Like the prospectors during the California gold rush of 1849, today's cryptocurrency miners seek gold from "them thar hills," and this time those hills just happen to be in Wyoming.
Mining for cryptocurrencies, such as Bitcoin, Litecoin, and Dogecoin, doesn't require a pickax and a gold pan. Instead, cryptocurrency miners earn Bitcoin by verifying Bitcoin transactions, such as buying and selling.
How is Bitcoin mined?
In a process conceived by Bitcoin's anonymous founder, Satoshi Nakamoto, miners complete "blocks" of transactions on the blockchain, which is an electronic ledger.
Bitcoin miners verify transactions, making sure that the same coin has not been bought or sold twice. The transactions are in 1 MB (megabyte) blocks, and depending on how much information is contained within a transaction, 1 MB can contain as little as one transaction or as much as several thousand transactions.
The 1 MB block size was originally specified by Satoshi Nakamoto back in January 2009. Today, some miners believe the block size should be increased in order to accommodate more data. If that were the case, the bitcoin network could process and verify transactions more quickly than it currently does.
However, verifying 1 MB worth of transactions only makes a Bitcoin miner eligible to earn Bitcoin. A miner must also be the first to discover the solution to what is called hashing puzzles.
To solve these kinds of puzzles, a miner needs either graphics processing units (GPUs) or else Application-Specific Integrated Circuits, known as ASICs.
In a process known as "proof of work," the miner must be the first to find a number that is less than or equal to a 64-digit hexadecimal number that is known as the "target hash".
Our familiar number system is base 10, meaning that once we count ten numbers — 0 to 9, the next number is no longer a single digit but is a double-digit, 10. The hexadecimal numbering system uses base 16 instead of base 10. It includes the numbers 0 through 9, plus six additional numbers designated as A, B, C, D, E, and F.
A typical 64-digit hexadecimal number looks like this:
and there are literally trillions of possible numbers that are less than but close to this number.
To generate that many guesses, a miner needs a lot of computing power, which is known as having a high hash rate. A hash rate is measured in megahashes per second (MH/s), gigahashes per second (GH/s), and terahashes per second (TH/s). Mega means 106, giga means 109 and tera means 1012.
According to Investopedia as of Nov. 2020, there were around 18.5 million bitcoins currently in circulation. Since the coins first created by Nakamoto in what is known as the genesis block, every subsequent Bitcoin has been mined.
However, the ability to mine new bitcoin gets more difficult over time. In 2009, there were 21,000,000 bitcoins available to be mined. By 2012, there were only 10,500,000 available, and by 2016, there were only 5,250,000 left. In 2020, only 2,625,000 Bitcoin remained to be mined.
Nakamoto's Bitcoin whitepaper specified that the total number of bitcoins will be capped at 21 million. At the current rate of mining, the final bitcoin won't be mined until the year 2140.
While the difficulty of mining Bitcoin has gone up, the reward for mining Bitcoin has gone down, halving every four years. When bitcoin was first mined in 2009, mining one block would earn you 50 BTC. By 2012, this was halved to 25 BTC, and by 2016, this was halved again to 12.5 BTC. On May 11, 2020, the reward halved again to 6.25 BTC.
A novel solution to the energy problem
As of March 8, 2021, the price of a Bitcoin is $50,881.80. That means you would earn $318,011.25 (6.25 x $50,881.80) for completing a block. However, a significant drawback to mining Bitcoin is the electrical power needed, which has been criticized as environmentally wasteful. Now, a company based in Casper, Wyoming has come up with a novel solution.
In 2020, Will Reese, an oil and gas attorney, Kris Holbrook, a geologist, and Wayne Neumiller, an independent oil and gas operator, formed Highwire Energy Partners. The company offers vast computing power to Bitcoin miners with its specialized ASIC machines, which are powered by harvesting natural gas that would otherwise be "flared off", or discarded, by some of Wyoming's many natural gas wells.
Highwire also uses natural gas from wells that would have been closed, or "shut-in". Recently, Highwire acquired the leases for seven defunct natural gas wells located in northwestern South Dakota.
The wells had been abandoned by the Texas company that had drilled them, and it looked like the state of South Dakota would be stuck with a $430,000 bill to plug the wells until Highwire came along.
Highwire creates custom-built fiberglass huts around 14 x 14 feet (4.27 m) in size and packs them with between 70 and 90 ASIC computers. They then take the huts to the natural gas wells, and they tap directly into the mouth of the well. Natural gas powers a field generator that in turn powers the ASIC computers.
The gas that is a normal byproduct of oil wells can also be tapped and used to power the ASICs.
Highwire talks to IE
In an interview with IE, Highwire's Will Reese said that the company's energy rates compare favorably with those of China. China is the world's leader in Bitcoin mining, and Chinese mining pools control over 60 percent of the Bitcoin network’s collective hash rate. China also manufactures most of the world’s cryptocurrency mining equipment.
Reese made the point that Highwire offers a green alternative to Bitcoin mining. The company includes catalytic converters on all their generators, which reduces airborne pollutants. Highwire also helps oil and gas operators sell gas that they normally wouldn't be able to sell.
Bitcoin and climate change
In a March 9, 2021 article in the New York Times, writer Andrew Ross Sorkin quoted Bill Gates as having recently told him, "Bitcoin uses more electricity per transaction than any other method known to mankind, and so it’s not a great climate thing." The article refers to a recent study that shows that mining Bitcoin consumes more electricity than that used by the countries of New Zealand, Argentina, or Norway.
This presents a problem for companies who have espoused an interest in reversing climate change, companies such as PayPal, Square, and Tesla. In late 2020, PayPal disclosed plans to allow customers to conduct transactions in Bitcoin. Square, whose CEO is Jack Dorsey who is also CEO of Twitter, not only conducts transactions in Bitcoin but according to the New York Times article, Square holds around five percent of its cash reserves in Bitcoin.
Tesla, whose whole reason for existence is to reduce carbon emissions, has invested $1.5 billion in Bitcoin. The University of Cambridge study places the Bitcoin network as using over 121 terawatt-hours (TWh) of electricity in a year. That ranks Bitcoin mining as one of the 30 top electricity consumers in the world.
In December 2020, the price of a single Bitcoin was just under $24,000, which was an increase of 224% from the start of 2020. Less than a month later, in January 2021, the price of a single Bitcoin surpassed $40,000. In mid-February 2021, the price of Bitcoin skyrocketed to a staggering $50,000, which is where it stands now.
Mining Bitcoin and other cryptocurrencies has never been more lucrative, but you're going to have to solve the energy cost (and sustainability) problem if you're going to mine. Highwire might just have done it.