Cryptocurrency Miners Are Building Their Own Electricity Infrastructure

Canadian company DMG Blockchain is expanding its mining operation in British Columbia with its own electrical substation.

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Aug 2 2018, 3:45pm

Images: DMG Blockchain, Flickr/Murray Foubister

Access to cheap electricity can make or break a cryptocurrency mining operation, and firms angling to strike it rich in an industry where delays can and will cost digital money will do just about anything to get it, as soon as they can.

The latest move in the quest for bargain-basement kilowatt hours, as quickly as possible: building out local power grids with bespoke electrical substations.

Canadian company DMG Blockchain is building what it hopes will be a fully-functioning substation near the Southern British Columbia town of Castlegar, which is electrified by hydro power. When I spoke to Steven Eliscu, who leads corporate development for DMG, over the phone, he told me that building the substation costs millions of dollars and required the company to build its own access road to haul equipment to the site. The goal: to plug it into the local grid and have it power DMG’s expanded mining operations by September.

“At the end of August we’ll go through a commissioning process where the utility will test everything as a completed substation and make sure that the town doesn’t blow up when we flip the switch,” Eliscu told me over the phone.

Photo: DMG Blockchain

Industrial cryptocurrency mining is the largely automated process of setting up hundreds, or even thousands, of computers to guess numbers all day long in the hopes of finding a value that “solves” a block of transaction data, adding it to the blockchain—a distributed ledger that keeps track of everyone’s digital coins. Miners receive a reward in the form of new cryptocurrency and user fees, making it potentially lucrative if you can find electricity cheap enough to make a profit; usually far below the rates that residents pay.

There’s a global rush to find cheap power and set up shop as soon as possible. In hydro power-rich Quebec, for example, so many miners have lined up to open mining operations that the provincial power utility put a moratorium on new applications and asked the energy board for guidance on how to proceed.

Eliscu said that the company is working closely with the local utility and has written approval for the project. When I reached out to the local utility in Castlegar—FortisBC—spokespeople declined to discuss specifics of the DMG project since it does “not discuss customer or potential customer information without their consent,” but noted that “in projects of this nature, the company in question and FortisBC sign a Facilities Interconnection Agreement.” The substation must also be approved by a professional engineer licensed by the province.

“FortisBC has been approached by companies mining cryptocurrency over the last few years,” FortisBC spokespeople wrote me in an email. “These operations typically have significant electricity needs due to the amount of computer hardware employed. As a public utility operating in BC under the Utilities Commission Act, we have an obligation to serve customers in our service area, subject to certain conditions and restrictions, including cryptomining operations.”

Image: DMG Blockchain

The utility declined to discuss the price point for DMG’s power, citing that it wanted to protect the privacy of customers or potential customers. Eliscu also declined to go into detail about how much DMG expects to pay for power once the substation is operational, citing concerns over competition.

“We’ve set up an arrangement that, for someone else to jump in, were kind of like first in line,” Eliscu told me. “I don’t want to say that we have a formal right of first refusal in case someone big did come in, and that’s why we’re very sensitive talking about our power acquisition strategy—there might be a rush if people better understood what we’re doing.”

DMG has experience in this arena; both Eliscu and COO Sheldon Bennett previously worked for mining firm Bitfury, which opened mining operations in Alberta that were later acquired in a reverse takeover by Vancouver firm Hut 8—which expanded the mining operation—and began trading on the TSX Venture Exchange this year.

Data centers purchasing their own power substations, as opposed to getting one from the utility, isn’t unheard of. Switzerland-based multinational ABB, for example, sells the equipment and has marketed it to data centers.

For DMG Blockchain, building its own substation is all about speed. Going through the normal process of contracts and approvals to get access to a substation from the utility could take over a year, Eliscu said, whereas DMG is bootstrapping its substation in the space of six months. “If you just leave things up to the utility things will just naturally take a long time,” Eliscu said. This isn’t to beat on utilities. This is just how they are and how they’ve always operated. They’re not used to working at bitcoin speed, its very different for us.”

If all goes according to plan, it could be the start of a trend—DMG Blockchain wants to help other mining operations build out their local power grids, too.

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