‘People don’t realize that this is hitting their energy bills, or going to hit them’
Lane Boldman, executive director of the Kentucky Conservation Committee
PADUCAH, Ky. – Tax breaks and other financial incentives for bitcoin mines using proof of work have created what one opponent calls a “Wild West” of operations flooding Kentucky, with unfulfilled promises that the mines would create jobs and reduce electricity rates.
Other than a handful of positions, those new employment opportunities remain elusive, critics say. But the negative impact of crypto mines has become all too real. One of the major issues with the facilities in this state is that, for all their marketing claims, they hog much-needed electricity, disrupt communities and drive up energy bills.
In 2021, the Kentucky General Assembly approved two bills, which were signed into law, providing roughly $9 million in combined tax breaks for equipment and energy used for the commercial mining of cryptocurrencies. “Once those laws passed we suddenly became the Wild West” of mining operations springing up across the state, says Kentucky Conservation Committee Executive Director Lane Boldman.
“They just started popping up all over. They’re targeting our high-level energy infrastructure because Kentucky is a heavily coal-mined state with a lot of good infrastructure from power plants that have retired, coal mines that have retired,” Boldman says. “It’s a very attractive area for these companies to come to,” because of easy access to reliable coal power as well as some gas power.
Inside the flagship Blockware bitcoin mining facility in Paducah, Ky.
Photo credit: Blockware Mining
Secretive and subsidized crypto mining
In late 2022, the Kentucky Public Service Commission opened formal proceedings to investigate two proposed contracts that would give discounted electricity rates to new cryptocurrency mining operations, potentially resulting in increased costs for other utility customers.
“Kentucky has quite a lot of the forest that divides eastern Kentucky from the rest of the state, so it’s a good place to hide things. So I had a concern that these [mining operations] might be popping up at old oil and gas wells,” Boldman says. “Nobody knows what’s going on. Every two minutes we seem to find information about crypto operations in far east and west Kentucky.”
Bitcoin mines can appear seemingly overnight and are difficult to track. Although some are tied to coal-fired power plants being brought back to life, in Kentucky and other states there are smaller mining rigs located by oil and gas wellheads. And the Wild West of inadequate regulation identified by Boldman means it’s hard to find out specifics about these mines.
As the Kentucky Conservation Committee notes on its website: “Because existing laws, regulations, and/or permits mostly do not require that mining operations make this information available to any government agency or the public, it is notoriously difficult to discover how much a particular entity is mining at a location, how many miners it has running, how much energy it is using, or even an operation’s fuel source.”
Coal-rich Kentucky is home to almost 20 percent of all proof of work bitcoin mining operations in the U.S., according to the committee. About 66 percent of electricity generated in Kentucky in November 2022 was from coal. And because the energy for bitcoin mining is derived mostly from coal-fired power, the state emits more carbon dioxide associated with bitcoin mining than any other state, according to the group.
“Greenwashing is a problem. These companies have so many pitches where they talk about being eco-friendly . . . but you read more about them and it says they’re utilizing flare gas and coalbed methane,” says Boldman.
Mining the pockets of electric ratepayers
One crypto mining company, Blockware Mining, is expanding in Kentucky, with facilities located next to the coal-fired Big Rivers Electric power corporation. Because operating the mine requires such huge amounts of energy, coal-fired electricity generation in the Bluegrass State is ramping up. That brings with it carbon dioxide and other air pollution and all the other environmental problems communities living nearby have known for decades are caused by coal.
‘It’s the same story. People in Kentucky in those coal-mining regions are particularly vulnerable to the magic bullet of “Here’s the next big thing that will save Appalachia.”’
Blockware Mining announced in 2021 it had raised $25 million to help with its bitcoin mining operations, using the funds to pay for 14,000 crypto mines, with 8,000 of them planned for the company’s facility in Paducah. The facility will be supported by a $12 million investment in transformer upgrades by Big Rivers Electric Cooperative.
Jeremy Witten of Blockware Mining showcases the company's plant in Paducah, Ky.
Reviving once-dormant coal-fired power and even expanding its use to power crypto mines doesn’t just threaten environmental harm for residents nearby. It also hits them in their pocketbooks, since they’re often left paying for these upgrade costs.
The massive amount of energy required by proof of work bitcoin mining often requires extensive electricity grid upgrades and expansions and, in Kentucky, ratepayers face the threat of shouldering the cost of this work through increased bills, critics warn – all while the state offers mining operations significantly discounted energy rates.
“People don’t realize this is hitting their energy bills, or going to hit them,” says Boldman.
Some mining companies pitch their operations as lifelines for economically hard-hit communities. In October 2021, Blockware Mining President and CEO Michael Stoltzner testified to state lawmakers that bitcoin mining is “bringing industry back” to areas that have seen steel mills and similar industrial sites close but then reopen to house mining technology.
Boldman’s group questions applications by Blockware Mining and others for special economic development rates. The companies claim they are job creators, but opponents say there’s little to prove that row upon row of noisy bitcoin mines actually create many jobs.
“Economic development riders are for helping spur significant job creation or for a permanent location to help build a community. These mines don’t do either,” she says.
Indeed, Stoltzner outlined only a handful of jobs that a planned mining facility would generate in Kentucky. And it’s a common criticism of these operations from people living near them, regardless of which state they’re in – that they simply aren’t employment panaceas.
Reviving once-dormant coal-fired power and even expanding its use to power crypto mines doesn’t just threaten environmental harm for residents nearby. It also hits them in their pocketbooks.
Instead, the promise of jobs is more of a mirage, in line with the smoke and mirrors of bitcoin. And it’s a criticism the Kentucky Conservation Committee is hoping people will hear.
“It’s the same story. People in Kentucky in those coal-mining regions are particularly vulnerable to the magic bullet of ‘Here’s the next big thing that will save Appalachia.’ But [the solution is] often out-of-state companies controlling a situation they can leave easily,” says Boldman.