Crypto mining comes to Michigan. How does it work?
- Cryptocurrency relies on blockchain technology, which is essentially a digital logbook of transactions
- Crypto mines solve complex equations to add to the blockchain, earning crypto coins as reward
- It’s difficult to say how many crypto mines exist in Michigan, because they aren’t tracked by the state
At least a handful of crypto mines — essentially large computers that try to solve complex equations to earn crypto coins as a reward — have popped up in Michigan in recent years, sometimes to the chagrin of their neighbors.
It’s difficult to say how many mines exist in the state, because they’re not tracked by the state and because they can range from a small operation in a home office up to large-scale operations that take up hundreds of square feet of space. Bridge Michigan has identified at least four large-scale mines — three in the Upper Peninsula and one in southwest Michigan.
Some of the larger operations in the state have raised concerns about the noise they emit and the power and water they use to run their big computers.
Here’s a brief look at cryptocurrency and crypto mining:
What is crypto?
Cryptocurrency is digital-only currency created by solving complex equations and not backed by any government’s central bank. That means it has value only because its users give it value.
Users can obtain crypto coins by purchasing them on an open market similar to the stock market or by mining — using computers to solve the complex equations that underpin the currency.
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Bitcoin, the most popular cryptocurrency, currently trades at about $118,000 per coin, compared to about $9,000 five years ago.
Bitcoin went public in 2009, released by an anonymous programmer or group of programmers called Satoshi Nakamoto. While numerous other digital currencies have since sprung up, Bitcoin remains the most popular.
How does crypto work?
Crypto is underpinned by technology called blockchain, which IBM says is essentially a secure digital ledger that allows peer-to-peer transactions, eliminating the need for a bank.
In a blockchain, transaction information is grouped into blocks, which are then linked into chains (hence the name), and blockchains cannot be undone, improving the reliability and security of the ledger.
Blockchain is decentralized technology, with parts of the ledger stored across multiple computers, making it harder to tamper with, IBM says.
While blockchain began with Bitcoin, the underlying technology has been integrated into other arenas such as artificial intelligence, smart home technology, finance, and health care.
How does crypto mining work?
In the simplest terms, crypto mining is the process of using hardware and software to solve cryptographic equations and earn crypto coins as a reward, according to Investopedia.
With Bitcoin, the coin network’s algorithm generates a cryptographic number, and Bitcoin miners try to come up with a number equal to or less than that number. The first miner to solve the problem is allowed to enter a transaction on the blockchain and earns a Bitcoin as a reward.
That is how new Bitcoins enter circulation.
So far, Bitcoin has released nearly 20 million coins, and only 21 million can ever be released because of the way the code is set up, according to Nerd Wallet. However, the last Bitcoin likely won’t be mined until 2140.
What are the concerns?
The Bitcoin Energy Consumption Index run by Digiconomist says that, globally, Bitcoin mines use as much energy as the entire nation of Poland and as much water as the entire nation of Switzerland. Environmentalists have raised concerns that the needs of the mines — along with increasingly prolific AI data centers — could prolong the planet’s reliance on fossil fuels and worsen climate change.
Because it is largely unregulated and transactions happen anonymously, crypto initially raised concerns it could be used to fund criminal enterprises or terrorist networks.
But it has become increasingly mainstream.
Is crypto real money?
Increasingly, yes.
Stores such as Starbucks and The Home Depot now accept crypto as payment. Michigan’s state pension system and other government entities have started investing in crypto markets.
President Donald Trump sells his own crypto coin and has established a federal Bitcoin reserve.
Congress should vote this week on several crypto-related bills, including one that would require a type of coin called “stablecoin” to be backed by liquid assets such as the US dollar.
In Michigan, a bipartisan group of state House lawmakers has put forth a package of bills that backers hope will ramp up the use of and creation of cryptocurrency in the state.
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