Core Scientific Relaunches Denton Crypto Mine as an AI Supercomputer
Core Scientific went bankrupt after selling the city of Denton, Texas on a local crypto mine that doubled its energy footprint. Now, emerging from bankruptcy, the company has convinced the city to support its even larger AI supercomputer.
By Sarah Emerson, Forbes Staff
Three years ago, one of the world’s largest bitcoin miners offered a lifeline to the town of Denton, Texas, a community burdened with tens of millions of dollars in debt. The miner, Core Scientific, wanted to build a data center in the city. In exchange for a massive power contract that would double Denton’s energy footprint, the company would provide much needed revenue in the form of taxes and fees. Denton accepted. But within months of powering on, Core Scientific filed for bankruptcy after being saddled with its own outstanding debt.
Now, on the heels of the artificial intelligence boom, Core Scientific has reinvented itself as a cloud computing company for AI startups. Last month, the former crypto miner announced that its Denton facility will transform into what it claims will be one of the largest AI supercomputers in North America. It received a green light from Denton’s local government to increase its previously 297-megawatt (MW) power agreement by another 100 MWs, enough to run nearly 400,000 homes — a capacity larger than Elon Musk’s “Colossus” supercomputer in Memphis, Tennessee.
Many industrial bitcoin miners have pivoted their operations to AI in hopes of boosting revenue streams after the volatile 2022 market downturn known as “crypto winter.” Companies like Core Scientific, Hut 8, Bitdeer and Terawulf have all retrofitted data centers to accommodate racks of high-end chips needed to train AI models. In June, Core Scientific announced a $3.5 billion contract with AI hyperscaler CoreWeave to provide the data center space needed to host a massive array of Nvidia H100 GPUs, for which it has allocated 200 MWs worth of power. News of the partnership sparked a $4 billion increase in the market cap of 14 bitcoin miners with similar computing resources, according to JP Morgan.
In Denton, Core Scientific spent nearly three years developing datacenters to mine crypto before deciding to make the switch. The transition is a relatively simple one — Core Scientific has retired its mining machines, and will be updating existing buildings to support rows of GPU servers.
The Austin-based company was founded in 2017 by Aber Whitcomb, who previously cofounded Myspace, along with Darin Feinstein and CEO Mike Levitt. Over the following years, it opened a number of facilities across the southern U.S. In 2023, after filing for bankruptcy, it received a $500 million loan from creditors including BlackRock and Apollo Global Manager. Last month, the miner reported $95 million in third quarter revenue and $415 million in revenue for the year. It currently operates nine data centers in Alabama, Georgia, Kentucky, North Carolina, North Dakota and Texas.
Core Scientific did not initially disclose its identity to the public, and one city council member who voted against the proposal called it a “deal with the devil”
Core Scientific was drawn to Denton because of its abundance of electricity and cheap real estate. At the time, the city’s local power utility, Denton Municipal Electric (DME), had recently incurred $210 million in electricity fees during a historic winter storm in 2021 that caused energy costs to skyrocket. When Core Scientific proposed building its data center in town — a project that would supposedly deliver the utility up to $8 million a year in revenue — DME was $140 million in debt.
But residents and some Denton city officials were skeptical of the project because of its secretive nature and large energy footprint. Core Scientific did not initially disclose its identity to the public, and one city council member who voted against the proposal called it a “deal with the devil,” BuzzFeed News previously reported. Another council member said, “We don’t need to allow an unidentified company to use our city’s infrastructure to increase greenhouse gas emissions for the sole purpose of turning a profit.” But they ultimately supported the project after DME convinced them that Core Scientific would shoulder 100% of the risk.
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Denton’s partnership with Core Scientific was announced in October 2021 and its facility became operational four months later. In December 2022, the company filed for Chapter 11 bankruptcy after experiencing $434 million in losses the preceding quarter, citing liquidity issues caused by a number of factors including energy costs and bitcoin prices that fell by 60% that year. It opted not to liquidate and continue mining crypto, but halted the completion of its Denton facility, which left two large buildings unfinished. In January of this year, Core Scientific restructured $400 million in debt and received court approval to exit bankruptcy. A few months later, it had signed an AI computing contract with CoreWeave.
CoreWeave has ridden the AI wave to a $1.5 billion valuation and reported $250 million in revenue last year. As one of the primary distributors of Nvidia chips, it’s found a niche renting on-demand compute space to AI startups. Last year, it struck a deal with Microsoft to provide potentially billions of dollars worth of GPUs to support Microsoft’s partnership with OpenAI.
Core Scientific’s bankruptcy meant that Denton “received less than originally anticipated” because the project was never fully built out, Stuart Birdseye, spokesperson for Denton’s power utility DME, told Forbes. DME earned $2.3 million in revenue from the data center last year, according to the North Texas Daily, though Birdseye told Forbes that income from Core Scientific “was a net positive for the city in total.”
Now, it stands to bring in much more. In addition to an increased power capacity, Core Scientific will lease more than 40 new acres of land near its facility for an AI computing campus. The company’s proposed $6.1 billion property investment is expected to result in $194 million in property tax revenue for the city over the first 10 years after the build-out is complete some time in 2027, the city said.
Neither DME nor Core Scientific elaborated on how that money will be distributed over time. City manager Sara Hensley said in a statement that the site will “serve as a model for high-performing computing innovation” as Denton courts other high-tech investments.
AI data centers, which typically run continuously, have yet to show the same willingness to halt processing voluntarily if local electricity demands surge
In a recent announcement, Denton’s government also claimed the project will create “an estimated 300 full-time, on-site positions, and over 200 independent jobs from entities that would support the operation.” Core Scientific spokesperson Bristol Jones told Forbes that “actual hiring plans have not been finalized but we believe most of the jobs created will be filled locally.”
Similar to the development of its crypto mining operation, Core Scientific will assume the cost of updating transmission infrastructure, such as two new substations that will be needed to accommodate its larger power load. The company would only disclose CoreWeave as a customer for the Denton site; the startup counts among its customers Microsoft and Nvidia.
Unlike Core Scientific’s mining center, however, its supercomputer will not be immediately participating in a program known as “demand response” that requires large power customers to limit their operations when energy demands are spiking. Many of the bitcoin giants that flocked to Texas during the crypto boom touted their ability to shut down at a moment’s notice, since it was easy to halt mining as needed. Some even profited from an arrangement with ERCOT, the state’s power grid operator, which allowed them to sell back pre-purchased electricity on the energy marketplace. Last year, the miner Riot Platforms reportedly earned $31 million from ERCOT this way.
AI data centers, which typically run continuously, have yet to show the same willingness to halt processing voluntarily if local electricity demands surge, such as during a storm. Previously, Core Scientific was also enrolled in ERCOT’s demand response program, but told Forbes it will “reassess our ability to participate” after the computing equipment is installed. Birdseye said DME still has the ability to interrupt the facility’s power supply when the grid is stressed, but did not elaborate on how those instances will be handled with Core Scientific. In Memphis, where Elon Musk has said his xAI supercomputer will host 1 million GPUs, the state’s power utility has required the company to enroll in its own demand response program.
Moving forward, the city insists that Core Scientific’s expansion will not derail its environmental goals. Since 2020, Denton has offset 100% of its energy footprint mostly through local renewable energy contracts, and claims to be the first Texas city to do so. BuzzFeed News had reported that Core Scientific’s crypto mine involved the buying of “renewable energy credits” or RECs, which are a controversial accounting mechanism allowing companies to offset their emissions on paper. “This will continue to be the case as the city’s energy needs increase, which includes this development,” said Birdseye, who added that staff are “currently analyzing these future needs and is developing a strategy to continue with this process.”
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2024-12-09 11:30:00
