23-Year-Old Texan Got $4 Million Mining Bitcoin From Flaring Natural Gas

You can think of bitcoin mining as a network security layer and a method by which new bitcoins are introduced into circulation.

A bitcoin mining platform runs a program on a computer to try to solve a puzzle before anyone else. Solving this puzzle is what completes the block, a process that creates new bitcoins and updates the digital ledger to keep track of all bitcoin transactions.

said Steve Barbour, founder of Upstream Data, a Canadian company that manufactures and supplies portable mining solutions for oil and gas facilities.

Step into the oil and gas sector, which often features locations in remote parts of Texas, away from major population centers.

Oftentimes, if a gas well is not already placed close to a pipeline, it will not be large enough to warrant the time and cost of building an entirely new line. And if the driller can’t immediately find a way to sell off its natural gas stock, it often disposes of it on site.

One way is to vent it, releasing methane directly into the air – a bad choice for the environment, as the effects of global warming have been shown to be much stronger than carbon dioxide. The most environmentally friendly option is to ignite it, which means actually igniting the gas.

Adam Ortolph, who heads US business development for Upstream Data, explained that flares are only 75 to 90% effective. “Even with a torch, some of the methane is vented without burning,” he said.

This is when on-site bitcoin mining can be particularly impactful.

When methane is turned on in an engine or generator, 100% of the methane is burned and none of it escapes or is released into the air, according to Ortolf.

“But no one is going to run it with a generator unless they can make money, because buying and maintaining generators costs money,” he said. “So unless it’s economically sustainable, producers won’t burn gas internally.”

Bitcoin makes it economically sustainable for oil and gas companies to burn methane, rather than burning it externally with a glow, making stranded gas a thing of the past.

But Ortolf took years to convince people that parking a trailer full of ASICs in an oil and gas field is a smart and financially sound idea.

“In 2018, I laughed out of the room when I talked about mining bitcoin on flared gas,” Ortolf said. “The concept of bringing hydrocarbons to market without a counterparty was laughable.”

Fast forward four years, and business at Upstream is booming. It now works with 140 bitcoin miners across North America.

“This is the best gift the oil and gas industry can get,” Ortolf said. They left a lot of hydrocarbons on the table, but now they are no longer geographically restricted to selling energy.

Meanwhile, bitcoin miners are getting what they want most: cheap electricity.

“The thing about oil and gas is that it is a very reliable distributed energy source, and because of that, a distributed point of sale and a reliable power draw like a bitcoin miner is a perfect fit,” Barbour said. “It’s kind of a match made in heaven, actually.”

The summer before his freshman year of college, Whitehead was mowing his parents’ lawn in the southeastern Texas town of Puna (population approximately 2,000) when he received a text message from Lohstroh, then a classmate and friend. In it, Lohstroh suggested buying a mobile bitcoin mining container from Upstream Data and connecting them to a gas well themselves.

“I immediately stopped the lawnmower, walked straight to my father, and said, ‘I must find burning gas now,'” Whitehead said.

It was a natural reaction to Whitehead, who comes from a long line of “wild cats,” a term used to describe those who engage in high-risk exploratory drilling.

“I call myself digital wild because now this is the next phase of onshore mining — bitcoin mining going to natural gas wells,” he said.

A week after Whitehead received the text, he and Wellestro hopped on a plane bound for Canada. Logistical acrobatics ensued, including having to drive a U-Haul truck for three hours to the Upstream facility in Calgary as neither was old enough to rent a car, but the couple did not stage a run.

Steve Barbour, chief engineer and founder of Upstream, told CNBC that he initially tried to warn Lohstroh against making a purchase, since the container was still field-testing, but Lohstroh was committed to getting an order.

“These two are real bitcoins…” Barbour said of the founders of Giga: “Both are what I think of as, as a Canadian, from Texas – an entrepreneur and a healthy one. Just great guys.”

Once the college classmates had the physical equipment they needed, they took advantage of the connection, which contained some glow gas.

From there, they pounded the sidewalk in search of a business crowd. At the NAPE 2020 summit, the founders of Giga said they distributed about a thousand brochures trying to sell people about the idea of ​​liquefaction of stuck gas.

“Not a lot of people knew about it,” Whitehead said. “Most people laughed at us. Most people said, ‘It’s the dumbest thing I’ve ever heard.’ We need to talk to the CEO of the company.

Then came the epidemic.

“Covid has hit the world and shut it down,” Whitehead told CNBC. Despite the nationwide shutdowns, Giga continued to operate 35 miners at the launch site, but business development almost stalled.

“There wasn’t any traction in space,” Lohstrohe said. “Bitcoin has been in a bear market. We have been running into meetings trying to get interest in bitcoin mining, and there has been absolutely no interest.”

The team was inventive by tracking down smaller customers in North and East Texas who were either “rule-breaking” or couldn’t get permits and were just wasting gas. As Whitehead describes it, it was often these small businesses that neglected regulatory compliance.

“We were able to come in and say, ‘Hey, you’re on fire, and you don’t have to be. You’re doing illegal things, and you have a chance here, because you’ve got a locked well. We can take all that gas,” Whitehead said.

But the real turning point for the company came in December 2020, when the bitcoin price approached the $20,000 threshold. That’s when some of the biggest players in the oil and gas industry started to take notice, and leaders from publicly traded companies started approaching them about getting into the business.

Giga also had companies fly in from abroad to follow up on their operations and see how the operation was going.

“We have people from companies in Saudi Arabia come to our locations in East Texas. And you know, they might not have even seen a pine tree before, and we bring them in for a barbecue and show them a bitcoin miner,” Whitehead said.

Giga told CNBC that its revenue exceeded $4 million in 2021, and it’s on track to earn more than $20 million by the end of 2022.

Whitehead says some of their mining sites have helped revitalize the local economy by creating jobs, such as field technicians and bitcoin pumps, who go out to check sites. In the small communities where they have set up a bitcoin miner, they are sometimes the biggest source of revenue.

“The area that was just a ghost town has found ways to take the stranded energy they were wasting and invest it, and that makes me excited, because that’s what helps the community in general,” Whitehead said.

Countless bitcoin miners are now saying that oil and gas will dominate the crypto-mining industry in the coming decades, which bodes well for Giga’s business model.

“It’s crazy outside,” Barbour said.

But Lohstroh told CNBC that the next stage is for energy producers themselves to become bitcoin miners.

“I think this is the next big transition, whether it’s energy producers, natural gas producers, upstream, middle, or downstream. I think that across all sectors within the industry, they will be affected by bitcoin mining, because bitcoin mining is instinctively linked to power, purpose of energy is energy generation. And so I think you’ll see a lot of the implications and how they are interconnected,” he said.