WENATCHEE, Wash. — “It all starts with power.”
Malachi Salcido, bitcoin miner and founder of large-scale contracting firm Salcido Enterprises, made that observation about the modern world during my visit to the hot and smoky Wenatchee Valley this summer. The construction engineer, who grew up alongside the array of hydropower plants that span the Columbia River in Central Washington’s Wenatchee Valley, knows first-hand that one of the most transformative industries in the history of the planet — information technology — requires plentiful, reliable, and inexpensive sources of electricity.
Most regions of the United States are not nearly as blessed with the magical combination as Central Washington, thanks to decades of investments in electricity-generating facilities that harness the power of the Columbia, most notably the Grand Coulee Dam a few hours northeast of Wenatchee. These old-fashioned clean-energy sources allow many public utility districts in the area to sell surplus power on the electricity markets, which means area residents and businesses pay less for electricity here than anywhere else in the country.
Until a few years ago, Salcido and his construction employees enjoyed a nice business designing electrical and HVAC systems for the cold-storage facilities that keep the region’s apple crop fresh for months, as well as the small-scale data centers that line the Columbia. But after realizing around 2013 that several of his new clients wanted data-center style buildings but were actually running reams of special-purpose servers designed to mine bitcoin, he realized the most valuable part of an efficient bitcoin mine is actually the building design and the power supply.
“The technology is not the secret sauce,” he said. Instead, bitcoin mining involves knowing how to “build out and scale, and you learn (the tech) along the way.”
So instead of selling shovels to prospectors chasing a gold rush, he decided to start digging himself. His companies now operate a bitcoin mining network that he estimates controls around four percent of the world’s mining capacity, and he is devoting much of his attention to growing this part of his business.
Salcido’s story is a microcosm of a transition taking place in this corner of the country, and in the broader economy of the world.
The computing process known as bitcoin mining is relatively simple, as these things go, but it requires a steady 24/7 supply of a great deal of electricity compared to a similar number of general-purpose computers. Demand for that commodity has put this valley — filled with smoke in the summer, skiers in the winter and cheap power all year round — on the bitcoin map.
But some residents and public officials are wary about the rise of cryptocurrency mining in their backyard, put off by the amateurish (and sometimes dangerous) approach of early miners and the complexity of delivering a steady amount of power 24/7 to a given location, given that most of our electrical grid was designed around our work days and sleep patterns. Others worry about the stability and sustainability of the bitcoin mining boom, which generates very few jobs compared to the growing portion of the region’s electrical supply that it demands.
Some early speculators in the area are running into problems as the price of bitcoin has yet to recover from the heights it reached a year ago. Professional operators are taking over the mining business, and while that should make it easier for local and state regulators to work with those companies, it creates a whole new set of opportunities and problems for the region.
And power-utility districts in the area are starting to flex their muscles as more and more operators put in requests for power supplies, promising rate hikes and permitting moratoriums that might snuff out the budding bitcoin revolution along the Columbia.
“It’s really harder for someone like me to say, really, ten megawatts of power (which can power thousands of homes) to do blockchain technology and society is better off because of it? I think that’s the part that some elected officials are struggling with,” said Frank Kuntz, mayor of Wenatchee.
If bitcoin is the future of this region’s power supply, the area around the Grand Coulee Dam represents a trip back through time. One of the first dams built by the federal government in the 1930s along the Columbia River, Grand Coulee is the largest hydropower facility in the United States, with power-generating capacity of 6,809 megawatts.
A welcome respite from the smoke-filled air that covered Central Washington for much of August, my recent tour of the facility revealed it to be a marvel of old-school engineering that generates electrical power for 13 western states and parts of Canada. The dam’s three powerhouses contain 21 turbines that spin special copper magnets at high rates of speed, creating electricity from the natural gravitational fall of the Columbia River through the dam.
Only a few of the turbines are actually generating electricity on a given day. The vast majority of electricity demand follows a pretty regular schedule as people go about their lives, but engineers can spin up new turbines to meet spikes in demand for power in about five minutes, said Lynne Brougher, public affairs officer for the Bureau of Reclamation and my tour guide that morning.
Grand Coulee Dam was one of the primary engines of the World War II manufacturing effort in the region. The legacy of the nuclear power research further down the Columbia in Hanford continues to haunt the area, but Grand Coulee also supplied power to manufacturing facilities in Seattle and Portland that cranked out airplanes as well as the aluminum smelting factories that set up shop in Washington to take advantage of all that electrical power.
Compared to the inside of a data center or bitcoin mine, the inside of the powerhouses at the base of the dam is almost quaint; the industrial internet of things and edge computing do not appear to have infiltrated the Grand Coulee Dam.
Buttons and gauges from a 1950s science fiction movie line the inside of the two original powerhouses along the base of the dam, and while the third powerhouse contains newer turbines, it has the Brutalist charm (or lack thereof) of many a government building designed in the 1960s. A mishmash of bikes are parked at various internals like Spin bikes abandoned outside Fremont Brewing, used by workers to quickly get around the massive facility.
The dam itself is almost a mile long, and 550 feet high. Its original mission was to irrigate the land throughout the region, and a series of six enormous pumps also take water from the Franklin D. Roosevelt Lake created by the dam’s construction to supply water to Banks Lake, just over the hill from the main distribution towers that send electricity from the sleepy town of Grand Coulee to the residents, data centers, and other businesses across the West.
While the Grand Coulee is definitely the most spectacular, there are 10 other dams that span the Columbia from the U.S.-Canada border to the Pacific Ocean, passing through Washington and forming the border with Oregon a bit past the Tri-Cities area. Some are operated by the federal government, while others provide power to local public utility districts that they allocate to local residents and businesses, or sell on the open electricity markets, often as part of long-term contracts.
The enormous amount of supply and relatively healthy demand for the region’s clean power ensures that Chelan, Grant, and Douglas county residents and businesses pay some of the lowest prices for electricity in the country, according to data from the U.S. Energy Information Association. The average U.S. resident pays just over 13 cents per kilowatt hour of electrical use, but the average Washington state resident pays around 9.8 cents per kilowatt hour, and out here, residents and some small businesses can pay as low as 2.7 cents per kilowatt hour.
As is the case across the country, manufacturing in Washington has changed a great deal over the decades since the Grand Coulee Dam was completed. While manufacturing companies like Boeing endure, the economy of the Pacific Northwest is increasingly driven by technology, as anyone trying to find housing in Seattle is well aware.
Quincy, which is about half an hour southwest of Wenatchee in Grant County, is home to a sprawling data center neighborhood featuring companies like Microsoft, Yahoo, and Intuit as well as several data center operators that rent servers to smaller customers. Other companies have set up shop farther down river in Oregon, with a Google facility right next to the Columbia in The Dalles and huge data center complexes for Facebook and Apple a few hours south in Central Oregon’s Prineville area.
All of these companies were drawn to the area by cheap land and cheap power, and the fact that several major trans-Pacific fiber cables land along the Oregon coast certainly doesn’t hurt. But while they — for now — operate on a much smaller scale than the big cloud companies, bitcoin mining operations like Salcido’s are springing up across Central and Eastern Washington, drawn by the same incentives that led big companies to the area years ago.
Local officials are careful to delineate between the established data centers and the upstart bitcoin miners.
“I don’t view miners as villains,” Grant County Commissioner Larry Schaapman said in announcing rate hikes for large commercial power customers in late August. “You have likened yourselves to the data centers, but you can only do one thing — mine bitcoin.”
A bitcoin mine is really a small special-purpose data center fine-tuned to run a single application, and run the hell out of it. The frenzy around cryptocurrencies has generated one of the biggest gold-rush frenzies in technology since the first dot-com boom, and the currencies are the byproduct of a complicated cryptographic process called the blockchain.
In order to create the system that powers the blockchain — a distributed database of transactions that is publicly verifiable and not controlled by any single entity — miners build racks of simple servers, often designed around the graphics processors for video games, that compete against other miners around the world to process the cryptographic algorithm that verifies a blockchain transaction. The winner gets a token, a unit of that currency, and the process repeats itself again and again, 24 hours a day.
Salcido is not a bitcoin speculator hoping to buy a sick Lambo with cryptocurrency: he sells most of his tokens as soon as they are generated, and invests the proceeds back into his mining operation.
His latest creation sits alongside the airport in East Wenatchee, about a 15-minute drive from his operation’s headquarters in Wenatchee. A long and narrow building sits at the end of a brand-new cul-de-sac that was not present when my 2014 car’s GPS map was uploaded, with several shipping containers also humming away outside in the open air under a roof.
A cacophony of noise awaits inside that building. After pointing out where the earplugs are stored (an absolute necessity), Salcido Enterprises’ Bambi Krieg shows me around the rooms. Stacks of shelves you might find at Home Depot are occupied with small servers running all-out to process the algorithm.
The heat generated by those machines is one of the primary problems associated with running any type of server farm at scale, and Salcido cools its bitcoin mines with an air chiller system that draws outside air through a membrane dripping with water, directing it over the machines and into a hot zone, where big fans push the heat out into the smoky high desert air.
At the moment, Salcido and its subsidiary companies are operating 18 bitcoin facilities in the Wenatchee Valley area across Chelan and Douglas counties, with six more expected to become operational in the coming weeks and months as construction winds down. The company is currently using 18 megawatts of power between the two utility districts, and expects to be using 24 megawatts when the remaining facilities are completed. According to the Northwest Power and Conservation Council, 24 megawatts would be enough to power over 19,000 average homes.
Pulling the plug
The early days of bitcoin mining in the Wenatchee Valley were pretty chaotic, according to Chelan County Public Utility District General Manager Steven Wright.
It was the “transient nature (of early miners) that creates the biggest challenge,” he said. “When we originally saw cryptocurrency mining, it was these big trailers they would bring in and look for jumper cables.”
Things settled down following the collapse of the price of bitcoin in early 2018, but not without a few mishaps along the way. Local power distribution systems are built around certain assumptions for the electrical load that will need to be delivered to a certain place at a certain time, and fly-by-night bitcoin miners were overturning those assumptions almost overnight, at one point leading Chelan County to impose a moratorium on bitcoin mining in 2015.
That moratorium was lifted in 2017 after some regulations and rate agreements were worked out, Wright said, but it was reimposed earlier this year after mining activity exploded along with the price of bitcoin in late 2017. In early August Chelan County commissioners voted to continue that moratorium through September after receiving public comments.
“We weren’t prepared for people asking for tens of megawatts (individually) and hundreds of megawatts, collectivity,” Wright said, emphasizing that demand for electricity increased in both breadth (number of miners) and depth (larger and larger mining installations) as the enormous spike in the price of bitcoin drew amateurs and professionals into the market.
Chelan County PUD has definitely been a bit more conservative when it comes to working with the professional bitcoin miners, according to several people interviewed for this article, at least compared to the folks across the river in Douglas County, where Salcido’s operation and several others are located in and around the Pangborn Memorial Airport.
Ron Cridlebaugh, economic development manager for the Port of Douglas County, is a true believer in the long-term potential of blockchain technology to become a central force in everyday computing.
“We like the idea of building out a super-computing network in the region,” he said, noting that the combination of traditional data center construction and bitcoin mining is helping upgrade both the power and networking infrastructure in the region. Large data centers use more power overall than bitcoin mines like Salcido’s, but bitcoin mines also require redundant fiber connections to make sure they’re always connected to the global bitcoin network, and that fiber can attract lots of other businesses that have nothing to do with cryptocurrency, he said.
Salcido acknowledged the difficulties local regulators face. “It’s a volatile emerging market that’s not well understood,” he said, noting that bitcoin mining “doesn’t have trailing years of activity” from which to make predictions about the future.
But this activity is already having an impact on budgets in the region. Of the top ten taxpayers in Douglas County, half are data centers, and the tax impact of the surge in land devoted to bitcoin mining hasn’t really hit the rolls yet, Cridlebaugh said.
Shock to the system?
Like many rural cities across the country, Wenatchee and the surrounding area are very interested in economic development that creates middle-class jobs. For years Wenatchee was home to one of the last remaining vestiges of Washington’s aluminum industry thanks to an Alcoa facility on the edge of town, but it is no longer producing anything at that facility and it is not expected to reopen.
Kuntz was elected mayor of Wenatchee in 2011 in the wake of a local boondoggle involving the construction of the Town Toyota Center, which is home to the Wenatchee Wild junior ice hockey team in the winter and only hosted one major event in July: an evening with ZZ Top. At one point the city faced bankruptcy until voters in Chelan and Douglas counties approved a small sales tax increase, and while the region is glad to have moved past that era, it is still searching for a boost.
Wenatchee has a lot of the same Old West charm you can find in cities across the Pacific Northwest, with a downtown core spread around two one-way boulevards lined by three-to-four story brick buildings. It very much feels like a town caught between two eras, with farmers markets and small breweries jostling for space with feed supply vendors and antique stores.
“I would like to see cheap power bring more middle-class jobs,” Kuntz said, and he’s cautiously optimistic that bitcoin mining might help.
Like data centers that are easy to run with a small number of workers, bitcoin mines don’t create a ton of permanent jobs but do create construction and electrical jobs for area residents, he said. Apple production, on the other hand, is controlled by a handful of local families and mostly creates low-end picking and sorting jobs.
As long as the Columbia keeps flowing, this area is going to be blessed with an abundance of cheaply produced electricity. That asset has come at quite a cost, displacing thousands of Native Americans from their ancestral lands and forever changing the spawning patterns of fish in the area. There are a sizable number of residents that question whether the narrow benefits of bitcoin mining are worthy of cheap access to that asset.
It’s one thing to use that cheap power to keep apples fresh year-round for the world markets, but it’s quite another to use that cheap power to enrich a small number of people who don’t even generate a lot of economic activity outside their own networks. Yet bitcoin is a seductive gambit; if this is the future of our financial system and/or computing in general, the facilities that power this network will have enormous value and strategic importance.
Lots of people in Wenatchee have noticed that China has come to dominate the mining of bitcoin, much the same way it has come to dominate the manufacturing of nearly everything, including many things that once brought jobs to the Pacific Northwest. Bitmain, the world’s leading miner with nearly half of the bitcoin-mining network under its control, recently filed for an initial public offering earlier this month hoping to raise $1 billion. However, like most everything else in the crytocurrency world, the process has been a little messy.
“We are all going to be consumers of blockchain technology in time,” said Douglas County’s Cridlebaugh. While that is certainly up for debate, there’s no doubt that entrepreneurs and investors are pouring lots of time and money into building businesses that require mining technology.
That means a lot of people in the Wenatchee Valley and other parts of Central and Eastern Washington think they have an opportunity to create the Silicon Valley of the 21st century along the Columbia River, thanks to investments made during the Great Depression. After all, they have the power.
Video by Starla Sampaco. Follow the GeekWire TLDR daily video report.