This is an op-ed by Sergey Gerasimovitch, CEO and co-founder of EZ Blockchain, a bitcoin mining company that focuses on using wasted and untapped energy.
We’ve been here before. This is the second “Crypto Winter.”For my company, which produces bitcoin mining containers.
In this article, I’m going to 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 energy crisis in the world), and what we think will happen with the energy and crypto-mining industries in the future.
Our first crypto winter
our company It was launched in the first quarter of 2017 as a data center hosting solution with the goal of bringing the best technology to bitcoin miners.
We experienced a spillover effect and started redundancies on a large scale while we were struggling amid the looming cryptocurrency crash at the time. But we were still young, so our company didn’t have much to lose. We only had five employees and had to learn how to survive, mainly by managing cost and operating in a simple and humble manner.
Survive Crypto Winter II
We have reached our second cryptocurrency winter as one of the largest producers of bitcoin mining containers in the world (producing 10 containers every week). We were one of the pioneers in using waste flaring gas energy to mine bitcoin, and have built 10 cryptocurrency mining facilities across eight states and Canada, running at over 200 megawatts of power.
But 2022 has been among the most challenging years for us and the entire bitcoin mining industry. It was marked by a drop in bitcoin prices and a rise in energy costs, affected by the energy crisis sparked by the war in Ukraine. Several mining companies declared bankruptcy, and those that survived were forced to reconsider their operations.
Some companies have managed to survive a year-long crypto winter, one that is arguably far from over, record mining difficulty and completely frozen funding. From my six years of experience running a bitcoin infrastructure company, there are a few solutions I can share that I hope can help others or provide insight into how flexible bitcoin mining can be. This medication should not be considered a panacea for market downturns or management advice, but simply what I learned myself.
First, we called our power providers
The rally over the past few years has shown that Bitcoin miners prioritize getting miners over securing relationships with utilities.
But we believe that prioritizing energy security, and all the infrastructure behind it, is critical. Last year, the bankruptcy of mining companies taught us exactly that. Having open communications with energy providers based on realistic expectations always helps in drawing up a clear plan for energy to flow safely and on time.
There are several reasons to incentivize utilities to sell power to bitcoin mining companies: First, they make a profit on every kilowatt-hour sold. However, offering electricity providers more incentives such as load flexibility, higher capacity factor, and controlled load gain helps build a stronger foundation among core partners in the bitcoin mining industry. In my experience, energy providers don’t see bitcoin miners any differently from other electricity consumers, as long as the bills are paid on time.
When the energy crisis hit us, the first thing we did was call our electric company partners and tell them all the bills would be paid. We started moving forward, investing in relationships with them.
Take a hands-on approach to building
We all know that electricity bills often account for more than 90% of mining expenses. However, the seed of a successful Bitcoin mining site is sown with the first channel in the ground, even before the machines start humming.
Developing a bitcoin mining farm is hard work that requires many moving pieces together. Normally, we are so focused on bitcoin price and mining difficulty that not enough time is spent on design, site planning and building a well-run facility. This primary function is usually outsourced to a consulting firm, engineering firm or other person.
But negligence in the practical planning of a process during the construction and development phase can cost a fortune in the future. Even the most professional construction company probably has not yet gained experience in building a bitcoin mining farm. It should be directed by bitcoin geeks who know about common power supply problems like ASIC overheating issues, firmware upgrades, etc.
We’ve learned that a well-built Bitcoin facility reduces operating, cooling, maintenance, and uptime expenses for years. On the other hand, a poorly designed site can cause an aircraft to rebuild in the air. It can be your worst nightmare when everything is set, and you realize something important is wrong. The voltage on the transformer may be incorrect, or the cable is not sized correctly to run 24/7 365 with a load factor close to 95%, just to name a few potential issues.
Learning about transformers, substations, and airflow during development helps avoid future errors. This kind of involvement is much more important than constantly negotiating prices for mining equipment online. From a simple business perspective, the depreciation rate of a mining farm project is more than a decade, and it is relatively small compared to mining equipment that is only two years old. This is why we allow the mining infrastructure to sit and wait for ASICs.
Bitcoin mining operations are marathons, not sprints. It requires hard work behind the scenes before the hash rate shows up in the group. So, when we hit the second cryptocurrency winter, the key players in the company rolled up their sleeves and put in their best to ensure the success of business operations.
Think creatively about energy consumption
Reducing gas flaring
As energy demand and electricity costs continue to rise, miners must vertically integrate their power generation. They must find new ways to generate revenue that are not solely based on the retail 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 expensive energy one needed to generate electricity to eliminate the middlemen. Then we realized that there was no way to generate hydro, wind or solar power on a budget.
However, gas and electricity generation has been around for decades and is relatively simple. What about natural gas? We will not have to buy propane tanks to mine bitcoins. When was not needed Billions of cubic feet of natural gas are burned annually in oil fields. During oil drilling, natural gas is released from the same reservoir. Unfortunately, gas is being flared due to a lack of infrastructure or the economic feasibility of capturing it. This is when I first realized that bitcoin mining could be a tool that complements the shortcomings of the energy industry. Since then, we have started Bitcoin mining on natural gas.
Flexible loads
The energy sector is moving from an era dominated by fossil fuels to an era of renewable energy. Specifically, wind and solar power are intermittent, adding stress to the grid. Our solution to inconsistent supply has been to blend renewable energy with natural gas-fired power plants. These power plants are flexible enough to ignite turbines within a few minutes to respond to supply shortages.
Those operations that rely heavily on renewable energy grids need to implement a demand-responsive program where the grid incentivizes users to reduce load. This has become a game changer in power grid operation. By lowering peak power demand, demand response programs reduce the need to construct new, costly generation units. However, since the introduction of NAP upon request In 2010, no further progress has yet been made.
A decade later, bitcoin mining has become the game-changer. It is the most flexible, efficient, financially viable and most importantly the practical solution to network instability. It can send massive amounts of energy in minutes without the need for any support. It is market driven because bitcoin miners are always looking for low cost operating facilities. Interestingly enough, the demand response industry attracted a lot of attention once it started properly operating on a large scale. But the hero was a long-hated “villain”: Bitcoin.
the future
Energy companies have worked with bitcoin miners long enough to understand that this industry is here to stay. It’s only a matter of time until the entire energy industry has grown enough tough skin to accept it. Bitcoin mining has flipped from being a mere energy consumer to a consumer of benefits. Mining companies will prevail who will adopt different mining strategies, including optimizing operational costs, partnering with energy providers and finding a way to earn additional revenue by using bitcoin mining as a power management tool.
The halving cycle ending in less than a year means that electricity sources and energy prices will be even more important to the long-term success of the bitcoin mining community. The next era of mining winners will be technologically adaptive companies with versatile toolkits to manage crises on many levels, including technology solutions to modernize existing solutions and develop new ones.
Winters will come and go, and bitcoin will survive. The question is who stayed with her?
This is a guest post from Sergey Gerasimovich. The opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
