116 3rd St SE
Cedar Rapids, Iowa 52401
GRUNDY CENTER — About 8 miles west of here is a white Quonset hut that hums with the sound of industrial fans.
Unlike other rural outbuildings equipped with fans, this one doesn’t house hogs. It’s stacked with computers that spend all day and night working complex mathematical problems that create bitcoin, the most well-known cryptocurrency.
“I knew there was a place out there,” said Jill Krausman, owner of the Landmark Bistro in Grundy Center, who doesn’t know much about the site other than if an employee stops in for lunch. “I don’t have enough knowledge about it. It hasn’t affected me.”
This nondescript facility is one of the first — if not the first — large-scale cryptocurrency mining site in Iowa. But the company wants to expand with five more locations in Eastern Iowa, capitalizing on wide-open spaces, low property taxes and cheap electricity.
Cheap electricity is especially important because crypto mining uses a lot of juice. The Grundy County site uses more electricity than all the residential customers in Grundy Center, population 2,800, combined.
The industry’s massive energy use at a time when the world is trying to curb climate change should be a red flag to Iowa utilities and residents, said Kerri Johannsen, Energy Program director for the Iowa Environmental Council.
“There is a larger fundamental question about why we need to use energy in the first place to create cryptocurrency,” she said.
How it works
Bitcoin was created in the late 2000s, after the Great Recession, as a way for people to send money directly to each other without a bank or third party. Other cryptocurrencies, such as ethereum and litecoin, have followed.
Bitcoin transactions are verified and monitored by independent computers running a secure algorithm to solve blocks of numbers that represent groupings of transactions. These computers, or “miners,” race to solve each block with the payout being the next block of bitcoins, which is worth hundreds of thousands of dollars.
The Grundy County site is too small to solve blocks on its own, so miners there work as part of a mining pool that pays out a daily rate based on the amount of work, or “hashing” the computers do, explained J.P. Baric, founder and chief executive officer of the MiningStore, which owns the site.
“Bitcoin is important to me because it’s a monetary system that can’t be influenced by the government and it can’t be changed,” he said.
Baric, 24, dropped out of North Carolina State in 2017 to move to Texas — first Houston, then Austin, which he calls a “crypto mining heaven.” With his parents and grandparents, Baric invested $1 million to start the MiningStore, which owns and operates the Grundy County site as its flagship facility.
Right now, each of the site’s 1,900 computers mines $17 per day, but that amount fluctuates with the value of bitcoin. It’s been as high as $35 a day. But at current rates, the site makes about $32,000 a day. The power bill is over $5,000 a day, Baric said.
Baric found the Iowa site through a Colorado economic development group that identifies areas with low energy costs.
“It doesn’t surprise me they set up shop in Grundy County because they have really low- cost energy there,” said Jim Martin-Schramm, a Luther College emeritus professor who focuses on energy and climate policy.
At 4.05 cents per kilowatt-hour, the Grundy County REC has some of the cheapest industrial electricity in the state, according to filings with the Iowa Utilities Board. The MiningStore bought one acre of land in 2019 right next to an electrical substation.
Magnus Anderson, the MiningStore’s Grundy County site manager, explains how electricity moves through a 1,500-kilowatt transformer underground directly to the site. The company’s contract with the REC says six months of the year the MiningStore will agree to temporarily power down when there is peak electrical usage, such as on hot summer days.
“It’s a load vessel for the grid,” he said of the mining site. “We use it (electricity) until everybody else needs it.”
The site uses 6 megawatts of power during operation, which is 24/7 unless part of the system is undergoing repairs.
To put this in perspective, Luther College, with 1,800 students, in Decorah, uses about 2 megawatts during most of the year, rising to 2.8 megawatts in the summer, Martin-Schramm said.
An average Iowa home uses about 11,000 kilowatt-hours of electricity per year, Johannsen said. The MiningStore uses about 54 million kilowatt-hours a year, or the equivalent of 4,900 houses.
“All of Grundy County in the census has 5,146 households,” she said. “We’re talking about 95 percent of the households in Grundy County.”
So where does the power come from?
Grundy County REC is one of nine rural electric cooperatives and one municipal cooperative that own Corn Belt Power Cooperative, based in Humboldt and serving 41 northern Iowa counties. Corn Belt owns the nine substations within Grundy County REC, including the one that powers the MiningStore.
Corn Belt’s power mix in 2019 was about 50 percent coal, 18 percent purchased power, 15 percent renewables and smaller shares of natural gas, hydro and nuclear, according to the coop’s website.
A half-dozen wind turbines are visible from the MiningStore site, but those turbines are owned by MidAmerican Energy and do not power the crypto mining facility, said the REC’s General Manager Mike Curtis.
The cooperative’s electricity sales to large commercial and industrial customers more than doubled from 16.5 million kilowatt-hours in 2018 to 36.9 million kilowatt-hours in 2020, which Curtis said is largely due to the MiningStore.
One of the ways the United States has been trying to stop the war in Ukraine is by sanctioning Russia’s cryptocurrency industry, one of the largest in the world.
The U.S. Treasury fears Russia may leverage its oil reserves with crypto mining to get around the sanctions, CNBC reported April 22.
Ukraine has been accepting donations to its war effort in 14 cryptocurrencies, which are easier to transfer as traditional banks have seized up, the Economist reported April 5.
Cryptocurrency isn’t immune to thefts. In February, the U.S. Department of Justice charged a couple with conspiring to launder about $5 billion, which was the proceeds of 119,754 bitcoins stolen from the Bitfinex platform in 2016, Forbes reported.
Future of cryptocurrency
For bitcoin to become a viable worldwide currency, some environmental groups say it must slash its energy use.
A group called Change the Code Not the Climate says changing the “proof of work” required to validate transactions to a “proof of stake” — meaning miners pledge coins to verify transactions — would cut energy use by 99 percent, according to a March article in the Guardian.
Energy use isn’t the only challenge.
“Since cryptocurrencies are too volatile to be used as an actual currency, people treat it as a sort of investment scheme,” wrote Jon von Tetzchner, co-founder and CEO of Vivaldi Technologies, in a Jan. 13 blog post.
“The problem is that to extract actual money from the system you have to find someone willing to buy the tokens you are holding. And this is only likely to happen as long as they believe they will be able to sell them on to someone who’ll pay even more for them. And so on, and so on.”
The same day The Gazette toured the Grundy County mining site, Baric showed it off to Josh Terry, an Austin-based YouTuber whose channel, JoshTerryPlays, explores cryptocurrency, game theory and other related topics, and has more than 5,000 subscribers.
Terry used social media to recruit 1,000 people to invest $100 to become part of a “mining team” within the company, Baric said.
Bitcoin mining operations that want to grow need to keep adding investors because the computers cost thousands of dollars, Baric said. But it’s not like a pyramid scheme that new investors are needed to make previous investors whole.
“People buy the bitcoins because they believe more people are going to believe bitcoin has value,” Baric said. “That’s why people put money into it.”
Baric and his investors would like to open five more bitcoin mining sites in Eastern Iowa: Another in Grundy County, one in Black Hawk County and three in Tama County.
The Grundy County Planning and Zoning Commission has recommended the Board of Supervisors deny the request to change zoning from agricultural to commercial to allow for the center there. There will be a public hearing May 9 at 9 a.m. at the Grundy County Courthouse in Grundy Center.
“With any sort of expansion like this, there’s going to be concerns you take into account, like environmental concern or concerns for land,” said Supervisor Lucas Halverson. “We’re interested to see what the public has to say. We’d love to hear from Mr. Baric ourselves. We haven’t been approached directly by anybody by this company. We’d love to learn the positives and negatives.”
Baric said he plans to be at the hearing.
The MiningStore pays property taxes, employs nine people full time and hires electricians to help at the site, Baric said. Company leaders also are looking to do more community outreach, such as leading school tours and speaking about bitcoin.
The Iowa Economic Development Authority does not offer incentives to cryptocurrency mining sites that want to open in Iowa. Nor does the agency track them, spokeswoman Kanan Kappelman said.
That should change, said Johannsen, of the Iowa Environmental Council.
“If there’s a planned expansion, it would be something for the state to get a handle on from the perspective of what we can expect in terms of (energy) load growth,” she said. “It’s not that the organization is anti-crypto or we have a particular reason to be. But if we’re going to use our energy resources most efficiently, is this really the most efficient use of energy resources?”
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