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There’s no gold in the Arkansas hills, but cryptocurrency developers are staking their claims in the state, drawn by cheap electricity and open arms from economic developers.
The progress of three multimillion-dollar bitcoin mining projects in Newport contrasted with Pine Bluff’s recent rejection of a proposed hub in a residential environment offering a local example of the prospects and perils cryptocurrency entrepreneurs face in a new and hotly debated industry.
United BitEngine, Juice Tech and GMI Computing have all announced plans to open cryptocurrency mining service centers in Newport this year and in early 2023, and United BitEngine quietly started operating a hub in Conway County in June. Juice Tech, which has a bitcoin hub operating near Dallas, is also installing centers in Walnut Ridge and near the State Fairgrounds in Little Rock.
“Our real business operation is in Arkansas,” said Scott Yu, CEO and president of United BitEngine, which is chartered in Delaware. “We have the project that’s already in operation, and we have the project going in Newport,” expected to start operation in the fourth quarter. He declined to say where the Conway County hub is, but the Morrilton Planning & Zoning Commission approved a site plan in May for a project near an Entergy Arkansas power substation west of downtown. Mayor Allen Lipsmeyer described it to KVOM-FM as a million-dollar investment.
Entergy, the state’s largest power company with more than 700,000 customers, will be the power supplier to all the Newport projects, the United BitEngine site in Morrilton and all three Juice Tech centers.
“The key factors for our business were a cheap and stable electricity supply, relatively cheap land near a substation and enough space to develop a site to host our containers,” said Yu, a former corporate lawyer who lives in New Jersey. “You can’t get too close to residential areas, because there is some noise from cooling fans, but there’s really no pollution other than noise.”
The process of creating bitcoin wealth (see sidebar below) demands enough electricity to power thousands of homes. Thousands of special mining computers the size of old VCRs gobble the power, connected in nodes and either racked in warehouse space or placed in modified shipping containers networked on pads at a networked mining center.
Concern over fan noise helped sink California real estate developer Joe Delmendo’s plans to turn the old Pine Bluff Commercial building at 300 Beech St. into a bitcoin mine. Delmendo’s Commonwealth Real Estate of El Segundo bought the old newspaper building and armory, equipped with a dedicated one-megawatt line that once powered the printing press, at auction last November for $619,000. The city planning commission, after hearing complaints about potential noise, property value damage and excessive power use, rejected his proposal. One megawatt is enough electricity to power about 800 homes, and GMI officials estimated their Newport project will consume 15 megawatts — 12,000 homes’ worth.
Delmendo told the Pine Bluff Commercial last month that he might sue the city; the mayor’s office told Arkansas Business that Commonwealth would be able to reapply for the zoning clearance after 12 months as long as the new proposal is significantly changed.
The three companies building in Newport, Walnut Ridge and Little Rock, all Asian-owned, do not mine bitcoin on their own account; they sell their powerful data-crunching services to crypto mining clients. The services have been growing in the United States since mainland China essentially banned crypto mining, ostensibly for excessive electricity use and environmental harm, objects that the industry faces worldwide.
Despite the power and computing demands, bitcoin generation can pay off nicely. A single bitcoin, which has no physical reality, was trading for more than $20,000 last week, albeit far below its height of $64,400 in November. States as diverse as New York, North Carolina and Utah are competing for projects.
Bitcoin hubs are not big employers generally, another issue critics cite to counter economic arguments for crypto mining. But each site requires security, janitorial, maintenance and some technical services. Yu said there are four workers at United BitEngine’s 2-acre site in Morrilton, employed through a contractor, but plans to call for hiring local technical workers once they’ve been trained. Hubs might eventually have eight to more than a dozen local workers, industry experts said.
The three Newport operations are expected to employ 45 people at an average wage of $50,000 to $70,000, said Jon Chadwell, executive director of the Newport Economic Development Commission. He is working with the Arkansas Center for Data Sciences and Arkansas State University-Newport to provide job training.
Juice Tech bought this building at 3300 S. Woodrow St. in Little Rock and plans to convert it into a bitcoin mining hub. It plans other centers in Newport and Walnut Ridge.
“Arkansas was the right place for us,” said Yu, whose United BitEngine secured a 10-acre site in Newport. “Entergy can supply a stable flow of energy, land is relatively cheap, and the entire policy environment is friendly to us.”
Entergy Arkansas, the state’s largest electric utility and a significant force in economic development, will power the bitcoin operations in Morrilton, Newport, Walnut Ridge and Little Rock. The investor-owned utility wants to attract power-intensive industries while remaining sensitive to critics’ concerns. The Arkansas Public Service Commission is reviewing a proposed Entergy rate schedule for cryptocurrency companies.
“Entergy Arkansas has teams that work with potential customers who require specialized services to help find solutions for their business needs,” the company said in a statement. “These efforts recently have included working with several crypto mining firms which have been attracted to low rates.” As new industries like cryptocurrency mining become mainstream, the utility is “working diligently to manage these types of power needs and costs” while keeping the entire system safe, reliable and economical, it said.
GMI Computing, led by Frederick Huang and Alex Yeh, is looking to begin its operations in Newport within a few weeks. The company is an American arm of GMI Technology Inc. of Taipei, Taiwan. Huang and Yeh spoke at length on the company’s plans but declined to be quoted directly for this article. The Newport operation will be the first of many the company plans nationwide.
Chadwell, the NEDC chief, singled out Chris Murphy of Entergy’s business development team as a key mover in cryptocurrency. “Our partnership with Entergy is vital when we are working with new industries in emerging sectors like cryptocurrency technology,” Chadwell said. “Entergy and the NEDC are working to manage these developing businesses to maximize the benefit to the local community.”
While GMI and United BitEngine will use containers for their cryptocurrency hosting services on constructed pads for their Newport hubs, Juice Tech is putting up buildings in Newport and Walnut Ridge and putting racks and a cooling wall into the Little Rock property at 3300 S. Woodrow St Juice Tech paid $675,000 in May for the 61,429-SF space of 10.5 acres on the edge of woods west of Barton Coliseum.
Mitchell Constructors LLC of Hot Springs, led by Rick Williams, is working on all three projects, said James Babb of Malvern, a former Russellville financial planner who represents Juice Tech in Arkansas. “The company learned from doing both container and warehouse operations in Texas that using the rack system inside a building is best for hot and humid places,” said Babb, a former Ouachita Baptist University basketball player.
“We were shown a couple of substations with enough capacity, plus the rates for power in Arkansas are really competitive. The business model in Little Rock is a little different, since we’re remodeling an existing building. In Newport and Walnut Ridge, we’re building from the ground up.” Construction costs for the new metal fabricated buildings will be about $2 million each, Babb estimated. “But the main capital outlay is for the crypto mining machines,” he said, offering no cost estimates. Professional crypto mining units with application-specific integrated circuits can sell from $10,000 to $20,000, according to online price quotes.
Solving Puzzles for Profit, at a Cost to the Environment
Pressed to define bitcoin mining for idiots, Professor Eswar Prasad of Cornell University said the key is keeping thousands of specialized computers running and cool enough to stay efficient. That, in turn, demands megawatts of electric power.
“Bitcoin transactions are validated through a mechanism called proof of work, and this obviates the need for third-party institutions like banks and credit card companies as intermediaries,” said Prasad, a senior fellow at the Brookings Institution and author of “The Future of Money.” The race to solve complex numerical problems both verifies transactions and creates new bitcoins, with the miners keeping a fraction of each.