Tag: cryptocurrency

OM in the News: New York Goes After Cryptocurrency Miners

Bitcoin mines need cheap and plentiful electricity

Bitcoin mining – the process by which powerful computers solve complex mathematical equations to validate transactions is a crucial part of the cryptocurrency economy. And while amateurs could once mine coins at home, the complexity of equations, and the energy needed to solve them, has soared with the growing popularity and value of Bitcoin. We have twice posted blogs regarding cryptocurrency mining and its need for massive computers. (See “Going Crazy with Bitcoin Mining” on Nov. 15, 2021 and “Cryptocurrency’s Damage to the Environment” on April 19, 2021.)

But climate advocates have long said that the value of crypto–mining operations were not worth the environmental costs. The process requires an immense amount of electricity – so much so that China banned the practice last year in an effort to meet its climate goals. 

New York became the first state to enact a temporary ban on new cryptocurrency mining permits at fossil fuel plants, a move aimed at addressing the environmental concerns over the energy–intensive activity, reports the New York Times (Nov. 22, 2022). The move in NY comes months after some other states (Montana and Georgia) and Quebec, Canada had adopted more friendly policies toward the industry, offering tax incentives in hopes of luring crypto-mining operations after China cracked down. “This bill will create the pause we need in the current trend of purchasing old power plants in New York for corporate profits and allow us to properly evaluate the impact of this industry on our climate goals before it is too late,” says a NY State legislator.

But it also comes at a moment of intense turbulence, and a potential crossroads, for the cryptocurrency sector. Earlier this month, the crypto exchange known as FTX suffered a swift and public collapse that led to its declaration of bankruptcy. The fall of what had been a trusted player in the new market has led to broader questions about the future of cryptocurrency.

The Chamber of Digital Commerce, a crypto advocacy group, denounced the NY bill as unfairly targeting the cryptocurrency industry, saying: “To date, no other industry in the state has been sidelined like this for its energy usage. This is a dangerous precedent to set in determining who may or may not use power.” 

Classroom discussion questions:

1. Chapter 8 in your Heizer/Render/Munson text discusses location decisions based on government incentives. Relate that political issue to crypto mining.

2. What is your position on NY’s ban?

 

 

OM in the News: Going Crazy with Bitcoin Mining

Cryptocurrency mining requires a lot of resources both in terms of computing power and electricity

The city of Sherbrooke, Quebec, east of Montreal, got a big revenue lift when it welcomed Bitfarms, a company that makes cryptocurrencies. The 500 people who neighbor the company’s computer center got something else: an inescapable drone that is driving many of them crazy. “It’s comparable to torture,”  said a city councilor.

Bitfarms makes money by using high powered computers to generate the digital currency bitcoins, explains The Wall Street Journal (Nov. 13-14, 2021). Miners compete to add transactions to bitcoin’s ledger by finding numbers that satisfy a formula; the first to do so are rewarded with new coins. There’s no shortcut, so miners with fast computers—and lots of them— to sift though the possibilities have an edge.

The powerful computers must be cooled by an array of fans. Their whirring noise has left residents who live near cryptocurrency operations in Quebec, Georgia, Montana and other places agitated and frazzled. Some compare it to a giant dentist’s drill, others to a fleet of helicopters in the backyard. “I wear earplugs inside my own house,” said one resident after bitcoin company Blockstream opened in her town of Adel, Ga. She can no longer sit on her porch. She says the noise sounds like 1,000 hair dryers. She has measured the sound levels at 70 decibels from her front porch, as loud as a vacuum cleaner. Indoors, sound levels measured more than 53 decibels, as loud as a dishwasher. The noise has persisted despite the layers of insulation that she put up at a cost of $7,000.

The mining companies say they are putting in quieter equipment and adding sound barriers around the plants. Under a deal with Adel, Blockstream must keep the sound levels 500 feet from the facility’s property line at 60 decibels or below. Blockstream plans to build a 15- foot-high berm to dampen the sound.

As the price and popularity of cryptocurrencies increases, more mines are popping up. Officials in Montana passed new zoning rules that would restrict how much noise and vibration businesses can create. The city of Plattsburgh, N.Y., passed a noise ordinance to deal with bitcoin mines. But the issue isn’t just the level of sound. It is also the frequency, measured by its ability to irritate. The mines resemble the whine of an airplane engine revving up on the tarmac.

Classroom discussion questions:

  1. We deal with the issue of work environments’ sound levels in Figure 10.4(b) in your text. Where does Blockstream fall on the decibel levels?
  2. What are the OM issues facing crypto mining farms?

OM in the News: Crypotocurrency’s Damage to the Environment

Bitcoin mining is consuming 66 times more electricity than it did back in late 2015, and the carbon emissions associated with it will likely face increasing scrutiny, according to BusinessWeek (April 13, 2021).

As of this month, global power demand by the Bitcoin network reached an annualized 143 terawatt-hours, about 4% higher than Argentina’s total electricity generation in 2019. “As the value of Bitcoin rises, so should its energy consumption,” says Citigroup analysts.

bitcoin

Carbon emissions related to cryptocurrencies have become a concern for climate watchers amid a surge in Bitcoin mining in China (where 2/3 of the mining takes place), and where the electricity for such operations is partly supplied by coal-fired plants. The expansion of Bitcoin mining may face increasing regulations because of its climate impact.

“Mining and use of these ‘coins’ is energy-intensive and could face greater regulatory scrutiny as adoption expands, especially if the U.S. continues to scale its crypto footprint and market-leader China cracks down on Bitcoin mining if it adversely impacts its climate goals,” says Citigroup.

Miners process Bitcoin transactions through vast arrays of computers that require huge amounts of energy to run. The mining’s heavy energy usage is due to its reliance on “proof of work”–a computing method that is designed to be inefficient to keep currencies transparent and decentralized. Proof of work forces miners to solve crypotographic puzzles in an intense race of trial and error, with computers making 160 quintillion attempts per second to produce a new block. This competition keeps immense numbers of computers working at top speed, 24/7 all over the world.

Classroom discussion questions:

  1. How is this an OM issue?
  2. How does bitcoin mining impact sustainability (see Supp. 5 in your Heizer/Render/Munson text)?

OM in the News: Bitcoin Goes to Where the Power is Cheap

Power cords connect to hundreds of computers inside Giga Watt’s Washington mining facility. Giga Watt employs 45 people here.

“Home to hydroelectric dams that harness the flow of the Columbia River, north central Washington has some of the cheapest power in the U.S.,” writes The Wall Street Journal (Feb.12, 2018). That has made the largely rural area best known for its apple orchards a magnet for bitcoin miners, who use powerful specialized computers to generate new units of cryptocurrencies—a process that requires vast amounts of electricity to run and cool thousands of machines. “If you ask the guys at UPS or FedEx what they’re delivering to Wenatchee, I think they’d tell you it’s a whole bunch of bitcoin mining machines,” says that town’s mayor.

Mining operations can squeeze into small spaces. Shoebox-size computer servers that suck up as much power as 1,000 homes can be packed into a 25-by-25-foot room. Miners have popped up in unexpected places in the area: an old laundromat, a former warehouse, apartments. There are already at least 30 known cryptocurrency-mining operations in north central Washington.

These aren’t the first businesses to come to the region for its cheap power. Aluminum smelters once flocked here. In more recent years, companies including Microsoft and Dell have built data-storage centers. Electricity in the region costs 2 to 4 cents per kwh compared with more than 10 cents nationwide. Some residents and officials hope that mining will be the first step toward transforming the area into a business hub for blockchain technology, bringing new jobs.

Others worry these miners will drain the area of the surplus power that helps keep rates low. Here is why: Comparative power usage rates (per sq. ft. per year): school-10; home-12; hotel-18; hospital-32; grocery store-40; computer data center-2,100!

Classroom discussion questions:

  1. Why are some towns not welcoming the new miners?
  2. What is the primary location factor for cryptocurrency miners?