Cryptocurrency and blockchain technology—contemporary buzzwords dominating conversations in the modern era. But what exactly comes to mind when these buzzwords are referenced? Alternative currency? Bitcoin, Ethereum, Dogecoin? Investment? Hedging? Disruption? While these associative terms are likely commonplace, they only begin to scratch the surface with respect to the breadth of the topic. Ultimately, a deep dive into the cryptocurrency and blockchain world presents wide-ranging implications that have the potential to touch nearly all aspects of our world. Such implications stretch from the practical minutia of how the SEC defines a security to the theoretical vulnerabilities of the dollar’s reserve currency status.
This blog post is the first entry in a series of posts that will seek to shed light on the crypto/blockchain buzzwords, particularly in relation to the legal ramifications touching commercial real estate.
Part I: A New Frontier for Municipal Land Use Regulation
About an hour northeast of Austin, Texas, lies the rural town of Rockdale, home to North America’s largest Bitcoin mining facility operation—Whinestone. Acquired by Riot earlier this year, the Whinestone facility currently sits on a large 100-acre site, consisting of three warehouses which total 190,000 square feet. These warehouses currently host 20-foot tall stacks of more than 100,000 computer servers, utilized to “mine” Bitcoin. Clearly, this is not your grandfather’s version of mining. Rather, these computer servers compete with similar mining operations all around the world to solve complex mathematical problems. The first one to crack the code, so to speak, has successfully mined that particular and immutable Bitcoin token. This transaction is then forever recorded on what is referred to as a “decentralized ledger” where the token is time-stamped as a block of data and placed on a permanent/irreversible chain—i.e., the blockchain. For a more detailed explanation of the interplay between cryptocurrencies and blockchain technology, visit here.
However, such mining operations consume a tremendous amount of energy, potentially straining our existing electrical infrastructure and exacerbating environmental and climate-related concerns. For example, once fully operational, the Whinestone mine is estimated to consume roughly 750 megawatts of electricity, “enough to power more than 150,000 Texas homes during peak demand.” Moreover, Riot is seeking to expand the Whinestone mining operation to 1,000 megawatts worth of electricity consumption in the near future. And there are more mines in the pipeline. For example, Argo Blockchain is investing in a mining facility located on a 320-acre property in Dickens County, Texas; likewise, BIT Mining is investing $25 million toward the construction of yet another Texas mining facility. This groundswell of mining investment in Texas is the result of two primary market conditions: cheap energy and favorable state legislation.
But, these mining operations have not been welcomed with such open arms elsewhere. For example, China just issued a comprehensive ban on not only crypto transactions but on all mining operations as well. (This is likely an effort to tighten Beijing’s grip over its currency and markets—not a result of environmental concerns).
Meanwhile, here in the US, environmentalists, primarily concerned with the energy consumption’s impact on climate change initiatives, are pushing back against digital mining. One successful tactic utilized to curtail digital mining is regulation via municipal land use ordinances. The prime example of this comes from Missoula County, Montana. Enacted this past February, Section 5.05 of the Missoula County Zoning Regulations expressly cites, among other things, its concerns over digital mining’s “contribution to climate change”. In order to comply with the Ordinance, digital mining facilities must:
- Be located in either the Light Industrial or Heavy Industrial districts;
- Be reviewed as a conditional use (or special exception depending on proximity to residential properties);
- Develop or purchase sufficient renewable energy to offset 100% of its electricity consumption; and
- Verify that all electronic waste generated at the facility will be handled by a licensed electronic waste recycling firm.
So, while digital mining is still technically allowed in Missoula, the County’s Ordinance, particularly with respect to requirement #3, have significantly decreased the economic viability of the use. The practical effect of this is to push digital mining development out of the County. Essentially, when certain states like Texas are incentivizing digital mining and decreasing transactional costs, it is unlikely a mining company would develop a facility in Missoula.
It remains to be seen whether similar zoning restrictions will emerge in Pennsylvania, however, developers contemplating the construction of mining facilities should be aware of the Missoula precedent and have their finger on the pulse of the respective community they seek to develop.