Crypto needs cheap energy. He found a whole bunch in Nebraska.

KEARNEY, Neb. (Flatwater Free Press) – An 11-acre lot in Kearney is home to dozens of what appear to be shipping containers.

Inside the metal boxes are shelves and shelves with computers. Thousands of them solve complicated mathematical equations 24 hours a day.

Here on the outskirts of town, sandwiched between a solar field and a cornfield, thousands of computers mine cryptocurrency.

Together they consume as much electricity as the entire town of Kearney, man. 33,790, to do so.

This is one of the largest cryptocurrency data centers in Nebraska – a host site for computers racing to verify crypto transactions and add to the digital currency.

It’s also likely the first of many such centers to open in the state, as the still-nascent and often volatile crypto industry makes a home in rural America.

Electricity prices in Nebraska
Electricity prices in Nebraska(Graphics by Hanscom Park Studio)

Crypto volatility has already hit the Kearney location — in September, Compute North, the company that opened the data center, declared bankruptcy. The Kearney estate was sold to Generate Capital, one of the company’s lenders.

But not even the free fall of cryptocurrency prices, the infamous failure of the crypto exchange FTX and the arrest of its co-founder Sam Bankman-Fried have not stopped the expansion of the industry in Nebraska.

Just last week, the Hall County Board of Commissioners approved the construction of a 14 megawatt crypto data center near Grand Island.

“We weren’t actively pursuing this, they came to us,” said Neal Niedfeldt, chief executive officer of the Southern Public Power District, one of many utility districts in Nebraska that have sent invitations to crypto companies in recent years.

A digital currency, crypto relies on a network of computers that maintain a blockchain – think of it as a digital ledger of transactions. Computers solve complicated math problems to confirm transactions and add them to the ledger. In exchange, they get digital “coins” along the way – like bitcoin or ethereum.

The currency is largely unregulated and not tied to banks. It is not backed by any government, like the US dollar or the British pound. For crypto enthusiasts, the decentralized structure is part of the appeal.

“Basically, the business of crypto is converting electricity into computer calculations,” said Gus Hurwitz, a law professor at the University of Nebraska College of Law.

Companies like Compute North in Kearney function as a rental space for computers that do everything. Crypto miners supply their equipment, pay for space, maintenance, internet and – crucially – electricity.

With computers running almost 24 hours a day, 7 days a week and fans cooling them, electricity is a major cost of doing business. The companies that run these hubs need electricity. They are looking for cheap.

About five years ago, Compute North found it in Nebraska—the only state fully served by publicly owned utilities authorized to deliver the cheapest electricity possible.

“They’ve heard our rates are low, and they’re stable,” said Nicole Sedlacek, economic development manager for NPPD. “That eventually led them to call us.”

The company had a few other criteria: they liked the district’s carbon-free energy mix. They needed affordable land. They were looking for a place with the capacity to handle a huge electrical load and a local government open to the idea of ​​crypto coming to town.

Kearney had everything they were looking for.

The central Nebraska city was already trying to develop its own tech park. It was in the running for a Facebook data center, but lost a bid to Altoona, Iowa, a decade ago.

The crypto data center promised jobs, but not in a way that would strain apartments or take workers away from employers already in town, said Stan Clouse, mayor for 20 years.

Clouse is also NPPD’s account manager. He spent the first meeting with Compute North examining their energy needs. What the mayor heard delighted him, he said.

NPPD had enough electrical capacity to handle the data center and should not generate more power specifically for Compute North. The data center would double the electrical capacity of Kearney’s power grid, making power more stable and keeping prices low. It would also mean an influx of cash.

“Increasing the load increases the revenue, which goes into the Kearney general fund,” Clouse said. “That’s an extra million dollars a year for Kearney. For a community of our size, that’s pretty significant.”

But for some, the Kearney data center and others soon to launch in Grand Island and York are nothing to celebrate. They are cause for concern.

“This is not about creating jobs and opportunity for Nebraska,” said Scott Scholz, a spokesman for the newly formed advocacy group Nebraskans for Social Good. “These are out-of-state companies exploiting our electric system for their own profit.”

Aside from Clouse, who abstained because of his role in the utility sector, the Kearney City Council voted unanimously in June 2019 to approve a development agreement with Compute North.

The company received 11 acres of free land, valued at $165,000, paid for by the Buffalo County Economic Development Council. The city gave the company an electricity rebate, capped at $1.1 million. The company hit that cap in August.

Then-lieutenant.  Gov. Mike Foley, NPPD President and CEO Pat Pope and Kearney Mayor Stan Clouse (left...
Then-lieutenant. Gov. Mike Foley, NPPD President and CEO Pat Pope and Kearney Mayor Stan Clouse (left to right) look on as former Compute North President and CEO Dave Perrill speaks at the Kearney Crypto Data Center groundbreaking in August 2019. Since then the data center changed hands after Compute North declared bankruptcy in September 2022.(Buffalo County Economic Development Council)

Nebraska Public Power has added mobile substations to help accommodate the increased load. The utility district is working on a new $12.5 million permanent substation that will exclusively transmit power to the crypto mining site.

In return, Compute North promised jobs and delivered 11. It helped develop and increase the electrical capacity of Kearney’s technology park. By 2021, it has grown to a 100 megawatt customer.

For comparison: the entire city’s energy needs peak at 100 megawatts. The second largest user in Kearney is manufacturing company Eaton, which peaks at 10 megawatts, Clouse said.

The load on the data center is huge and consistent — it doesn’t fluctuate throughout the day like the power consumption of a home or factory, said Pat Hanrahan, NPPD’s general manager of retail services. And it’s flexible. If NPPD needs more energy from the grid to heat homes during a cold winter, for example, a data center can easily fit.

But the high consumption of electricity raises environmental concerns, Scholz said.

One year of global cryptocurrency mining uses more electricity than Argentina, according to an estimate in the White House report on crypto and climate change – nearly 1% of the world’s annual electricity consumption.

In New York, lawmakers recently passed a two-year ban on fossil fuel-powered crypto mining projects. In Montana, a coal-fired power plant was about to be shut down, much to the delight of environmentalists—until a crypto data center opened nearby.

In Nebraska, NPPD already had the energy capacity to power the Kearney data center, Hanrahan said. The public utility company did not need to build a new power plant to supply it.

About 62% of NPPD’s energy generation is carbon-free, a number that has held steady before and after Compute North came to Kearney, said Grant Otten, NPPD spokesman.

Still, a data center’s ongoing power consumption will likely draw from all available energy sources, said Bruce Dvorak, a professor of civil engineering at the University of Nebraska-Lincoln.

“It comes from a mix of more green sources, like wind, as well as less green sources, like coal and natural gas,” Dvorak said.

Over the past five years, NPPD’s economic development department has received calls from about 25 different crypto companies interested in Nebraska, Sedlacek said. Calls increased when China banned cryptocurrencies in 2021.

Some cities, like Kearney, were open to the idea, Sedlacek said. Others were more hesitant. They welcomed economic development.

“But we don’t want crypto,” they told her.

The crypto market is young, mostly unknown to the general public and extremely speculative and unstable. In November 2021, the price of bitcoin reached a peak of $68,764. It has since crashed 75%, falling to $16,625 in January.

In November, crypto exchange company FTX filed for bankruptcy, shaking up an already beleaguered industry. FTX founder Sam Bankman-Fried was then arrested on multiple counts of fraud, sowing even more distrust among crypto skeptics.

“We’re definitely at a low point in the industry right now,” said Hurwitz, the law professor. “It is possible that we could go lower. Anyone entering this market now has to be better capitalized and capitalized in a less risky way than they probably were a year ago.”

Compute North, the company that opened Kearney’s data center, declared bankruptcy late last year, citing rising energy costs and profits that couldn’t keep up as bitcoin’s value plummeted. The bankruptcy did not end local operations. Today, a cluster of computers between a cornfield and a solar field continues to verify transactions and mine new cryptocurrency.

“Because they can move in so quickly, they can move out pretty quickly,” said Sedlacek, NPPD’s economic development manager. “We’ve spent a lot of time as a utility talking about it. How can we protect our taxpayers from being left stranded with assets and unpaid bills?”

She thought calls would slow last year, when digital currencies fell. But the companies kept calling.

Several other projects are currently underway in Nebraska.

York City Council decided in April to sell the land to BginUSA, an Omaha company that wants to build an $8 million mining complex. In Minden, the expansion planned by Compute North is in the process of being transferred to New York-based Foundry Digital.

In November, a group of residents opposed to a proposed crypto data center near Doniphan packed a Hall County commissioners’ public hearing.

“This is not a farm coming in,” resident Justin Gregg said during public comments, according to NTV News. “We grew up around corn fields. All around us are corn fields and it should stay that way.”

The interested company withdrew the application for a conditional use permit before the commissioners voted.

This week, Hall County approved a conditional use permit for a different crypto project near Grand Island.

Questions are being raised about the future of cryptocurrency, including possible regulation and market prices. Last year, the Biden administration released recommendations on future US regulations.

Nebraska cities and municipalities now hopefully fully understand the risks they could face with crypto companies, Hurwitz said.

“Companies, municipalities, investors, bankers, lenders – anyone who was willing to finance things – will be doing so with a lot more awareness of the risks,” he said. “I wouldn’t be willing to take anything on credit.”

With the future of cryptocurrency uncertain, Sedlacek asks companies that call NPPD: What do you see this looking like in the future? And what happens if crypto disappears?

Many told her that they might eventually focus their massive computing power on other industries, perhaps banking, finance or health care.

“They’re really saying that cryptocurrency is really their first step into this high-computing space,” Sedlacek said.

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