This is an opinion piece by Sergii Gerasymovych, CEO and co-founder of EZ Blockchain, a bitcoin mining company focused on utilizing wasted and underutilized energy.
We have been here before. It’s the second “crypto winterfor my company, which produces Bitcoin mining containers.
In this article, I will share the story of how our Bitcoin mining company survived its first crypto winter, and is now surviving its second (as well as the ongoing global energy crisis), and what we think will happen with the energy and crypto-mining industries in the future.
Our first crypto winter
Our company was launched in the first quarter of 2017 as a data center hosting solution with a mission to bring the best technology to Bitcoin miners.
We suffered a ripple effect and initiated widespread layoffs as we struggled amid the impending cryptocurrency crash of the time. But we were still young, so our business didn’t have much to lose. We only had five employees and we had to learn how to survive, mainly by managing costs and operating in a lean and average way.
Surviving our second crypto winter
We have entered the second crypto winter as one of the largest Bitcoin mining container producers in the world (producing 10 containers every week). We were one of the pioneers in using wasted energy from gas flaring for Bitcoin mining and have built 10 cryptocurrency mining facilities in eight states and Canada, operating over 200 megawatts (MW) of power.
But 2022 has been one of the toughest years for us and for the entire Bitcoin mining industry. It was characterized by falling bitcoin prices and rising energy costs, influenced by the energy crisis caused by the war in Ukraine. Many mining companies declared bankruptcy and those that survived had to reconsider their operations.
Some companies have managed to survive a year-long crypto winter, which is arguably not over yet, record mining difficulties and completely frozen funding. From my six years of experience running a Bitcoin infrastructure business, there are a few solutions I can share that I hope will help others or offer some insight into mining resilience. Bitcoin. This shouldn’t be seen as a panacea for market downturns or management advice, just what I’ve learned on my own.
First, we called our electricity providers
The bull run in recent years has shown that Bitcoin miners prioritize acquiring miners over securing relationships with utilities.
But we believe it is essential to prioritize securing power and all the infrastructure that supports it. Last year, the bankruptcies of mining companies taught us that. Having open communications with electricity providers about realistic expectations always helps to outline a clear plan to get electricity flowing safely and on time.
There are several reasons why utilities have an incentive to sell electricity to Bitcoin mining companies: First, they make a profit on every kilowatt-hour (kWh) sold. However, giving more incentives to the electricity supplier, such as load flexibility, high capacity factor and controlled load increase, helps to build a stronger foundation among full partners in the industry. Bitcoin mining industry. In my experience, electricity providers don’t view bitcoin miners any differently than other electricity consumers, as long as bills are paid on time.
When the energy crisis hit us, the first thing we did was call our power company partners and tell them that all the bills would be paid. We started to go the extra mile, investing in our relationships with them.
Take a hands-on approach to construction
We all know that electricity bills often represent over 90% of mining expenses. However, the seed of a successful bitcoin mining site is planted with the first conduit in the ground, before the machines even start buzzing.
Developing a Bitcoin mining farm is a tedious job, requiring the assembly of many moving parts. Usually, we are so focused on bitcoin price and mining difficulty that we don’t spend enough time designing, planning the site, and building a well-managed facility. This fundamental work is usually outsourced to a consulting firm, engineering firm, or someone else.
But negligence in the practical planning of an operation during the construction and development phase can cost a fortune in the future. Even the most professional construction company has probably not yet gained experience building a Bitcoin mining farm. It should be guided by Bitcoin nerds who know about common power issues such as ASIC overheating issues, firmware upgrades, etc.
We have learned that a well-built Bitcoin installation reduces operating, cooling, maintenance, and uptime expenses for years. On the other hand, a poorly designed site can lead to rebuilding an aircraft in the air. The worst nightmare can be when everything is sorted out and you realize that something crucial is wrong. A transformer may be incorrectly voltaged or the cable may not be properly sized to operate 24/7/365 with a load factor close to 95%, for example. name just a few potential problems.
Knowing more about transformers, substations, and airflows during development helps prevent future mistakes. This type of involvement is more crucial than constantly negotiating the price of mining equipment online. From a simple business point of view, the depreciation rate of a mining farm project is more than a decade, relatively low compared to that of mining equipment which is only a few years. That’s why we let the mining infrastructure sit and wait for the ASICs.
Bitcoin mining operations are marathons, not sprints. They require hard work behind the scenes before the hash rate appears in the pool. Therefore, when the second crypto winter hit us, key players in our business rolled up their sleeves and did their best to ensure business operations were set up for success.
Think creatively about energy consumption
Gas Flaring Mitigation
As electricity demand and electricity costs continue to rise, miners must integrate their power generation vertically. They need to find new ways to generate revenue that doesn’t just depend on the hash price.
In 2018, when the price of bitcoin started to drop, we were looking for alternative and affordable energy to stay afloat. The obvious idea was that to get the most affordable electricity, you had to generate electricity to cut out the middleman. We then realized that it was impossible to produce hydro, wind or solar energy with a limited budget.
However, gas and electricity generation has been around for decades and is relatively simple. What about natural gas? We wouldn’t have to buy propane canisters to mine Bitcoin. There was no need when billions of cubic feet of natural gas are flared every year in oilfields. When drilling oil, natural gas is released from the same reservoir. Unfortunately, the gas is flared due to a lack of infrastructure or economic feasibility to capture it. It was then that I first realized that Bitcoin mining could be a tool that complements the inefficiencies of the energy industry. Since then we have started mine bitcoin on natural gas.
The energy sector is moving from an era dominated by fossil fuels to one of renewable energies. Specifically, wind and solar are intermittent, adding stress to the grid. Our solution to the inconsistent supply has been to mix renewables with peaking natural gas power plants. These power plants are flexible enough to fire up turbines in minutes to respond to undersupply.
Operations that rely heavily on renewable energy power grids should implement a demand response program in which the grid incentivizes users to reduce load. This has changed the game in the operation of the electrical network. By reducing peak energy demand, demand response programs reduce the need to build expensive new peaking generation units. However, since the introduction of the National action plan Response to demand in 2010, further progress still needs to be made.
A decade on, Bitcoin mining has changed the game. This is the most flexible, efficient, financially feasible, and most importantly, the most effective solution to grid instability. He can send huge charges of energy in minutes without requiring any subsidy. It is market driven as Bitcoin miners are always looking for lower cost mining facilities. Interestingly, the demand response industry got a lot of attention once it started functioning well at scale. But the hero happened to be a long-hated “bad guy”: Bitcoin.
Energy companies have worked with Bitcoin miners long enough to realize that this industry is here to stay. It’s only a matter of time before the entire energy industry gets tough enough to accept it. Bitcoin mining has evolved from a mere energy consumer to a consumer with benefits. Mining companies that will adopt different mining strategies, including optimizing mining costs, partnering with energy providers, and finding a way to earn additional revenue by using Bitcoin mining as a tool for energy management, will prevail.
This halving cycle ending in less than a year means that electricity supply and electricity prices will be even more crucial to the long-term success of the Bitcoin mining community. The next era of mining winners will be made up of technology-ready companies with versatile tools to manage multi-level crises, including technology solutions to update existing solutions and develop new ones.
Winters come and go, Bitcoin will stay. The question is, who stays with him?
This is a guest post by Sergii Gerasymovych. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.