Kentucky has become a hotspot for cryptocurrency mining. The state now houses nearly 20 percent of crypto mining operations in the United States, which has become the global leader in crypto mining. While some see cryptocurrencies and crypto mining as having a bright future in the global economy, others raise concerns about the technology’s intensive energy usage and environmental impacts.
Interest in crypto mining surged in Kentucky after the passage of KY Senate Bill 255 and House Bill 230 in March 2021. Both bills incentivize the commercial mining of cryptocurrency in the state — the Senate bill extends the Incentives for Energy-Related Business program to crypto mining enterprises with at least $1 million of capital invested for operations in Kentucky, and the House bill provides sales and use tax exemptions.
In addition to the incentives, Kentucky has sites that can be quickly adapted to serve crypto mining at an industrial scale, namely abandoned coal-pit mining sites, which already have infrastructure and transmission lines.
Said Josh Bills, a commercial energy specialist with the Mountain Association in Berea, Kentucky: “Even if it’s a 50-year-old, three-phase transformer with a huge KVA power potential connection to the utility that served a whole bunch of energy-intensive coal mine operating processes, you could have a situation where you want to put up a barn that has a bunch of computer servers. You don’t have to pay for any interconnection to tie into the utility. A place that’s been dark for years — you flick the switch and it’s ready to go.”
Bitcoin, perhaps the most well-known cryptocurrency, launched in 2009. It’s built on a software technology called blockchain, which creates an unalterable transaction ledger replicated and kept on databases around the globe. Bitcoin comes with the promise of a fully egalitarian and decentralized exchange of value along with anonymity for users. In Bitcoin mining, computers whir away, solving complex math problems. Each time a problem is solved, a block is created that gets added to the blockchain. The problems increase in complexity with the addition of each block, which requires more computing power to continue mining. This process uses a concept called “proof of work,” where each block is certified as a product of the computers’ work. With each new block comes a reward of a certain number of Bitcoins.
In 2021, China, which had hosted 75 percent of the world’s crypto mining, banned cryptocurrency trading and crypto mining, joining eight other countries with total bans and 42 with implicit prohibitions. Reasons for such bans range from environmental concerns (contributing to climate change and electronic waste, or e-waste) to fraud and money laundering. Crypto mining companies scattered, looking for new locations, and Kentucky emerged as an attractive destination.
Dan Carman, co-owner of Lexington Bitcoin Consulting and a lawyer with the Lexington firm Carmen Fullerton, PLLC, thinks China made a mistake. “Theoretically, all smart jurisdictions [countries] will adopt [Bitcoin],” said Carman. “If they don’t, the capital will flow elsewhere because wealth goes where it’s treated best.”
Kentucky state Rep. Angie Hatton of eastern Kentucky welcomed crypto mining into her district. “It is my hope that a region known for mining coal will now benefit from this different kind of mining,” she said. “I also hope that its significant electricity needs will help stabilize our steep residential rates.” As coal mining operations closed, the burden to support electricity generation fell increasingly on residential consumers.
“Crypto mining operations use electricity in a very stable way,” Bills said. “They’re operating 24/7, and the power they pull has very little variation. That is the least costly electricity to supply. The utility can rely on steady demand.” He said he could see how crypto mining can help stabilize current electricity rates with its steady demand or even its ability to adapt to changing conditions by powering up and down as needed. Still, he has concerns about the near future.
“If we eat up a lot of our reserve capacity by delivering electricity to Bitcoin miners,” Bills said, “that could create challenges to meeting future needs that we expect from the coming transition away from natural gas and propane heating to electric heat pumps and the growing popularity of electric vehicles.”
“If we eat up a lot of our reserve capacity by delivering electricity to Bitcoin miners, that could create challenges to meeting future needs that we expect from the coming transition away from natural gas and propane heating." —Josh Bills
Such transitional changes would further increase demands for electricity. “Excessive load or demand for electricity would strain existing generation capacity and require capital investment for additional capacity, which would increase rates,” Bills said.
“The cryptocurrency companies coming into Kentucky appear to largely be proof-of-work based companies,” said Lane Boldman, executive director of the Kentucky Conservation Committee. Boldman clarified she’s not against cryptocurrency but against the proof-of-work currencies that require intensive computing power to create and verify the coins. “I favor crypto-validation that isn’t as energy-driven as proof-of work.
“Because Kentucky is heavily reliant on coal for energy use,” said Boldman, “we’ve seen estimates where Kentucky has already become the leader in burning carbon for cryptocurrency. One estimate put it at 3.3 megatons of carbon dioxide per year.”
Carman, of Lexington Bitcoin Consulting, doesn’t think it’s fair for crypto mining to be singled out for scrutiny of its energy usage. “It’s a tiny fraction of the total amount of energy wasted in energy transmission in the United States,” he said.
Boldman doesn’t see incentives serving the state well because of crypto mining’s low rate of job creation. Reuters reported that coal mining once employed an average of 6,000 people per mine, whereas crypto mining operations employ small crews. For example, a Bitcoin mine run by Blockware Solutions in Belfry, Kentucky, employs fewer than a dozen workers to watch over its vast shelves of computers. “When you look at the trade-off of burning more carbon for the number of jobs we are getting in the state [from crypto mining],” Boldman said, “that doesn’t seem to me to be a reasonable trade compared to other industries that are also competing for the use of Kentucky’s energy grid.”
Another concern of Boldman’s is the quantity of e-waste generated by crypto mining, which she said is too early to quantify in Kentucky. In December of 2021, a peer-reviewed article published in the journal. “Resources, Conservation and Recycling”. stated that global crypto mining annually generates 30.7 metric kilotons of e-waste, “comparable to IT equipment waste of a country such as the Netherlands.”. The study also noted that the “soaring demand for mining hardware may disrupt global semiconductor supply chains.”
Recently the New York state Senate passed a first-of-its-kind bill putting limits on fossil fuel power plants providing energy to proof-of-work crypto mining. New York’s governor has not signed the bill into law as of this writing. Environmentalists argue crypto mining will undermine the state’s climate goals, while cryptocurrency supporters say the law would hinder economic development.
The outcome of that debate is something Kentuckians and others will be watching closely.