Your guide to Bitcoin, Ethereum and Web 3.0

In Northeast Pennsylvania, a unique Bitcoin mining experiment is about to come online.

Called NautilusTerawulf spins one nuclear powered mining facility.

First announced back in 2021, Terawulf said so when Nautilus is at full capacity later in Q1 this year, the facility’s fleet of 15,000 mining rigs will have a hash rate of 1.6 rash per second (EH/s). That amounts to 1.6 quintillion hashes every second, or about 0.54% of the total computing power of the entire Bitcoin mining network today, which is currently running at 294.09 EH/s.

More importantly, none of this new mining capacity will be powered by fossil fuels, potentially addressing years of criticism of the premier cryptocurrency.

Bitcoin uses one proof of work (PoW) mining algorithm to validate transactions and secure the network. Miners, or computers optimized to verify transactions and be rewarded in Bitcoin, currently use approx. 117 terawatt hours a year– equivalent to a small country.

This number also doesn’t look like it will decrease anytime soon, as miners continue to deploy updated machines and even brand new fleets. The amount of global computing power used to mine Bitcoin, understood as the hash rate, has been on a steady increase since 2016.

Bitcoin’s global hash rate since inception. Source: CoinWarz.

It’s not just miners looking at this chart either. With approx 62% of today’s energy mix regulators are also paying attention when they operate all these machines that come from fossil fuels.

Just last year, New York signed two-year moratorium to ban all new fossil-fueled Bitcoin miners from setting up shop within state borders. A similar proposal targeted proof of work (PoW) mining was also put before European legislators, as comfortably voted it down.

When asked if he had any concerns about a deregulation of PoW-based mining, Terawulf’s co-founder, CTO and COO Nazar Khan told Decrypt that he hopes “they take input from people like ourselves”.

Terawulf aims for green Bitcoin mining

Founded in 2021 by Nazar Khan and Paul Prager, who were top leaders in Beowulfan energy infrastructure company that Prager had launched in 1990, Terawulf presented itself as a “leading sustainable Bitcoin mining company.”

By the time he started learning more about crypto in 2017, Khan had already spent over twenty years developing and operating power generation facilities in the US and abroad.

“Once I started to understand how Bitcoin mining worked, it was clear to me that efficient and economical Bitcoin mining was heavily dependent on infrastructure and the cost of energy,” Khan says of his early days networking with miners.

“Pick the name of a Bitcoin miner and I’ve probably talked to them at some point trying to find a way to work together,” he said Decrypt. “I said, ‘hey, I know power, I know energy, let me find someone who knows Bitcoin mining.’ It became very clear to me that the level of sophistication in the space around energy, energy procurement and development was very low.”

A year before founding Terawulf, Khan’s team had also completed the construction of one large-scale plant for Marathon, one of the world’s largest mining companies.

This collaboration was followed by a phone call from the energy company Talen, whose subsidiary, Cumulus datahad built a data center next to its parent company’s 2.5 gigawatt Susquehanna nuclear power plant to host Bitcoin mining operations.

Thus Nautilus was born.

Add Nautilus’ stats to the estimated 3.8 EH/s capacity of Terawulf’s water powered Lake Marina facility on the west side of New York state, and it’s clear that Terawulf will have one of the largest Bitcoin mining operations in the world, powered almost entirely by renewable energy.

But it’s about more than crypto miners tapping into abundant clean energy.

Khan said how the Terawulf team’s long experience in energy infrastructure can also help make operations like Nautilus and Lake Marina reliable consumers of Talen’s excess renewable electricity, but also responsive assets for local electric grid operators.

The term “assets” broadly refers to mining farms that are both useful to have on a network, and intangible assets to energy suppliers, which offer high customer lifetime value (CLV) – essentially the value of having regular, reliable customers – thanks to their strategic locations that can keep energy prices low.

It’s all about location

In 2016, Beowulf’s parent company Riesling Power LLC purchased a decommissioned coal plant in Somerset, on the western side of New York state. The Paris Agreement was signed in New York City the year before, leading to a 76% reduction in plans for new coal plants across the globe. The team knew they were actually buying the facility to retire it.

The plant was integrated into the state grid through a network of transmission lines – the thick cables you see held up by impressive tower along global highways. When it was operational, the transmission lines were rigged to move 700 megawatts of power out of the plant and onto the grid.

However, due to Khan’s professional background in energy infrastructure, he knew that Terawulf could just as easily move 700 megawatts of power into site to feed a fleet of Bitcoin miners.

Khan then began sourcing energy for the site and found that the local zone (Zone A) of the grid—which is controlled by a not-for-profit company called the New York System Independent System Operator (NYISO)—produces “about four to five gigawatts ” power obtained from primarily renewable sources, namely hydropower.

In March 2022, Terawulf’s first Bitcoin mine was operational: Lake Marina.

Of those five gigawatts, local demand only soaks up “a gig or a gig and a half,” leaving excess generation of more than three gigawatts to be routed by transmission lines across the state, mostly to feed the energy needs of the Big Apple, known for to the power industry as the “cargo pocket of New York City”.

Knowing local energy needs is the key to strategic placement of mining facilities. If you place massive electrical loads in areas of high demand, you will not only get high prices, you can increase your prices even further.

“Bitcoin mining is one of the most efficient and economical load sinks out there,” Khan explained. “We place our loads in places where there is high power supply and low demand, so we can be a ‘sink’ to soak up energy at attractive prices, while also offering a way to sell power in places where there are usually not many buyers.”

Location is everything, but even more so for renewable energy. Nuclear reactors and hydroelectric plants do not stop producing, and these plants sometimes run for years without stopping.

And just as not having enough energy can lead to rolling blackouts, like the one seen in Texas last year, having too much energy can be just as dangerous for a grid.

Herein lies another potential advantage of well-placed mining outfits.

They can switch off machines almost immediately during high demand or skim excess energy from a grid when there is a large supply.

Network operators’ thoughts

The grid is designed to meet peak demand plus a margin, but it only hits peak demand for 50-100 hours a year, says Khan.

It’s generally nothing to worry about for a mining farm that soaks up plenty of clean energy in an area of ​​low demand, but if the grid gets too hot, Terawulf’s mines – and Bitcoin mines in general – can drop their demands in seconds.

This is thanks to a tool available to grid operators called Automatic Generation Control (ACG). ACG adjusts the performance of generators at different power plants in a given area of ​​the grid to maintain a balance between generation in a given area (the power produced) and electrical load (the power consumed).

If a grid operator needs to add 15 or 25 megawatts to an area where the load is tight, Khan explains, they send a signal to a power plant in an area with excess generation to tell it to drop. In other words, when operators need to add generation to an area, they have to bring it down somewhere else.

Typically, ACG has a response time of 15 minutes, so from the time the network operators send the signal to the plant until the plant has reached its satisfactory level, fifteen minutes have passed.

For Bitcoin mining, the response time is more like fifteen seconds.

“[Grid operators’] their minds are kind of blown when they think about it,” Khan said. “We have a load that responds to 10, 20, 50, 100 megawatts in less than a minute, and you can get it back up just as quickly. That kind of response is unheard of, and when operators understand how responsive we can be, they fall in love with it.”

This fast response time is due to the fact that a typical application specific integrated circuit (ASIC) or mining machine can shut down in less than a minute, making even a fleet more responsive than a nuclear generator.

The signal to turn off can also be scheduled a day in advance or in real time without any difference in the ability of the electrical load to respond. This is not the case with most loads on an industrial scale.

Viewed this way, miners like Terawulf appear less as pioneers of green crypto mining and more as another tool that network operators can use to maintain a delicate balance between supply and demand.

Miners can change their needs on a dime, soak up excess energy when there is an abundance of energy, or shut down their machines in case of higher demands elsewhere.