Why cryptocurrency miners are hot on Labrador

Why cryptocurrency miners are hot on Labrador

Data centres are expanding in Labrador because of cheap power and low temrperatures, but what does that mean for residents? Atlantic Business Magazine investigates the opposing interests of bitcoin mining

Sometimes it pays to be a nosy neighbour. In July 2018, Happy Valley-Goose Bay resident Doreen Hawco-Mahoney noticed six new light poles being erected by Newfoundland & Labrador Hydro on her street outside a decrepit- looking building. She had to find out what was going on in her backyard. As it turns out, the rusty tin-can building was housing a bitcoin mining centre that had been digging for the digital currency for almost three years.

The tangibility of bitcoin may be hard to comprehend, but there’s nothing intangible about the waves data centres are making in Labrador. Dozens of companies are vying for permits to harness the energy being produced in the Big Land and currently there are two data centres in operation with plans to expand, diversify the economy and create jobs. But the hunt for more power has also captured considerable community resentment as residents take to Facebook in protest against the multiplying light poles and slow internet speeds. Turns out there are two sides to every bitcoin.

Cryptocurrency 101
Bitcoin—once a form of currency primarily used for transactions on the dark web (an under-the-radar segment of the internet that’s not indexed by search engines)—has been brought into the light, and it’s not going anywhere. For proof, you just need to look at Brenda and Trevor Tobin. Their faith in the digital currency resulted in the first bitcoin machine in Labrador at Tobin’s Convenience in April 2018.

What exactly is bitcoin? To understand that, you first need to understand another buzzword: blockchain. Cryptocurrencies—like bitcoin, ethereum and dogecoin—are appealing because of their decentralized nature and their ability to circumvent banks. Blockchain technology was invented by the anonymous creator of bitcoin to allow groups of people with no central entity (like a financial institution or governmental body) to create an irrefutable record of transactions. Every transaction is recorded on a public ledger, but the identities of people are hidden using cryptography (coining the term cryptocurrency).

Basically, it’s a database shared across a network of computers and recorded in a chain of virtual ‘blocks’ of code. Bitcoin miners (a.k.a. the computers) use this computing power to solve complex mathematical problems which in turn generates the digital currency as a form of reward for adding to the blockchain. With the increase in usage of blockchain technology comes the rise of the data centre. More blockchain equals more bitcoin equals more data centres.

Data centres are relatively self-explanatory compared to the complex nature of cryptocurrency: they are simply warehouses jam-packed with computers which process information holding all the data. Those whirring machines compute around the clock, ‘mining’ bitcoin and other cryptocurrencies, but also running artificial intelligence (AI), serving as email storage and even web hosting. The type of building isn’t important, and these centres don’t need a lot of infrastructure, save for a dry building and a good power connection, which is why Labrador has become so appealing.

Big data in the Big Land
So why Labrador? All data centre companies will tell you the same thing: cheap power. Data centres require an incredible amount of energy to function. While the evening news regurgitates premonitions of higher power rates across Newfoundland and Labrador, data centre owners see Labrador as having low-cost energy ready for the taking with rates sitting at 3.255 cents per kilowatt hour (everyone on the island of Newfoundland pays 11.8 cents per kwh). Data centres are also sprouting up across the northern parts of Quebec and Manitoba but Labrador offers a lower power cost despite its variant rate. Newfoundland and Labrador ranks as the fifth largest producer of electricity in the country with a generating capacity of 7,703 megawatts (the measure of the currency of energy production) thanks to Churchill Falls.

Data centres also need cool and dry climates for their computers to run as efficiently as possible. The average temperatures in Labrador rarely climb above 20 degrees and with the low humidity, it’s ideal for data centres and saves them from having to invest in air conditioning units or pay exorbitant power bills for running the AC 24 hours a day. On average, for every megawatt of energy, 300 kilowatts are lost to air conditioning.

The miner leagues
There are several companies vying for access to power in Labrador. One of the biggest blockchain technology data centres is Great North Data which operates in Labrador City and Happy Valley-Goose Bay. James Goodwin looks like your typical startup CEO: an untucked green plaid shirt gives way to black shorts and black skater sneakers. But he’s all business. In an interview with Atlantic Business Magazine from his third floor Bowring building office in St. John’s (with a damn good view of Signal Hill), Goodwin says he can’t believe how far they’ve come since he and three friends, including CTO Kevin Cooper, launched the company in 2011. When they started mining out of his basement it cost $10 to buy a bitcoin. Today, Great North Data has 30 employees and coins are trading for $8,107.45.

When we looked at the cost of the equipment versus the cost of setting up the infrastructure, we kind of thought ‘okay I think the better business here would be selling shovels.’
James Goodwin

Trained as a lawyer, Goodwin was back and forth between St. John’s and Goose Bay in 2013 for work when a client mentioned how good the power rates were. Goodwin jumped to take advantage of the cheap energy. He set up a temporary location to expand his bitcoin mining, moving out of his basement and up to Goose Bay, much to the relief of his wife. At the time, Great North Data was consuming half a megawatt of active power demand, enough energy to power 600 homes (according to the national average). After considerations of expansion, Goodwin realized a better investment might be in hosting other bitcoin miners.

“When we looked at the cost of the equipment versus the cost of setting up the infrastructure, we kind of thought ‘okay I think the better business here would be to be selling shovels,’” recounts Goodwin. Instead of mining for bitcoin themselves, they would maintain clients’ bitcoin-mining computers for a fee.

And so Great North Data’s expansion into data centres began. In late 2015 they received approval for six megawatts in Labrador City and in 2016 they began the construction that is just being completed today. Currently, they host clients from Dubai to Korea and company-wide they run 5,000 to 6,000 machines; 99 per cent of those machines host cryptocurrency miners (mostly bitcoin), while the remaining one per cent is devoted to AI.

With centres in both Labrador City and Happy Valley-Goose Bay, Goodwin notes there is a difference in community reception. He found Labrador City welcoming and says owning the building made things a little easier because he didn’t have to deal with landlords. Their initial setup, however, proved to be too loud for their neighbours with fans running round the clock. “The only real tool against sound is distance. Unfortunately, to get the power where we needed it in Lab City it meant being in an industrial zoned space directly next to residential. We’re now the proud owners of eight houses.”

In Goose Bay, Great North Data is in a more industrial area near the old military base. Community reception hasn’t been warm. “[The town] didn’t understand what we were doing. You read a lot of things on the internet about bitcoin. It’s gone so far as we had someone in Goose Bay accuse us of hacking their computer because surely the guys running the data centre are hacking computers in Goose Bay.”

In the Labrador West area, CEO Mike Darrigan started BlockLAB with three associates in 2016. Darrigan’s attitude towards bitcoin mining is über-local, having been raised in the area, and all 12 people involved with the company are from Labrador City. After 15 years working in network technology and telecom, the catalyst for Darrigan to switch to data centres was low power rates. “We got together a strong local team that can develop a project here, which is a win-win for the entire region,” Darrigan explained during a phone interview with Atlantic Business Magazine. “Similar to how blockchain brings together multiple fields of study, we have tech guys and financial guys and media people as well.”

BlockLAB’s office resides in Labrador City, while their main site where they mine for cryptocurrency as well as host video rendering and AI processing is in Wabush industrial park, where they are leasing long term. Currently they are powered off half a megawatt but were granted a permit for 7.75 megawatts by the Public Utilities Board in August 2018.

“One of the strengths of our projects is that we are directly adjacent to the main substation in Lab West where power is delivered direct from Churchill Falls. It gives us the benefit of not having to ride on the town’s grid,” says Darrigan. “That was a key thing in getting the project approved.” Having minimal impact on the lives of residents is essential for BlockLAB’s chief executive officer and the company hosted a series of public meetings at the end of August to address concerns in the community. (Great North Data admits they were late to the public consultation party. They held their first public meetings this past summer since arriving in Happy Valley-Goose Bay in 2014.)

A third data centre, which operates as a numbered company, focuses primarily on bitcoin mining and held no public meetings at all. Their operations in Happy Valley-Goose Bay were shut down near the end of July 2018 by the town after complaints by Doreen Hawco-Mahoney about the extra light poles being erected on the property. The stop-work order was issued on August 1 after their permits were found to be non-existent. The town of Happy-Valley Goose Bay had no idea the data centre existed. Company owner Akm Moynul Haque started renting the building in July 2015 and claims he didn’t realize he needed permits to operate the business—the building sits in a mixed-use zone across the street from a residential one—and says he should be grandfathered into the new bylaws that came into place in March of 2018. Under the new regime, data centres need to be in industrial zones.

“They are taking too much time to understand… it’s something new for the environment and that has been a roadblock,” said Haque in a phone interview with Atlantic Business Magazine. Haque and his business partner Alan, also known as “allinvain” on the online Bitcoin Forum, market the hosting of bitcoin mining in Labrador and in New Brunswick under the official front end name CryptoBoreas. The town has major concerns about the expansion of a data centre in a residential neighbourhood. Haque says he is looking into trying to relocate to another location in Happy Valley-Goose Bay, but things “are not moving in any direction right now.”

The other side of the coin
Doreen Hawco-Mahoney is a resident of one of the six houses surrounding the numbered company. A registered nurse for 25 years, Hawco-Mahoney has lived in Happy Valley-Goose Bay since 1975 and grew concerned when six light poles were being put up around an industrial garage on St. Laurent Street.

Noise pollution was the first concern for Hawco-Mahoney as she and several of her neighbours are shift workers and the dull hum of large amounts of power being brought to the building was constant. “It was just a low hum, but obviously with more power there’s more noise,” Hawco-Mahoney explains. “Noise pollution is something we hold sacred in rural communities, and you don’t want to be out on your deck having your cup of coffee in the morning with this big industrial roar coming at you.”

Her second concern questioned the presence of a fire suppression system in a dated building with lots of computers running constantly in a residential area. “I just wanted the citizens of the town to be mindful that this could happen, and you wouldn’t even know it,” says Hawco-Mahoney. “It was just curiosity on my part and putting the information out there for people, and through research I learned a lot about data centres. I was oblivious to it.” In the weeks since the stop-work order was issued to the data centre in her neighbourhood, Hawco-Mahoney has taken it upon herself to learn about blockchain technology data centres. She doesn’t vehemently oppose them. “I don’t have a problem with data centres if they aresituated appropriately and there’s an economic benefit to the municipality.”

Other residents in Happy Valley-Goose Bay have been vocal about their concerns, including the slowness of the internet (though both data centres insist they don’t affect internet connections at all). Because data centres don’t require huge numbers of employees, many are skeptical of the actual economic impact harnessing blockchain technology will have on their town.

But the rising cost of power is the primary concern for residents. The power grid is running at capacity much of the time and residents worry about the increase of data centres and what that would do to their power bills, particularly in the next couple of years. Currently local customers pay 3.255 cents per kilowatt hour. While Nalcor’s early estimates of over 20 cents per kwh once Muskrat Falls goes online in 2019 are now seen as hyperbolic, the jump will still be drastic. The data centres, on the other hand, anticipate harnessing the power of Muskrat Falls (which is not currently connected to the Labrador grid) to help boost the local economy.

Another consideration is the environmental impact of data centres. Neither Great North Data nor BlockLAB had to undergo any environmental assessment during their permit process. Darrigan says that BlockLAB’s project was exempted by the Department of Municipal Affairs and Environment because the project is basic, and they only operate inside buildings. “There’s no major changes to the landscape so no environmental assessment required,” says Darrigan about BlockLAB’s permitting process. However, recent studies suggest that while the physical footprint of data centres may be small, their impact can be quite large. The Bitcoin Energy Consumption Index has estimated that the amount of CO2 emitted around the world from bitcoin mining in one year is equivalent to one-million transatlantic flights.

Data diversification
Despite the concerns of residents, both Goodwin and Darrigan believe data centres can help Labrador’s economy. Goodwin has faith in the Iceland model and their rise to data centre superstar status in the past decade. Historically, Iceland’s industry was focused on one area—first cod and later aluminum and finance. The decline of these industries led to the diversification of their economy as a bitcoin mining hub with major data centres like Vodafone setting up shop. Iceland is taking advantage of their intermediary location between London and New York.

“We see a lot of similarities with what happened in Iceland and what could happen here,” says Goodwin. Newfoundland and Labrador’s dependence on cod and then on oil hasn’t been able to create a sustainable stable economy and those who are the Labrador bitcoin mines are digging deep for industry diversification.

“Blockchain is an emerging technology offering a whole lot of products that could potentially shape many other industries. We see that in the long term that it will change everything. We believe in not just the cryptocurrency aspect, but the technology in general.” says Darrigan. A variety of sectors—from healthcare to law—are starting to use blockchain technology and diversification of economy is important to Darrigan. “One of our biggest goals is to see Labrador West succeed. Less of the boom and bust cycle and more of a sustained future for everyone.”

No matter how you flip the bitcoin, data centres are here to stay. 

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