US State of Montana Invests Directly in a Bitcoin Mining Operation

Following bitcoin’s price rise to an all-time high of $3,000, the rural State of Montana Governor Steve Bullock announced a grant of $416,000 to assist Project Spokane to expand. The governor says:

“The funds will be used for purchase of equipment, machinery, furniture and software and for wage reimbursement. Project Spokane, LLC is a data center that provides blockchain security services for the bitcoin network.”

The investment accounts for nearly half of a $1.1 million fund that was made available to help businesses create jobs, train employees and expand further.

James Grunke, the president and CEO of the Missoula Economic Partnership, told a local paper that Project Spokane is on their way to “becoming North America’s largest data center. They are going to have 55,000 servers, and right now they only have 12,000. It’s pretty exciting,” he said.

This is the first known instance of a direct government investment in a bitcoin mining operation which may signify a change in attitude while also illustrating the scale bitcoin has now reached.

The currency has tripled this year from around $1,000 at the beginning of 2017 to a high of $3,000, currently trading at around $2,700 while its market cap nears $50 billion.

With the price increase, the mining reward has also increased. The combined mining network currently received around $7 million a day, with nearly half of that coming from transaction fees.

That translates to $210 million a month or $2.5 billion a year. However, mining is a very competitive businesses. Hardware can quickly become obsolete as new hardware is added, while energy costs can be considerable.

It therefore remains unclear how this project aims to compete with far cheaper energy in China where the lower manufacturing costs allows them to produce cheaper hardware too.

But Montana is a mountainous and rural state. Moreover, some find it worrying that 80% of bitcoin mining is concentrated in China and the surrounding areas.

It’s not clear whether one of them is the State of Montana itself, but this development is interesting because miners can have significant influence over the rules of bitcoin’s protocol.

States, therefore, may become directly involved and mine themselves or support mining operations within their own jurisdiction so as to potentially have a say over the direction of bitcoin’s protocol.