not to mine Bitcoin. These so-called “load balancing” or “grid stabilization” payments incentivize miners to turn off their machines during heavy electrical use elsewhere in nearby cities.

Again, take Riot Blockchain as an example. The company raised $31.7 million from selling already purchased energy and shutting down mining rigs in response to rising demand during the summer of 2023. During the same period, it earned just $10 million from bitcoin mining.

The difference between $10 million in revenue and $31.7 million in subsidies illustrates the little-known economic reality of Bitcoin miners. Domestic miners are struggling because of ultra-competitive miners scouring the world for cheap energy. Competing against state-backed miners in resource-rich countries like Russia, Venezuela or Kazakhstan, American miners struggle to earn razor-thin profit margins. As a result, state and municipal government subsidies are important to the survival of Bitcoin miners in other jurisdictions, such as Texas.

Read more: Bitcoin mining in Niagara Falls is going ‘brrr’ in all the wrong ways

Defending Bitcoin Miners’ Right to Use Electricity

To the credit of miners, Bitcoin Mining Council surveys show that a significant portion of members’ electricity comes from renewable sources. In addition, studies indicate that bitcoin mining is responsible for a small fraction of global electricity production.

Their electricity use is also extremely valuable. The consumption of electricity secures the $1.3 trillion Bitcoin network against various attacks such as double spending or block stuffing. Rather than a waste or an annoyance, Bitcoiners view electricity consumption as an indispensable safeguard for their financial system.

According to Satoshi Nakamoto in an email to Martti Malmi, “proof of work is the only solution I’ve found to make peer-to-peer electronic cash work without a trusted third party.” If true, electricity use by Bitcoin is the only way to secure an electronic cash that does not rely on trusted third parties.

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