Canadian crypto mining company Hut 8 Mining Corp has signed an agreement with bankrupt crypto lender Celsius to build and deploy mining operations in Texas’ Cedarvale community. The interim agreement sees Hut 8 constructing a site with about 66,000 miners, powered by more than 215 megawatts (MW) of energy.
Hut 8 Texas Mining Facility
According to an official press release, the scope of services in the Hut 8 agreement includes financial modeling, engineering, logistics, procurement, construction management, and logistics. Speaking on the development, Hut 8 President Asher Genoot said the deal has a two-fold goal: growing the business’ strength and building equity with Celsius creditors.
Although the official announcement does not explain the decision to build the site in Texas, the state easily dominates the crypto mining space in the United States. A significant surge in the US mining sector happened shortly after China introduced a blanket ban on all crypto mining activity in 2021. Following the ban, Texas quickly dominated other states for several reasons.
Why Texas is the Crypto Mining Leader in the US
The regulatory environment in Texas is crypto-friendly, supporting the sector by enabling miners and other crypto service providers. The digital asset industry easily thrives in Texas, creating an environment that attracts companies and users alike. In addition, Texas has a deregulated energy market, varied regulations at the local level, and does not collect a state income tax. This encourages crypto adoption across several sectors, including health, finance, supply chain, and even gambling. Since the state has not fully legalized sports betting, punters are free to use offshore sites to place wagers. (Source: bestsportsbettingtexas.com/betting-apps/)
Another reason Texas is considered the crypto mining capital of the US is its abundant resources. Texas has a healthy supply of natural resources like wind and natural gas, with a large energy infrastructure that includes robust electricity distribution and transmission systems. The state also features large wind farms and significant natural gas deposits used for power generation. In addition to these abundant resources, a combination of efficient infrastructure and a competitive energy market has resulted in low energy costs. This is particularly crucial for the growth of crypto mining, which is very expensive because of the intense energy requirements.
Crypto Regulation in Texas
As the crypto sector expands, state authorities are paying more attention and designing regulations to preserve the industry and protect users. In April, the Texas House of Representatives passed HB1666, a bill that safeguards users from loss. According to the bill, crypto companies must always maintain sufficient reserves to cover all user funds. The bill was reportedly initiated in response to unfortunate episodes of crypto companies accused of misappropriating or commingling user funds. The House aims to ensure transparency between users and digital asset service providers (DASPs).
HB1666 also contains a few obligations. Each digital asset provider is prohibited from using customer funds to guarantee or secure transactions other than transactions for the specific customer depositing the funds. In addition, the company must maintain funds so the customer can fully withdraw their deposits at any time.
For increased transparency, HB1666 also requires each service provider to create a plan that allows customers to access their outstanding liabilities and assets held in reserve. In addition, an auditor should be able to view the same information at any time. Furthermore, crypto companies must file a report with the Texas Department of Banking (TDB) within 90 days from the end of a fiscal year. The report must contain the following information:
- An attestation of outstanding liabilities. This should be documented using zero-knowledge encryption or similar technology,
- Evidence of the customer’s assets held by the company, also documented as above,
- Details of the company’s plan for the customer to view assets in reserve and outstanding liabilities; and
- An auditor’s attestation that the information provided is true and accurate.
The Future of Crypto in Texas
Last year, the Texas Comptroller’s Office stated in a publication that there are at least 27 crypto-mining operations, according to the Texas Blockchain Council. As of April, 5 of the 6 largest crypto miners in the US are in Texas, with a combined total of 1212 MW. This is roughly the amount of power used by 242,200 Texas homes. Unfortunately, there are concerns that crypto mining will spike energy costs for the entire state.
Texas will likely remain the country’s mining leader for a while. This position should also extend to crypto usage and adoption across the state. However, while it may not happen quickly, rising electricity costs caused by increased mining activity may cause some discomfort for the average Texan, enough for the government to step in. Unfortunately, the government’s resolution to the problem may not favor the mining industry.
