Two of the biggest bitcoin mining companies in the world are battling it out in a Texas town of 5,600 people

Riot's Whinstone Mine in Rockdale, Texas. Riot's Whinstone Data Center
ROCKDALE (Texas) Two of the most prominent names in bitcoin mining are fighting for market share and cheap electricity in this small Texas town of 5,600 residents. These rivals are also next-door neighbors. Bitdeer, a company that was created from Bitmain's Chinese bitcoin mining company is located four-tenths mile from Riot Blockchain. Riot Blockchain is one of the largest publicly traded mining companies in America. They share very little in common, though they are both tenants of the property that Alcoa used to own. Riot's Whinstone mining operation is managed by a team that values transparency and opens its doors to the media every day. Bitdeer, on the other hand, is distant, steeped with mystery and not interested in visitors. "In this industry everyone is like, Ooh, top-secret, we have proprietary info!' CNBC spoke with Whinstone CEO Chad Harris. You take a cable and plug it into a machine made by someone else. Then you turn it on, add a pool, then you can mine bitcoin.

Chad Harris, Whinstone CEO, takes CNBC on tour of the largest Bitcoin mine in North America.

Why Rockdale

Rockdale is located an hour northeast from Austin and looks like rural America. Rockdale is a rolling hill, with green pastures and hay bales. Mayor John King claims that the Walmart is the primary driver of sales tax, which is a major revenue stream for the annual city budget. Rockdale is a paradise for bitcoin miners. It has crypto-friendly politicians, vast swathes of land, abandoned industrial infrastructure, and the ability of plugging into Texas' electricity grid. The non-profit Electric Reliability Council of Texas (or ERCOT) is responsible for Texas' grid. Customers can choose from a variety of providers because the grid is not regulated. Scale miners compete in low-margin industries where energy is their main variable costs. This gives them reason to move to the world's most affordable sources of power. Miners are able to benefit from the competition between Texas' power providers, which typically results in lower rates.

Alcoa used to have the largest aluminum plant in the country, located in Rockdale. According to Lee Bratcher of the Texas Blockchain Council, the plant began to close down in 2008. This was due to prohibitive costs of building the necessary transmission capacity to transport it to major cities. This imbalance was resolved by the arrival of crypto miners. Miners are also able to adapt to fluctuating prices and power supplies. Miners are able to deal with outages without suffering financial losses, unlike aluminum smelters or other businesses. This is a significant advantage for a state that recently had problems with its power grid. ERCOT often asks consumers for energy conservation during heat waves. In the past, the state experienced blackouts due to severe winter storms. Mayor King said today's agreement between miners, ERCOT and ERCOT was simple and mutually advantageous. Miners not only make use of power that would otherwise go to waste but they also act as an "interruptible load", meaning they can turn off all their machines at a moment's notice if the grid is experiencing a power outage and requires extra power. Financial incentives encourage miners to volunteer to do so. King explained that miners have a commitment to buy a certain amount power. Then they sell it back at market value and make a profit. They can sell it for $9 per kilowatt hour, or two cents to three cents.

Power supply for Whinstone’s Bitcoin mine in Rockdale (Texas)

Ted Cruz, R-Texas said that there were many things that went wrong during the severe winter storm that struck Texas in early 2021. "But I believe that bitcoin can address many aspects of that." Cruz's views on bitcoin and mining have been well-informed. He recently spoke on the subject at the Texas Blockchain Summit. Cruz spoke on the main stage about the importance of bitcoin miners being able to turn on and off in a matter of seconds. This is a huge advantage during times when energy must be transferred back to the grid to meet the demand. Cruz stated that bitcoin is often seen as an energy consumer. Cruz said, "The perspective that I am suggesting is the reverse. It is as a way of strengthening our energy infrastructure." James Gibson, Rockdale's economic director, said that 160 acres of the town are available for purchase. King has received close to 40 inquiries from potential mining companies interested in setting up shop in the area, many of which are Chinese miners. Beijing cracked down earlier this spring on its crypto mining industry. Since then, exiled miners have begun to seek refuge in countries like the United States. The United States recently became the most popular mining destination on the globe. They have money. They have the equipment. They only need to have power and a place, quickly," Gibson said.

Bitdeer's Bitcoin mine in Rockdale Texas

David vs. Goliath

A small shed with light blue trim is located at Bitdeer's Rockdale mine entrance. It is staffed by an upbeat, smiling guard. There is no gate or spike strip on the pavement to discourage unwelcome vehicles. It is surprising how welcoming Bitdeer seems to be considering its secretive nature as a company. The company is still very closed-off. CNBC requested a tour and interview. We were informed that although they valued the meeting, the person responsible was on the road for many weeks and it was difficult to plan their schedule. Bitdeer's son, the mayor, gave a brief overview of the operation. Bitdeer, unlike Riot's Whinstone mining, was built in a thickly wooded forest. Bitdeer also took over Alcoa's closed smelter. It was still connected to major electrical lines. King claims that most of the buildings Bitdeer occupies are football-length and were built in the 1950s. Bitdeer had to retrofit the floors where aluminum smelting containers once resided. King claims Bitdeer is expanding at a rate that can be built. Bitdeer's Bitcoin mining operation is not well-known. CNBC reached out for information to find out how many mining machines and employees Bitdeer has on-site, as well how much cryptocurrencycash they mine each month. The company didn't respond. Many saw Whinstone as the David to Bitdeer’s Goliath when it first opened in Rockdale in January 2020. The Whinstone CEO Harris was originally from New Orleans. He was well-known for selling pre-decorated Christmas trees and other gifts to wealthy families. Harris' youngest son, the CTO, was blue-haired and had just graduated from college. It was easy for people to underestimate the team. Harris is the underdog. Harris said that no matter what Alcoa had told them, they agreed to the initial negotiations. They said, "You need this amount to deposit," and we replied, "Absolutely no problem." Harris described the situation as follows: His business partners would remind Harris that they were broke with no guarantor after he left these meetings. Harris would then always respond the same way: "This is the easy part." They agreed. Harris' leadership style doesn't only involve improvisation. CNBC interviewed Whinstone CEO Harris about his greatest skill: sending money as quickly as possible to suppliers. "I joke that if a million dollars land in a company’s account, there is no way accounting can send it back. They will force people to do whatever it is. This strategy has proven to be successful for Whinstone, as bitcoin's price has risen steadily over the past year. We bought every orange conduit in the United States. Harris recalled that they bought every last piece of pipe they could find. Harris recalled, "And then they call me back a week later to say they made a mistake." "We can't deliver all of this." We are like, "Just send the money back." They say, "Hold on, we can solve this."

Alcoa leases space for Bitdeer, Riot Blockchain and other bitcoin mining companies.

Harris broke ground in January 2020, when bitcoin was $4,000. They turned on the mine at $6,100. Harris recalls thinking that bitcoin could only reach $8,000 per coin and they wouldn't go bankrupt if it did. In mid-October, the coin reached a new record of $67,000. Harris said that the place was a forest when he arrived. He spoke to CNBC from his office, which is located next to the mine. "We didn’t have power lines...crazy stuff." Whinstone started mining in June 2020, 183 days after the fact. Harris claims that they had 300% more capacity on Day One than Bitdeer. Harris does not see Bitdeer as a competitor and doesn't feel the need to keep trade secrets secret from his neighbors down the street. Harris said, "There is no IP within this business. Harris said that it was absurd, but he repeated his belief at several points. Harris claims that Bitmain used to visit the shop every day before Bitdeer arrived. They were particularly interested in Whinstone’s shelving and rack system. We brought them over, showed them the photos, explained what machine they should buy and how to make it happen. He said that it took them eight months to get the machine connected. Harris has posted videos from within and around Whinstone to YouTube, documenting the entire process of building Whinstone. Harris also shares drone footage in order to provide an overview of the expansion process. Harris stated that it doesn't matter what they're doing, as it will take them two more years to catch up. "We are always two years ahead compared to what other people do."

Riot's Whinstone Mine in Rockdale, Texas. Riot's Whinstone Data Center

The largest bitcoin mine in America

If someone mines bitcoin for money, they are actually giving their computing power to the bitcoin network. In the average ten minutes it takes to create 6.25 bitcoin. To create these new tokens, a global pool miners competes against each other to unlock the first batch of bitcoin. A miner's share of the network's havehrate is greater, which increases its chances of winning bitcoin. Whinstone is home to multiple buildings, each 20-foot high and containing rows of computer hardware specifically designed for this purpose. Harris estimates that it produces more than 500 bitcoins per month at its current capacity. This is approximately $30.7 million or $368,000,000 annually, at today's prices. According to the firm, there are approximately 100,000 machines at its site. Riot bought the Whinstone mine in January for $80 million. It is now the largest in North America. While the company is expanding, the crypto mine will have a power output of 750 megawatts once it is built out on the 100-acre parcel of land. Gibson claims that downtown Dallas consumes only 200 megawatts. Gibson continued, "So it's almost like having downtown Manhattan and downtown Dallas all within our backyard." This grid has a lot of power. It is the tricky part of physically tapping into it. To adjust the voltage to a manageable level, mines require special equipment. Transformers are devices that take power from substations and convert it into a lower voltage to be used for bitcoin mining. King stated that transformers can be obtained in 12 weeks if one has cash and is interested. However, it's still necessary to turn off the power to the substation. According to King, the wait time for a substation can be 16-18 months. Whinstone constructs its own substations, which gives it an advantage over other potential miners who want to go to Rockdale. They are currently installing three 100-megawatt Transformers. Harris said that the irony is that if you need a transformer right away, but haven't ordered one, it will take 64 weeks to get it.

Riot's Whinstone Bitcoin mine has a "hot aisle", where temperatures can reach 150 degrees due to the heat generated by the mining rigs.

Whinstone also tries out cutting-edge technology. A computer program crunches millions upon millions of math equations when rigs are in mining. It is hard work to do all these calculations, so the hardware heats up quickly. A facility will usually install fans to cool the hardware down so they don't heat up. The "hot aisle" is the central chamber where the hot air is blown in by fans. Harris brought CNBC in to measure the temperature. It can reach 150 degrees. Riot is now trying immersion cooling in Whinstone buildings. The computers are immersed in a special fluid to keep the integrated circuits at lower temperatures. After the heated fluid has been circulated, it is pumped to dissipate heat. The cooled fluid is then pumped back into the computers. According to the company, this is the first industrial-scale attempt at it. The buildings will house approximately 46,000 Antminer S19 series ASICs. The term originally meant the most efficient integrated circuits for mining, but is now used to refer to a mining rig and computer. This will make a significant impact on the bottom line of Riot CEO Jason Les. Les stated that he expects to see an increase in productivity and hashrate through 2022 without the need for additional ASICs.

Whiplash in Rockdale