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About the author. Ed Hertz is a professor of economics at the University of Houston.
Why is the Texas government supporting crypto miners on the state's power grid? It's a tough ask, but as we've found, miners are benefiting greatly from grid instability, and regional leaders say these measures should help. There is no known political support for the government that relies on cryptocurrencies that could inadvertently lead to an increase in criminal activity.
In the year We're reminded of the February 2021 shutdown of the Texas grid, managed by the Electric Reliability Council of Texas, or ERCOT. The shutdowns were caused by the failure of the Legislature and former Governor Rick Perry to act after the February 2011 shutdown, which was intended to prevent generators from making money on the Aircote market. In eight of the 10 years through 2021, generator revenue has not covered costs. As a result, the Texas economy has grown from $1.25 trillion in 2010 to $2 trillion in 2021, with growth in manufacturing capacity unable to keep pace with demand.
Enter the code. Cryptocurrencies are digital assets that proponents like to say offer their users more security than government-issued currencies. Cryptocurrency transactions are mostly anonymous and difficult for governments to track. Most of these deals are favorable financing deals from investors and other enthusiasts. But because of their anonymity, cryptocurrency transactions can be used to avoid state and local taxes paid by any honest person in Texas. As such, cryptocurrencies have become a popular tool for drug traffickers, human traffickers, and sex offenders to launder money and hide their activities. Cryptocurrencies are a tool of choice for the cannabis industry and are legal in some states but not under federal law. The hemp industry converts the money they receive into currency and into dollars to pay bills.
Bitcoin is just the price the next crazy person will pay. The anonymity given to the owners means that this or that owner can simply report to their desk to increase the price of the cryptocurrency or lower the price of the cryptocurrency if the situation requires it. It happens in product markets. Traders at one of the world's biggest banks have been convicted of rigging the gold market and have come under intense scrutiny. On the other hand, Texas has a long history of ethereal trade in vegetable oil, land, oil and supplies.
Crypto companies are flocking to Texas in search of cheap power. They need mining for cryptocurrency, a process in which miners are rewarded with coins for solving increasingly complex equations. Since the computer's only input is electricity, mining requires more and more electricity. Cryptocurrency mining was concentrated in China until the Chinese government banned the practice.
In Texas, miners sign contracts to get electricity at low prices. It has been widely reported that some of their contracts allow them to sell electricity to ERCOT on hot days when electricity demand from other customers increases or when generators cannot keep up. During the February 2021 snow season, wholesale prices in the ERCOT market increased to $9 per kilowatt-hour and increased to a new $5 per kilowatt-hour in 2022. Miners benefited from these conditions. According to Bloomberg, one cryptocurrency miner earned $9.5 million this summer after a blackout and selling electricity. The windfall that crypto miners receive comes at the expense of other ERCOT consumers, who have to turn the thermostats to 78 degrees or higher. It is a massive and inappropriate transfer of wealth.
Why do cryptocurrency miners find transactions on all ERCOT clients? Most ERCOT customers have a fixed-rate electric plan that costs less than $5 per kWh. Most ERCOT customers have remote smart meters. Regular ERCOT users may have equal opportunity to buy low and sell high. Instead, Texas officials said miners could disrupt the system to reduce unpaid usage when the grid is congested.
Cryptocurrency miners have pending issues with ERCOT, which requires 33 gigawatts of electricity. Ercoti's peak electricity demand reached 80 gigawatts this summer. Crypto miners will raise electricity prices for 26 million Texans and disrupt the grid as they increase electricity. But, and this is where the beauty of their plan lies, cryptocurrency miners save the grid by selling electricity at a higher price. Texas consumers will pay again. As the program develops, cryptocurrency miners will become tappers on the ERCOT network.
But nepotism is nothing new in the Texas energy market. In the year US commodity futures freeze after 2021 ICE told Texas lawmakers what to do at ERCOT legislative hearings. The utility commission said the governor's private appointee "tipped the balance" in pursuit of profiteering. After the 2021 winter snow, Texas leaders will pay billions in higher electric and natural gas bills from relief money. These same executives are now asking ERCOT customers to support community miners by supporting the drug trade. Human trafficking, sex crimes, money laundering, and tax evasion at the state, local, and federal levels. The Texas Rangers don't need much work.
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