“We encourage you to engage further with bitcoin miners to better understand the matter generally and the consequences of your legislation.”
This letter was originally published on bitcoiner.ghost.io.
Dear Senator Kolkhorst,
As native Texans, we are writing to express concern regarding Texas Senate Bill (SB) 1751, which you co-sponsored and which recently passed a Business & Commerce Committee vote on April 5, 2023. This open letter follows a private appeal submitted via your office in March. We write as concerned Texas citizens who are independent and do not represent any company or lobby.
From the outside looking in, you seem to be a proud Texan who fights for the rights of all Texans, promoting liberty and freedom consistent with Texan values. SB 1751 is a notable departure, at least in critical aspects, from your past track record. It is misinformed, discriminatory, anti-competitive, harmful to the interests of grid stability, bad for consumers and a strategic setback for Texas.
For context, the bill concerns “virtual currency” mining and demand response. It seeks to limit the ability of bitcoin miners to participate in compensatory ERCOT programs, which incentivize load reduction, to 10% across all bitcoin miners in total. Prior to sponsoring SB 1751, it is unclear whether you engaged in discussions with bitcoin miners to better understand the matter or expressed any opinions on bitcoin or bitcoin mining at all. It is also unclear whether special interests lobbied for this bill, given you do not appear to have previously taken any positions on bitcoin, but on the merits alone, SB 1751 is problematic.
The bill concerns “virtual currency mining as demand response.” Really at issue is bitcoin, not “virtual currency” broadly. There are no miners of any currency other than bitcoin that could be of note participating in demand response programs or promoting grid reliability. Bitcoin is also definitionally not comparable to any other currency, and it is not virtual. Bitcoin is not “crypto”. Bitcoin is bitcoin, and if bitcoin is at the heart of your bill, a better understanding before legislating would be beneficial.
Bitcoin is a form of money with a fixed supply, which is global and permissionless. There will only ever be 21 million bitcoin. That is the basis of its value to the world. As was apparent from a recent tweet, you seem to recognize that inflation is a problem. Inflation is not a political phenomenon. Money is created by the Federal Reserve (“Fed”). The Fed has increased the money supply by $8 trillion, or 8x since the Great Financial Crisis, which causes inflation and destroys savings. Bitcoin is designed to fix the problem of money printing, but nothing of value comes without cost. Bitcoin’s 21 million fixed supply is secured by energy, specifically power. In short, energy innovation has always been strategic to Texas. Energy is strategic to bitcoin and bitcoin will become increasingly strategic to Texas as a result. However, it is not just about power generation and demand. It is about the problems of printing money, which undermine the interests of all Texans and the state of Texas.
Texas is a leader in energy and all Texans need a form of money that the government cannot print out of thin air and at no cost. Texas power is securing the bitcoin network, which not only promotes grid stability and creates jobs and economic development, but it also secures the interests of all Texans, even those who do not yet use bitcoin as a superior form of money. We would be happy to hear your concerns and discuss this in more detail if it would be valuable.
SB 1751 singles out bitcoin miners from all other industries. Setting everything else aside, this is discriminatory and creates an unlevel playing field. While other sources of demand have been identified as critical infrastructure, no other industry, including battery operators, have been restricted. Why bitcoin mining?
Bitcoin miners compete in various ancillary services which ERCOT uses to compensate flexible loads to ensure grid stability. The entrant of bitcoin miners has made the bidding process more competitive, reducing prices. Restricting the ability of bitcoin miners to participate is anti-competitive and will result in marginally less participation in ancillary services by bitcoin miners which will marginally increase cost for ERCOT to achieve its reliability mandate.
SB 1751 disincentivizes bitcoin miners from participating in ancillary services, which promote grid stability. More participation in ancillary services not only reduces costs but also allows for ERCOT to have more resources at its disposal to achieve grid stability. As Texas power demand grows, more flexible resources will be needed to achieve grid stability. Why disincentivize large flexible loads, which are most often more efficient and lower cost than using peaker plants?
Access to ancillary services creates marginal economic incentives for miners to come to Texas. Over time, more miners in Texas will lead to more power generation, more demand response and more participation in ancillary services. All three, individually and in aggregate, promote cheaper and more stable power prices for all Texas consumers.
Due to the fundamentals of energy development and as socialist-leaning states like New York have restricted mining, there has been a significant shift of bitcoin mining to Texas. From a mining perspective, Texas is known as the “center of hash.” Austin is also an emerging hub for bitcoin development. SB 1751 sends loud signals that Texas is not the free, deregulated market everyone believes it to be and that the state of Texas is antagonistic to bitcoin broadly.
Bitcoin mining incentivizes cheap power and its unique ability to respond at scale to all other sources of power demand helps achieve grid stability far more effectively and efficiently than any other single resource. Willingness by miners to shut down and NOT mine bitcoin in the interest of grid stability is a benefit to ERCOT and all Texans, which should not be economically disincentivized or disadvantaged relative to other industries. Mining projects are also highly capital intensive. Rash legislative action can have immediate impacts in dissuading miners to pursue large, long-term capital projects in Texas.
Even if you might not be concerned with its broader significance, this legislation will harm Texas strategic interests, beyond just ancillary services.
Before moving forward with harmful legislation, we encourage you to engage further with bitcoin miners to better understand the matter generally and the consequences of your legislation specifically. Pausing work on SB 1751 is the only sensible and reasonable course. Please do not shoot and aim later. Additionally, we would ask that you engage with the Texas bitcoin community to understand the importance of bitcoin and why it is strategic to Texas and all Texans.
Bitcoin needs no favors nor competitive advantages. It just should not be subject to regulatory discrimination. The rights of Texan bitcoin holders, including miners, should be protected. House Concurrent Resolution (HCR) 89 sponsored by Cody Harris, Texas House of Representatives, District 8 is a great example. It aims to protect the rights of Texan interests in bitcoin, rather than advantaging bitcoin in any way. That is all we ask of you and your colleagues.
It is clear you are a proud Texan and your values align with the ethos of bitcoin. Most importantly, we simply wish you to engage with the citizenry prior to legislating. But rest assured, regardless of how you proceed, everything is good for bitcoin, which is a theory formally known in Keynesian economics as the Nakamoto Paradox. If you would like to discuss SB 1751 or bitcoin more generally, we are in Austin or would come to Brenham. Godspeed.
“Govern wisely and as little as possible.”
Parker A. Lewis
Will C. Cole
This is a guest post by Parker A. Lewis and Will C. Cole. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
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