Here's a surprising fact: the largest bitcoin mine in North America is located on the outskirts of Wenatchee, Washington.
It's not a mine in the traditional sense. In these mines, you won't have helmets, lamps or pickaxes, and there's no danger of cave in. In this case, the mine consists of two warehouses that have been converted into a data center.
At this moment, computers around the world are racing to solve complex algorithms. Whoever wins earns the prize of 25 newly created bitcoins. This digital money can then be traded or used to buy goods directly.
But running all those math formulas to make this cyber-currency takes a lot of electricity. And this is where central Washington comes in.
‘Thousands And Thousands Of Boards Here’
Dave Carlson, CEO of mine operator MegaBigPower, led me through the unmarked door of what looks from the outside like a cold-storage warehouse. Inside, you can feel the air moving and hear a constant low roar from big floor fans — dozens upon dozens of box fans and industrial ventilation blowers.
"That is all just to try to pull the heat out as best we can from all of this equipment," said Carlson.
As for the miners themselves, they’re in the form of green boards.
"All of these green boards have arrays of computer chips on them. Each computer chip is doing the processing required to make a little bit of bitcoin,” Carlson said. “As you can see, we have them massively arrayed. There are thousands and thousands of boards here."
All those digital mining rigs are chipping away at the complex mathematical puzzles. They want to win the prize for having the right solution at the right time. Every eight to 10 minutes, there are 25 new bitcoins up for grabs.
"When we first fired these (rigs up), they had some sort of residual oils and things from assembly,” said Carlson. "It would burn off, and that was the smell of money."
Both the miners and the global bitcoin community win from this furious number crunching because the act of mining contributes processor power to verify and secure the public ledger of bitcoin transactions.
Carlson initially got into bitcoin mining as a hobby in 2012. Since then, he has witnessed an exponential rise in miners chasing the fixed supply of new bitcoins.
"You're in this constant race to beat this virtual competition," he said. "You don't know who these people are, but you can see on the network that (computing) power is being added every single day."
Here Comes The Competition
The race, in turn, creates more and more electricity demand, which is why Carlson relocated to the land of rock-bottom-cheap hydropower last year, and why he'll soon have company in central Washington from another startup.
Competing computer engineer Bernie Rihn of Seattle founded HashPlex. That company is setting up a data center to host individually owned mining rigs.
"Many people have these pieces of hardware that draw tens of kilowatts in their house," said Rihn. "Their girlfriends aren't happy about it and their wives aren't happy about it and they have to fix it all the time."
So Rihn's new company offers hobbyists and investors a bitcoin mining computer away from home. HashPlex has opened a "stopgap" space in Seattle to host miners while it develops its larger data center east of the Cascades.
Meanwhile, MegaBigPower is planning an additional bitcoin mine near its first one on a scale ten times larger than the original.
High Risk — High Reward?
Rihn cautions that bitcoin needs to win wider acceptance at retail for the mining businesses to grow into a sought-after industry cluster. The value of the unregulated, virtual currency has been quite volatile lately. One bitcoin is currently worth around $450.
MegaBigPower executive Carlson concedes the mining enterprise is not for the faint of heart.
"I consider it absolutely high-risk investment," he said. "And like high-risk investment should be, it has been high reward. I'm talking about tens of millions of dollars of return on a few million dollars of investment."
Others are not so fortunate. In November, a Bainbridge Island-based bitcoin mining company with engineering offices in Portland filed for bankruptcy. An Alydian executive explained to the court that its engineering and operating costs constantly outstripped revenues because mining hardware became outdated so quickly.
Rihn and Carlson maintain confidence in the virtual currency they're mining despite the regular controversy and intrigue swirling around it. As proof, both say they're holding on to their personal bitcoin balances and choosing not to convert immediately to dollars.
Carlson has even tasted the dark side of the alternative currency. Twice he has lost money due to thefts from bitcoin exchanges, includes the collapsed Mt. Gox exchange in Tokyo.