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A MARTÍNEZ, HOST:

Cryptocurrencies such as bitcoin are generated or mined by companies using racks and racks of custom-purposed computers. The world of digital currency is struggling these days in the wake of the FTX scandal. Crypto miners are facing problems of their own. Vaughn Golden from member station WSKG explains.

VAUGHN GOLDEN, BYLINE: A few years ago, cryptocurrency mining operations were a golden goose. Firms flocked to places like Massena, N.Y., to mine bitcoin, promising to bring with them jobs and economic development. Tina Barksdale, a spokesperson for one such facility, gave a tour to North Country Public Radio in 2018.

TINA BARKSDALE: From being just Massena, N.Y., to being a cryptocurrency sort of Silicon Valley - but of course it all depends on the power.

GOLDEN: The computers used to generate bitcoin often use a ton of energy. While Massena gets a good portion of its energy from relatively cheap hydropower, other miners aren't so lucky. Chris Brendler is a senior analyst at D.A. Davidson.

CHRIS BRENDLER: Really, the only cost they have that's purely raw material cost is electricity.

GOLDEN: He says all crypto miners are different in how they pay for energy. Some have contracts with utilities. Others generate their own energy. But for those exposed to rising natural gas prices, profit margins are being squeezed.

BRENDLER: This is a very simple model. If you're not covering electricity costs, you shut down the mining operation.

GOLDEN: And if miners aren't mining and don't have another source of revenue, they can go bankrupt. Some have. This is all coupled by other factors, too. There's still a lot of miners competing to generate these cryptocurrencies. At the same time, prices are relatively low, meaning the same costs with a lower reward. One other challenge that's arisen is public opposition to potential environmental impacts of mining. New York state, for example, just enacted a two-year ban on refiring fossil-fuel-burning plants for mining out of concern it will increase the state's carbon emissions. Brendler says energy costs and competition are bigger concerns than new environmental regulation, though.

BRENDLER: It's not going away as an issue. I don't see it as a high risk to, you know, actual operations in the near term, but it's not zero.

GOLDEN: Kyle Schneps is public policy director at Foundry USA, which coordinates a network of miners. His company has been around for a few years, and he says they prepared for this so-called crypto winter.

KYLE SCHNEPS: Companies that have been around for a while are used to the cyclical nature of bitcoin pricing and crypto pricing. And so most people are - instead of getting overleveraged during good times, they are planning for the down cycle during those times.

GOLDEN: Now Foundry is investing in mining. The downturn is making it cheaper to invest now in the hopes things rebound. Other firms are too. Goldman Sachs recently said it plans to invest millions in low-cost crypto assets. Brendler, the analyst, says he sees this moment as a sort of cleansing of weaker mining firms.

BRENDLER: We've seen companies struggle, fail, go out of business, get shut down. That's still continuing.

GOLDEN: And he says while energy prices remain high and crypto winter rages on, less stable mining firms may continue to shut down.

For NPR News, I'm Vaughn Golden in Binghamton, N.Y.

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