Washington State digital currency Alert could drive business to Texas

A new alert has been released by the Washington State of Financial Institutions and the Tennessee State Government, “Beware the Next Big Investment.” It warns investors to ask questions and “do their homework” regarding digital currencies, marijuana-related companies, and binary options.

“At first glance, these products appear to have no real connection to one another,” said Frank Borger-Gilligan, Assistant Commissioner for the Tennessee Securities Division. “What they all have in common is their recent emergence as three investments that both sellers and buyers hope will become the ‘next big thing.’ Before you consider investing, make sure you understand what these products are, their benefits, and their risks.”

Washington State has been a popular hub for companies that consume large quantities of electricity, such as data centres and bitcoin mining operations. The region has a cheap supply of hydropower from dams built along the Columbia River, in Quincy and Wenatchee electricity has been as low as 3 cents per kilowatt hour.

Earlier this year, state lawmakers approved an extension of tax breaks for data center operators, which were set to expire. Companies that operate data centers in rural areas of the state are exempt from sales tax on purchases of IT and supporting infrastructure equipment.

Microsoft acquired 75 acres in Quincy during 2006, to build a data centre and digital warehouse, and acquired a further 200 acres in 2013. The rural town hosts a variety of other tech companies, including Dell, Intuit and Yahoo, with the later recently announcing a 300,000 square foot expansion

Affordable power was the key attraction for Allen Oh and Lauren Miehe, who launched Bitcoin ASIC Hosting in 2012. They began their bitcoin journey by running mining rigs in their homes and garages. It soon became apparent that there was an opportunity in offering data center space optimized for virtual currency miners. “It was amazing to learn that we lived an hour from the place with the cheapest power prices in the country,” Oh explained to Data Centre Knowledge.

“We felt like we’d won the lottery. We were among the first ones to go out there and lease space. We’ve helped cultivate some positive experience with the PUD (public utility district) and contractors. Being there and shaking hands is important.”
— – Bitcoin ASIC Hosting

Dave Carlson, CEO at mining and hardware company MegaBigPower, is a Seattle-based entrepreneur who focused his operations in Central Washington. “Someone in the industry tipped me off to the extremely cheap power and real estate,” said Carlson in an interview with Data Centre Knowledge. “That was all it took for me to realize I had a significant business opportunity.”

“The location was chosen for its ready access to affordable, environmentally friendly power. Since 2013 the mine has grown steadily and, thanks to control of our entire supply chain, the rate of growth is increasing."
— – MegaBigPower

However, Washington State is clearly warey of digital currencies, as the recent Alert shows. Carlson explained that even though there are clear advantages to operating in the Washington, the process wasn’t easy,  “If anyone had heard anything about bitcoin, it was probably only bad things. I really had to work hard to find a landlord to make the system work.”

There are other states competing for large data center projects. House Bill 2712 passed in Texas earlier this year, making the lone star state a top contender. As a result, Facebook has already broken ground on a data center in Fort Worth, having looked as 220 other cities to host the project.

“The city of Fort Worth reported that it had been collecting only $2,720 annually from taxes on the property where the Facebook data center will be located. Now, the city reports that it will collect, on average, more than $2.4 million from the new project on that same property. That’s at least $48 million in additional tax revenue over the next 20 years.”
— – Charlie Geren, State Representative

Renewable energy is also a growing source of electricity in Texas, the state currently ranks first in the US for both installed and under construction wind capacity. If it were a country, it would rate sixth in the world for wind energy production. The industry has created and supports over 17,000 wind related jobs and has attracted US$26 billion in capital investment.

Several forces are driving the growth of wind power in Texas, large projects are relatively easy to establish, and the market price for electricity is set by natural gas prices, which is relatively high. In 2014, wind energy provided 9 percent of the total energy supply in Texas, which runs on it’s own electricity grid that is barely connected to the rest of the United States, known as the Texas Interconnection.

The wind usually blows strongest at night in the lone star state. One night in September this year, enough power was generated to supply around 30% of all electricity consumed on the grid at the time, which was a new wind generation personal best.

However, these night winds during off-peak hours place a great burden on the Texas Interconnection. This has resulted in energy companies, such as TXU Energy, sharing a wealth of electricity surplus with their customers.  According to Omar Siddiqui, director of energy efficiency at the nonprofit industry group Electric Power Research Institute, these offers are “a proverbial win-win for the utility and the customer.”

Cheap energy in Texas could result in a huge draw for bitcoin mining companies. Although digital currencies are not considered to be money in the traditional sense, by Texan regulators, they can still be used to buy and sell goods free from regulation.

“Cryptocurrencies do not fit the statutory definitions of either currency or money, and consequently do not by themselves trigger the licensing requirements of the Act.”
— – Texas Department of Banking

Texas Banking Commissioner Charles G. Cooper issued a Supervisory Memorandum last year. “At this point a cryptocurrency like Bitcoin is best viewed like a speculative investment, not as money," he said. "However, as this innovative technology develops, the [Texas Department of Banking] will continue to evaluate whether the nature of cryptocurrencies and the potential harm to the public warrant additional action.”

Texas has yet to offer any further developments regarding bitcoin regulation. However, the potential is there to provide a healthy environment for the future of bitcoin mining.