It’s everybody’s dream to receives a commission to do nothing. Bitcoin miner Layer1 is popping that dream into actuality — having discovered the way to earn money even when its machines are turned off.
Layer1 is a cryptocurrency startup backed by the likes of billionaire Peter Thiel. In current months, out within the hardscrabble land of west Texas, the corporate has been busy erecting metal containers (suppose transport containers) stuffed chockablock with high-end processors submerged inside cooling baths of mineral oil. Why west Texas? Beause due to a glut of pure fuel and a forest of wind generators, energy there’s among the many least expensive on this planet — which is what you want for crypto.
“Mining Bitcoin is about converting electricity into money,” says Alex Liegl, CEO and co-founder. By this fall Layer1 may have dozens of those containers churning across the clock to rework 100 megawatts right into a stream of Bitcoin. Liegl says their common value of manufacturing is about $1,000 per coin — equating to a 90% revenue margin at present BTC price of $9,100.
So it’s odd how excited Liegl is in regards to the prospect of getting to close down his Bitcoin miners this summer season.
Already this yr west Texas has seen a string of 100-degree days. However the true warmth and humidity don’t hit till August, which is when the Texas energy grid strains underneath the load of each air con unit within the state going full blast. Throughout an intense week in 2019, wholesale electrical energy costs within the grid area managed by the Electrical energy Reliability Council of Texas (ERCOT) soared from about $120 per megawatthour to peak out at $9,000 per mwh. It was solely the third time in historical past that Texas energy hit that stage. And though the height pricing solely lasted an hour or so, that’s sufficient to generate massive income. Analyst Hugh Wynne at analysis outfit SSR figures that Texas energy turbines make about 15% of annual revenues throughout the peak 1% of hours (whereas in additional temperate California grid turbines solely get 3% of revs from the highest 1%).
Seems that working a phalanx of Bitcoin miners is an effective way to arbitrage these peaks. Layer1 has entered into so-called “demand response” contracts whereby at a minute’s discover they may shut down all their machines and as an alternative permit their 100 mw load to stream onto the grid. “We act as an insurance underwriter for the energy grid,” says Liegl, 27. “If there is an insufficiency of supply we can shut down.” One of the best half, they receives a commission whether or not a grid emergeny happens or not. Only for their willingness to close in Bitcoin manufacturing, Layer one collects an annual premium equating to $19 per megawatthour of their anticipated energy demand — or about $17 million. Given Layer1’s roughly $25 per mwh long-term contracted prices, this will get their all-in energy price down 75% to lower than 1 cent per kwh (simply 10% of what residential clients pay).
It may appear to be grid operators are paying Layer1 so much for one thing that may not even occur, particularly with coronavirus decreasing electrical energy demand, however it makes complete sense, says Ed Hirs, a lecturer in power economics on the College of Houston and analysis fellow at consultancy BDO: “It a lot cheaper option than building a whole new power plant or battery system just to keep it on standby.”
And though this may be a brand new idea for cryptocurrency miners, it’s been completed earlier than. 20 years in the past industrialist Charles Hurwitz purchased up power-hogging aluminum smelters within the Pacific Northwest and made extra money reselling electrical energy than making steel. “It used to be called load management,” says Dan Delurey, a marketing consultant with Wedgemere Group. “In old commercial buildings you might still find telephone wires connected to air conditioning systems so that grid operators could send a signal to shut off.” Extra just lately we’ve seen corporations set up radio-based units to regulate sizzling water heaters and lighting techniques. Certainly, grid administration is a sizzling sufficient space that in 2017 Italy’s energy big Enel purchased Boston-based Enernoc for $250 million and Itron
As for Layer1, Liegl says his subsequent step is to vertically combine into monetary merchandise, together with Bitcoin derivatives and extra. “We are building an in house energy trading division to leverage this into being a virtual power plant.”
His message to any pikers nonetheless making an attempt to mine cryptocurrencies from their bed room PC and even through cloud providers: “I can’t think of something more irrational at this point. It’s like if I wanted to dig a hole in my backyard and try to get oil out of the ground.”