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The City That Banned Bitcoin Mining

Plattsburgh, NY voted to place an 18-month moratorium on new commercial cryptocurrency mines in the city on Thursday. Here's why, and what comes next for cities that have had a Bitcoin gold rush.

Daniel Oberhaus

Daniel Oberhaus

Tom Pillsworth inspects some Bitcoin mining rigs. Image: Daniel Oberhaus

There are plenty of unique things about Plattsburgh, a small city in upstate New York, but its city council chamber is not one of them. The curved wooden desk for the council members and the mismatched chairs for the audience could have been located in any town in America. The only hint of regional flair at a public hearing on Thursday was a floor-to-ceiling poster of the famous 17th century French explorer Samuel de Champlain—armed with a sword and clad in in armor—peering over the council members’ shoulders.

Champlain is mostly remembered for his prodigious mapping of North America’s eastern seaboard, the founding of Quebec, and his monopolization of the fur trade in the region. He was a shrewd businessman, fierce imperialist, skilled negotiator, and fearless explorer. But what many people forget is that Champlain spent his final years as an administrator who struggled to sustain Quebec and the industries he had been instrumental in creating.

I couldn’t help but think of the relatively banal ending to Champlain’s storied career as I watched residents of Plattsburgh fill the city council chamber to capacity Thursday night. Stragglers stood outside the chamber doors and watched the proceedings from a live stream in City Hall’s foyer.

Read More: This City Just Passed the First Bitcoin Mining Ban in the US

Such a large turnout for a city council meeting was highly unusual, but then again, so was the meeting’s agenda. Residents had gathered to discuss a new bill proposed by the city’s Mayor Colin Read on March 1 that would place an 18-month moratorium on new commercial Bitcoin mines in the city due to rising electricity costs.

Like Champlain, the residents of Plattsburgh had found themselves at the epicenter of an exciting new industry that may change the world as we know it. And like Champlain, they had to figure out a way to make that new industry sustainable.

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Mining is the energy-intensive computational process that secures the Bitcoin blockchain and rewards miners with bitcoins. Although few of the attendees at the Plattsburgh hearing knew much about how Bitcoin works, they had already begun to experience some of its related negative consequences.

“I’ve been hearing a lot of complaints that electric bills have gone up by $100 or $200,” Read, who took office last year, told Motherboard in an interview a few hours before the meeting. “You can understand why people are upset.”

Mayor Read during the hearing. Image: Jason Koebler

After an hour of comments from residents, professors from the nearby university, and a local Bitcoin miner, the city council voted on Thursday to pass the moratorium. Plattsburgh is the first city in the United States to ban commercial cryptocurrency mining, albeit temporarily.

For decades, Plattsburgh residents have enjoyed access to what Read said was the “cheapest power in the world” as a result of a massive hydroelectric dam built on the St. Lawrence River in the late 50s. Each month, the city is guaranteed an allotment of power produced by the dam. If it goes over that allotment, the city has to buy electricity from other power plants at a premium.

Plattsburgh’s agreement secures it access to 104 megawatts (MW) of cheap power each month, more than enough to satisfy the energy demands of Plattsburgh’s roughly 20,000 residents. Even during the frigid winter months, when electricity demand is the highest, Plattsburgh residents normally pay only 4.5 cents per kilowatt-hour (kWh) to heat their homes and industrial users—including cryptocurrency miners—only pay about 2 cents. Contrary to Read’s claim, this is not quite the cheapest in the world, but it’s close: Last year, the Mexican government announced it had received a bid to create a wind power farm that would produce electricity at around 1.7 cents per kWh. To put this in perspective, the average cost per kWh in the US is a little over 10 cents.

The low cost of electricity has made Plattsburgh a cryptocurrency mining hot spot, and in January and February the city went over its cheap power quota due to a cold winter and, the city believes, cryptocurrency mining. One mining operation in town consumed roughly 10 percent of the city’s power during those months, according to Read. The overages costs were distributed among all residents and businesses in Plattsburgh—the vast majority of which have nothing to do with cryptocurrency mining at all, but their bills went up nonetheless.

Read More: One Bitcoin Transaction Now Uses as Much Energy as Your House in a Week

Typically, cities welcome large investments from tech companies because of the promise of job creation and investment in the local economy. But the heavily automated nature of cryptocurrency mining means that a large operation can use a significant amount of a municipality’s power, generate little or nothing in tax revenue, and create a negligible number of jobs. Plattsburgh’s government is suffering through a budget crisis that, perhaps with a different set of policies, the influx of mining investment could help solve. But currently, cryptocurrency investors from around the world are using Plattsburgh’s cheap electricity to get rich, and are being subsidized by the city’s residents to do so.

Plattsburgh cryptocurrency miners lease the buildings they operate in, so even successful operations don’t lead to an increase in property values and thus, property taxes. And the city currently has no other mechanism to tax them, either: “There’s no city income tax and no sales tax because most of the investors live outside the region,” Read said.

“The restaurant across the street employs more people than the Bitcoin mines"

During an unrelated budget meeting a few minutes before Thursday’s cryptocurrency hearing, city council member Mike Kelly told residents that Plattsburgh has an unsustainable budget deficit. The local government had to cut $2 million in city services in recent years; Kelly said a further $1 million cut will be necessary in 2019.

“If we can’t tax our way out of this, and we can’t generate enough revenue to offset our increase in operations, then what do we have left? We have more cost cutting,” Kelly said. “That means jobs, that means payrolls, that means things that are very emotional and near and dear to people, but that’s where we stand now … perhaps the police force is too large. Perhaps the fire department could be right-sized to a level that we can afford.”

Image: Jason Koebler

A mining ban won't fix that budget deficit, but letting miners run wild in town won't either. With the ban, Plattsburgh’s local government doesn’t think it’s impeding technological progress. Instead, it says it’s paving the way for the small but growing contingent of cities and towns that have found themselves suddenly inundated with cryptocurrency mining companies because of their low electricity prices and without the regulations and agreements needed to deal with the gold rush.

“The restaurant across the street employs more people than the Bitcoin mines,” Read continued. “They’re not generating the 480 workers an industrial plant might employ using even less power, so that’s difficult for us.”

Bitcoin comes to Plattsburgh

Prior to Thursday’s hearing and vote, establishing a Bitcoin mine in Plattsburgh was no different than starting any other kind of business in the city. Operators would merely have to find a building that was zoned for industrial use, apply for a building permit, and ensure that the electric load could be met.

Utility policies in the city and state of New York prevent the city from refusing to hook a business up to the grid, putting limits on overall power use, or jacking up rates for specific customers. Because the city’s electric utility—the Municipal Lighting Department—is a nonprofit, it sells electricity at rates that are close to cost, so even heavy users are not generating money that can be used by other departments in the city.

Due to this abundance of cheap energy, as well as lumber and water, paper production has historically been one of Plattsburgh’s main industries. Georgia-Pacific continues to operate the city’s largest paper mill, just as it has for the last 50 years. Another paper mill—which primarily manufactured wallpaper—was located in a small industrial park on the city’s outskirts, but its former owner vacated the premises long ago. Today, the mill is occupied by a handful of businesses, but the buildings are, for the most part, empty.

I met Ryan Brienza, an 18-year-old graduate of nearby Beekmantown High School, at the old mill earlier this week. Our footsteps echoed off vaulted white ceilings as Brienza guided me through a maze of vacant rooms. As we ventured deeper into the mill, however, the subdued silence gradually gave way to the steady hum of machinery.

When he pushed open a door toward the back of the mill, I saw the source of the hum: A large blue wooden box. Brienza released the latches holding the doors of the box closed, and the hum turned into a roar.

Brienza's mining operation. Image: Daniel Oberhaus

Inside the box were about 100 Antminer S9s. Antminers are a special type of computer chip called an ASIC, and are manufactured by a Chinese company called Bitmain. They’re meant to do one thing: Mine Bitcoin.

“A lot of people don't really know about Bitcoin, they don't know what miners are,” Brienza said. “They just kind of see it as these people are here, they're making a lot of money, and making our power rates go up. They don't really see the big picture. They don't see what Plattsburgh has here. We're sitting on top of a gold mine if we can execute it right. A ton of investor money will flow in."

In February, Brienza and his business partner Tom Pillsworth leased a room at the mill to host their Bitcoin mine. They are anxious to take over adjacent spaces at the mill and said there are already another 100 ASICs en route to their facility that will arrive by the beginning of April. The room was full of the brown shipping boxes that the machines arrive in and spools of multicolored wire lay strewn across the floor. The blue box that houses the ASICs is the latest product from Triangle Electrical Systems—a Plattsburgh-based electrical contractor owned by Brienza’s mother, Linda—that is optimized for dissipating heat and dampening the noise of Bitcoin mining operations.

Pillsworth, who is a wine importer and runs a duty-free shop on the US-Canada border, has lived in Plattsburgh for eight years and has run a small-time Bitcoin mining operation from his home since 2016, but none of the Antminers in the paper mill are actually owned by him or Brienza.

"We're sitting on top of a gold mine if we can execute it right"

Instead, the mining units are sent to them from around the world by customers who don’t want to deal with the hassle of running a Bitcoin mining rig from their own home. They are managed as part of Brienza’s hosting company, Zafra LLC, which he started while still in high school. Brienza’s customers pay a fixed rate (in US dollars, not Bitcoin) and in exchange he covers the cost of power, cooling, and maintenance associated with hosting the ASIC miners. The ASIC owners, in turn, get to keep the Bitcoin generated by their miners.

Some of the rigs in the Zafra mine belong to David Bowman, who can be credited with attracting Bitcoin miners to Plattsburgh in the first place. In 2016, Bowman started Plattsburgh BTC, a small cloud mining operation that rented mining power to its clients. Since then Bowman’s enterprise has grown from a handful of Antminers running in his apartment to 10 of them stashed in Brienza’s box

Although Brienza and Pillsworth understand locals’ qualms about rising energy prices, when we spoke they suggested that the Plattsburgh residents are simply afraid of a new technology they don’t understand, and that a moratorium could ruin a valuable opportunity for growth in the city.

They acknowledged that some sort of compromise is necessary, and said they were willing to work with city officials. But a moratorium, they believe, benefits neither the city nor Bitcoin miners.

Brienza told me that all the Antminers in their Bitcoin mine require a total of about 1.5 megawatt-hours of power per month. This accounts for about 1 percent of Plattsburgh’s total monthly electricity allotment.

Ryan Brienza in front of his mine. Image: Daniel Oberhaus

Read said there were a handful of small-scale and hobby mines operating in Plattsburgh, but two main Bitcoin mines accounted for the bulk of electricity use. Brienza’s operation is one of the biggest in town, but it's a small-time operation compared to the frontrunner, a multimillion-dollar company called Coinmint that is officially registered in Puerto Rico. Coinmint operates out of the Skyway Shopping Center strip mall in Plattsburgh and, according to Read, used up the bulk of the 10 percent of the town's power attributed to cryptocurrency mining.

When I pulled up to Skyway, shoppers milled in and out of Aubuchon Hardware, Gioiosia’s Wine & Spirits, and Yando’s Big M Supermarket. But the large anchor building, which once housed Diamond Comic Distributors, looked largely abandoned, save for a Family Dollar store. Peering into the windows at the front of the building, I saw some loose pink wall insulation and a few cables on the concrete floor. But behind the white drywall on the opposite side of the window, the building isn't empty. From the parking lot, the telltale buzzing of ASICs could be easily heard coming from the back of the building.

Coinmint’s operation has no signage, but if you know what you’re looking for, it’s unmistakably a Bitcoin mine. Several gigantic industrial fans used to cool the mining units in the back of the building—the source of the buzz—were one clue. The other was the fact that all the doors to the facility were left wide open to further dissipate heat. Finally, a shipping container-sized blue box with electrical wiring and “high voltage” signs suggested that some serious power was being funneled into the building.

Coinmint's mine has no sign and is located in a large building that also houses a Family Dollar. Image: Daniel Oberhaus

I spoke to a Coinmint employee standing outside the site, but I wasn’t allowed inside. The employee said the company had received the blessing of Plattsburgh’s previous Mayor, James Calnon, to operate the facility. At Thursday’s meeting, when a resident asked Read whether there had been any negotiations between the city and the Bitcoin miners before they set up their mines in the city, Read said “I don’t think there were any negotiations. There were building permits issued.”

Kyle Colton, who runs media relations for Coinmint, was at the public hearing. When I asked Colton what direct benefits Coinmint provides to Plattsburgh, he said “one of the things that the New York Times article that just came out said was that the miners have just one or two employees and that’s not true at all.”

When I pressed Colton about how many full-time employees Coinmint employed in Plattsburgh, he couldn’t provide a number, but said that the company had paid “hundreds” of contractors throughout its time in the city, which were used for everything from construction to electrical wiring. The employee Motherboard spoke with at Coinmint’s Skyway location said he started as a contractor during the setup phase and been hired to maintain the mine. He said there are two or three full-time employees running the mine.

In January, a local CBS affiliate reported that Coinmint planned to invest $165 million into a corporation it created in Delaware last March called North Country Data Center Corp, which purchased a former smelting plant in Massena, a town about a two-hour drive from Plattsburgh. According to Watertown Daily Times, the company plans to turn the plant into a massive Bitcoin mining operation and data center, which it said will employ 150 people, use 15 MW of power, and “handle 15 percent of the world’s cryptocurrency business.” Bitmain, the largest mining company in the world, reportedly employs 600 people at its headquarters in Beijing.

Banning Bitcoin

As the residents of Plattsburgh made clear during the community meeting, their perception of the Bitcoin mines was that they only seemed to benefit the miners, many of whom aren’t even from Plattsburgh.

Brienza has lived nearby his entire life, but the Antminers he hosts belong to people from all over the US. In effect, people are remotely tapping into Plattsburgh’s cheap electricity to mine Bitcoin through Brienza’s hosting company, and the vast majority of the profits from mining are funneled elsewhere. Bowman, who was the first to take of the city’s cheap electricity to mine the cryptocurrency, is from Plattsburgh but spends most of his time in Grenada, the Caribbean island where he is studying to become a doctor.

The residents of Plattsburgh fear that if no action is taken to limit the influx of out-of-town Bitcoin miners, it would result in a gold rush led by international Bitcoin mining operations looking to cash in on cheap electricity.

These fears are not unfounded. As detailed in recent articles by Politico and Buzzfeed, cryptocurrency miners have descended in droves on small towns in Washington state and Wyoming, too. The same could easily happen in Plattsburgh without proactive action. Brienza and Pillsworth said their hosting is sold out and they have a long list of clients from Silicon Valley, Wall Street, and around the world ready to vastly expand their hosting operation with more miners.

Mayor Read said the city could be quickly overwhelmed.

"We could use 100 megawatts in two months’ time if we opened up the floodgates,” Read said. “And then there would be no cheap power left for our residents. Some of the proposals we’ve been seeing, they want to take 20 or 30 megawatt bites of power, and we don’t have that."

Brienza's mine. Image: Daniel Oberhaus

Other companies in town say cryptocurrency mining threatens them, too. Mold-Rite Plastics, which employs nearly 500 people, uses 2.9 megawatts of power each month, according to CFO Tom Recny, who spoke at Thursday’s hearing.

“Our bill went up $22,000 as a result of the increase,” he said. After the hearing, Recny said that if the company’s electric bill continued to increase, it would have to consider layoffs. “It’s important to get a fix and handle on this in light of the impact it’s had on citizens and the city’s businesses.”

After hearing from residents and Bitcoin stakeholders, the Plattsburgh city council unanimously voted to pass the bill putting a moratorium on new Bitcoin mines. Current mining operations—namely those run by Brienza and Coinmint—will be allowed to continue operating, but the Bitcoin miners in the wings will have to wait up to 18 months before they can open a mine in the city.

In the meantime, Plattsburgh officials have tasked themselves with figuring out how to effectively regulate Bitcoin mining in the city. Thursday’s hearing was substantive and largely optimistic. All city council members, and many of the residents who spoke, believe that Plattsburgh has been given an opportunity to be at the forefront of a potentially world-changing technology, but said that without at least a temporary reprieve from new investment, the city will be overrun. The council vowed to meet with Bitcoin miners and explore changing city policy and petition the state to make new policies that will allow for more equitable use of the city’s power resources.

City officials will also have to draft codes for the safe operation of Bitcoin mines in the city because the buildings leased by miners weren’t designed to accommodate such energy- and heat-intensive activities. And then, there’s the question of how to guarantee that residents will get to keep their cheap power.

Read More: You Could Mine 1 Bitcoin Per Month If You Harvested the Body Heat from 44,000 People

One possible solution is to simply have Bitcoin mines absorb the extra energy costs if the city exceeds its 104 megawatt power budget. Another is to charge Bitcoin mines a higher rate than other commercial enterprises for the power they use. Perhaps surprisingly, Pillsworth was not against the latter idea; in fact, he seemed almost enthusiastic.

“It would never cost the Plattsburgh citizens any more money to let more miners come in here because the miners are willing to pay for those overages when it's super cold,” Pillsworth told Motherboard. “The miners are more than willing to pay.”

This, however, is not something the city can decide on its own. Read said the city must seek approval from the New York Public Service Commission for any changes made to electric rates in Plattsburgh. Shortly before the council went to vote on the ban, the NY Public Service Commission chair John Rhodes said the Commission would allow for higher electric rates for cryptocurrency miners as Read had proposed, though it’s not immediately clear how that decision can be implemented in Plattsburgh. Read wasn't sure if Plattsburgh would be allowed to charge crytpocurrency mines more than the residential power rate, which would still make the city one of the cheapest places to mine in the world.

“We always welcome and encourage companies to build and grow their businesses in New York,” Rhodes said in a statement. “However, we must ensure business customers pay an
appropriate price for the electricity they use. This is especially true in small communities with finite amounts of low-cost power available. If we hadn't acted, existing residential and commercial customers in upstate communities served by a municipal power authority would see sharp increases in their utility bills.”

Brienza said he will also be working on technical solutions to make Bitcoin mining more amenable to Plattsburgh citizens, such as figuring out a way to engineer the mining boxes built by his family so that they can recycle the waste heat generated by mining.

“Every watt you use is being converted into heat and we're throwing millions of dollars of heat out the window,” Brienza said. “If we can recapture and use it somehow in the city it'd be worthwhile.”

“I believe we can actually get this right if we study it and figure out ways to work with the industry and protect the residents,” Read said. “I’m very optimistic we can come up with a solution that’s not reactive, but proactive.”

Correction: A previous version of this article stated that the city of Plattsburgh had a 104 MWh allotment per month, when it actually has a 104 MW allotment of power each month.

Additional reporting by Jason Koebler.

Disclosure: Daniel Oberhaus owns some cryptocurrency.

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