When a single tweet from Elon Musk over bitcoin energy use sent prices plummeting in May, Andrew Webber didn’t flinch. His startup, Digital Power-Optimization, is focused on squeezing value out of one of crypto’s most nettlesome problems — electricity consumption. This was exactly the discussion he wanted people to be having.
Cryptocurrencies, basically thousands of lines of code, require electric power simply to exist. Mining them, which involves round-the-clock efforts to solve highly complex numerical problems, takes even more. Bitcoin is especially known to be an energy hog, and there are reasons. Complexity of its structure makes it relatively secure, and the difficulty of mining inhibits inflation. But all that takes A LOT of electricity.
The amount of computing power needed to successfully mine bitcoin also increases over time, as more miners get in on the action. The result is that it can be difficult for individuals to do it profitably, unless they have access to a cheap source of electricity. And that’s where Webber’s startup comes in.
Utilities often run into a problem of having too much electricity on hand, something that can necessitate a variety of innovative solutions. Webber is proposing that the companies direct that excess power into crypto mining, and that he will help them do it. Launched in February 2020, Digital Power-Optimization raised $440,000 in seed funding at a $4 million valuation earlier this year. The company announced in May that it had been tapped to deploy mining operations for a pilot project at a major power plant.
It’s a somewhat novel idea but not completely without precedent. Greenidge Generation, a natural gas power plant in New York’s Finger Lakes Region, starting bitcoin mining last year. The plant is now planning to direct those profits into building a solar farm.
Here is more from Webber about how this concept works and what he has been doing.
This interview has been condensed and edited for clarity.
Business of Business: So Andrew, can you tell us about digital power optimization and where it sits in the crypto mining and Power landscape?
AW: Sure, sure. So we actually think of ourselves as an energy services provider. We're not necessarily a bitcoin mining company or a blockchain company. What we do is use cryptocurrency mining as a tool to help power producers maximize the value of their energy and their generation assets. So instead of selling their power to the grid, or to a third party, often at you know, not very attractive prices, we show them how they can capture double or triple that cash flow stream, if they use crypto mining. They're vertically integrated with their power generation asset. So we'd like to think of ourselves as an ally to the energy space, showing them how to use this new technology that they don't really understand just yet.
So you help power generation companies mine crypto?
That's not the end goal. The end goal really is to help them optimize their power generation assets. So if you, if you think about, you know, the process of permitting an asset, financing it, designing it, building it and operating it, you've gone through all this trouble to do so. But there's a lot of times these are operating at, you know, 85% capacity, or 70% capacity. And you say, wait a minute, you spent all this time and money and effort to build this generation asset, whether it's wind or solar, or a hydro facility, why not make full maximum use of it. And so this strategy is a tool to optimize their energy production and optimize the balance of grids. It just so happens that the tool we're using is cryptocurrency mining.
Fascinating. Tell us about your background. It sounds like you are kind of in between two worlds.
I'm not really an energy expert per se. I started off my professional career at Goldman Sachs as a banker, I worked in banking for a number of years. I [also] worked at a number of long-short equity hedge funds around New York, and then Fortress Investment Group for a number of years. I got into the crypto space in 2019, as the CFO of a different startup that was looking to make use of flare gas at remote oil wells. Instead of just burning that gas, you can actually capture it and use that for a productive purpose, [such as] crypto mining.
Ultimately, I realized that the benefits of large scale at utility scale grid scale, power generation assets, they produce power much more cheaply. I think how this plays out over the next five or 10 years is that most crypto mining will eventually be done as a vertically integrated operation where the miner either owns a huge power generation asset, or the owners of large power generation assets decide, “hey, this makes a lot of sense, we should explore this.”
When you say “power generation asset,” you mean a power plant, right?
Anything that generates power. We don't work with any coal right now. There's a lot of people mining off of coal, there's a lot of people mining off of natural gas, hydro is a big one. And that's a very clean source. It's a very stable, steady source of crypto miners like it. Of course, you know, the push toward more renewable energy usage is going to be the key to this industry going forward. Crypto mining is not only a consumer of energy and user of energy, but it actually can be used as a tool to help power generators develop new wind and solar assets, they can actually build more projects more profitably.
Interesting. So what does it take to get power companies and power generation asset mining and stuff? What do you help them do?
It's a relatively long learning process. Frankly, for most of them, this is new. The utility sector has heavy regulations about what can be done and how they might do it, you know, independent power producers that are profit motivated and own their assets are a little easier than the regulated utilities. Ultimately, you know, we think of ourselves as sort of this advisor-slash-consultant at first. We're selling them on this idea, but also teaching them why and how it works. And I think that's an important part of our strategy.
In aligning ourselves with power producers, we don't think of ourselves as their counterparty. We're their partner. We want to make more money, we can show them how to do that. The trick is, you know, you buy computers, you source them...you have to set up this crypto mine, get your power connected. That requires a lot of electro-engineering work, to make sure the systems are designed properly. The cooling is a big component of this, making sure your data network is up and secure and consistent and running. So there's a lot of operational aspects. And it's actually a very industrial kind of setting.
It's a little different than a Google data center, or Microsoft, or Amazon Web Services data center. It’s just these big walls of computers that produce a lot of heat, and you basically get it out of the building as quickly as you can. So it's a little different than what most people expect.
But that's where DPO comes in. The power producers don't really want to have to do this, you know. They'll probably be doing it begrudgingly, frankly, at first because it's something new and it's something different. And you have to show them and explain why this is going to be important. But for those that are willing to put in that work, they're going to start to reap, you know, pretty hefty rewards for doing so.
What happened with Elon Musk's tweet about bitcoin and the flurry of concern? And then of course, we had the crypto crash. What has all that controversy done for you?
It certainly stirred up the conversation. And I think that's a good thing, right? I don't shy away from the talk about the energy intensity or the the carbon footprint, I think there's a way of looking at what's being done today, or what's being done over the last 10 years, and not be willing to turn the corner and say what will happen in the next 10 years or the next 20 years? And I think that's an important distinction to make and say, “Look, this industry is sort of finding its footing, I think there is a desire to do this the right way.”
We think that ultimately, this will be a real sustainable industry. Thinking about crypto mining, it's just a Phillips head screwdriver for the power and energy space. And I think they're starting now to realize, “Oh, wow, this gives us a lot of flexibility and how we manage our grids. This gives us a lot of flexibility in how we build new generation assets. This gives us a lot of flexibility in where we can deploy new generation assets.”
You need batteries, you need storage, you need other options, you know, green hydrogen production, crypto mining. All of these are sort of separate arrows in the quiver, so to speak, that can be used. They're not going to use it at every site. They're not going to use it in every jurisdiction or by every company. But ultimately, I think that these types of boxes will need to be at least checked as part of a development strategy.