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What are 'blockchain security services,' and why is the state pouring $416,000 into a warehouse in Bonner?

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On June 6, Gov. Steve Bullock announced $1.1 million in economic development grants to more than a dozen Montana businesses. Most companies that received grants had a straightforward pitch for the money. Lake County's Hot-Woods LLC treats wood for use in musical instruments and pool cues, among other products, and will receive $70,400 after creating 11 jobs. The Missoula Economic Partnership was awarded $27,000 to help a Colorado-based tire manufacturer, Green Diamond Tire, complete a business plan and feasibility study for relocating to Montana.

But the business that received the lion's share of the $1.1 million is less easy to understand. Project Spokane, LLC, which will receive $416,000 upon successfully creating 65 new jobs in Bonner, provides "blockchain security services" for the Bitcoin network, according to a press release from the governor's office. But multiple news sources that cover digital currency, including CoinDesk, Trustnodes and the Cointelegraph, use a different phrase to describe what it does—bitcoin mining, which is the process of creating additional units of the currency, i.e., bitcoins. And Montana may be the first state in the nation to help fund such an operation.

"There's been lots of data centers opening up all over the Northwest, and I think there's always just some inherent confusion [about] what they're doing," says James Grunke, president of the Missoula Economic Partnership, which administered the grant. The grant application says Project Spokane also provides "hosting services" for international clients.

The company's general manager declined to comment for this story.

Individual companies do not apply for the development grants. Rather, counties apply for the funds on behalf of businesses that are currently located in, or wish to relocate to, that area. The state benefits from the boost in employment and tax revenues. Grant monies tied to job creation are disbursed only after the jobs are established. Project Spokane's grant money will be used to pay for equipment, software and furnishings for an office space in Bonner, as well as employee wages and "lease rate reduction."

Bitcoin is a form of peer-to-peer digital currency, meaning that bitcoin transactions involve no middlemen, like banks or credit card companies. The "blockchain" is analogous to an accountant's ledger, a sequence of every transaction that occurs via the bitcoin network. Bitcoin mining is essentially the process of verifying transactions in the blockchain. Once a transaction is verified, the miner receives a reward in the form of bitcoin.

Project Spokane received a $416,000 state grant to bring 65 new jobs to its facility in Bonner. - ILLUSTRATION BY CHARLIE WYBIERALA
  • illustration by Charlie Wybierala
  • Project Spokane received a $416,000 state grant to bring 65 new jobs to its facility in Bonner.

A district judge in Manhattan declared bitcoin legitimate currency in 2016, and the Internal Revenue Service taxes bitcoin as property. DinBits, a news service covering digital currency, classified Montana as a "bitcoin friendly" state in an article earlier this year, meaning there are no legislative restrictions on the currency.

Project Spokane's grant application uses the term "Blockchain Security Services," but its description of that service sounds a lot like bitcoin mining. The grant application says the company "runs tens of thousands of computer servers in [its] datacenter to support the process of generating new blocks on the Bitcoin network."

According to the grant application, Project Spokane was drawn to Montana due to the state's relatively low cost of electricity. Mining is an energy-intensive process due to the computing power necessary to the activity. The company purchases electricity produced by the state's hydroelectric dams, according to Montana Department of Commerce Director Pam Haxby-Cote.

Project Spokane is headquartered in an office that occupies half of the 320,000-square-foot former Bonner sawmill. The company plans to double its current array of servers, and according to the grant application, the servers will generate sufficient heat that no additional heating of its office space will be required in winter months.

At press time, one bitcoin was worth $2,552.99, though the exchange rate can fluctuate dramatically.

The grant application includes letters of support from Jacob Pelczar, vice president of Bank of Montana, Rick Edwards, director of key accounts and economic development at Northwestern Energy, and Mayor John Engen. Haxby-Cote says the governor's office hopes the company will look for opportunities to open additional data centers in the state.

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