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Why did a Bonner bitcoin company decline a $416,000 state grant?

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A state grant aimed at helping a Bonner bitcoin mine become the largest in North America and add 65 jobs to the local economy has been declined after the company was apparently blindsided that its award of $416,000 would be publicized.

The opaquely named Project Spokane, located in the old Bonner sawmill, signaled its intent in August to decline a Big Sky Economic Development Trust Fund grant. The grant is administered through the county, and on Aug. 23, the Missoula Economic Partnership asked county commissioners to sign a letter declining the state's offer.

Trust Fund grants aren't distributed to companies until they prove they've created the jobs, and state and economic development officials say it's not uncommon for partial awards to be withheld when firms don't deliver. Declining such a large grant before a contract is even signed, however, is rare and, according to one Montana economic development official, might suggest a sudden change in the industry or the company's circumstance.

The sudden change, apparently, was the public announcement of the publicly funded grant, which the company suggests threatens its viability.

"Why do you want to hurt our business?" a company representative identifying himself only as Dan asked the Indy, questioning the paper's motive in reporting this story. "We need privacy for our business. We're in a hypercompetitive marketplace. ... The last thing I need is for people to know where we are."

That cat was out of the bag months ago, when MEP President James Grunke touted the company's grant application to MEP investors at a March 1 luncheon covered by the Missoulian. Grunke says he made the announcement without Project Spokane's permission and later apologized to the company. He says the company prefers the public have "zero knowledge" of its business and so decided not to accept public funding.

"They clearly don't want me talking about it, and I don't want to, either," he says.

Trust Fund application materials state that grant filings are subject to public disclosure laws, and the governor's office routinely publicizes the awards. Still, Kim Morisaki of the Flathead County Economic Development Authority says she reiterates that fact to companies she assists in Flathead County—before they apply.

"I don't want to go all the way through the application process ... and find out at the end that they don't want that," she says.

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Grunke says he's met personally with only one Project Spokane representative (whom he did not name), and says it's not MEP's responsibility to vet grant applicants, only to support companies it determines are eligible. Department of Commerce spokesperson Emilie Ritter Saunders says the department has never had direct communication with Project Spokane.

Project Spokane's application was accompanied by form letters of support by Mayor John Engen, Bank of Montana, First Security Bank and Northwestern Energy.

Why do bitcoin mines require secrecy? Dan, the Project Spokane representative, hung up at that question. Generally speaking, bitcoin mines are large server centers where computers verify cryptocurrency transactions. When a "miner" is successful, bitcoin is produced and delivered to its owner as a reward. A business known as "cloud mining" allows customers to buy shares in large datacenters.

Media tours of mines in China and other countries have withheld their precise locations, in some cases citing bitcoin's legal uncertainty in those places. The cloud mining company Bitcoin.com Pool claims to partner with the largest bitcoin mining operation in North America. A photo of the facility's interior appears to match photos of the wooden tressels and walls at the old Stimson mill, but a company representative declined to say where the facility is located, citing "security concerns."

David Yermack, a professor of finance at New York University and bitcoin expert, says mining companies have no special reason for secrecy beyond "standard security concerns." Mine locations are usually dictated by access to cheap electricity (in Project Spokane's case, power is supplied by the Séliš Ksanka Ql'ispé Dam, according to Northwestern Energy documents posted online). "Knowing the location of a bitcoin mine would not be particularly valuable information, except perhaps to potential competitors who might move to the area and try to exploit the same cheap sources of electricity," Yermack says.

Project Spokane principals include bitcoin investors Matt Carson and Sean Walsh, according to public business records on file with the Montana Secretary of State. Walsh also runs Redwood City Ventures, a venture capital firm in California that specializes in promoting the "bitcoin ecosystem."

Because bitcoin is highly commoditized, bitcoin farms essentially compete to mine it most efficiently. Swings in currency value, the industry's lack of regulation and a design that causes mining rewards to shrink over time all add to the pressures mining companies face. Walsh and Carson have been involved in a handful of mining operations that are now defunct. Walsh is named as managing member of Aquifer, LLC in that company's 2015 Chapter 11 bankruptcy filings, where it claimed liabilities up to $10 million.

The $416,000 awarded to Project Spokane will return to the Trust Fund for future grants, and the Department of Commerce says no other companies missed out on funding during the recent grant cycle because of Project Spokane's award.

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