The dry diggings required sinking a shaft into gold-bearing ground (usually a hillside) with a winch installed at the top of the shaft. Once the gold-bearing layers were reached, the miners dug a horizontal tunnel. Two men were able to work this mine with one digging in the tunnel and the other working the winch. They interrupted their work to wash the dirt. Since water proved crucial to the process of washing gold, the miners increasingly started to form water companies from 1851 onwards to secure water supply in the dry diggings.
Modeled after 18th-century Massachussetts water companies that were organized to supply the communities with water to fight fire, these Californian water companies bore co-operative features with their financers and workers being identical. It was their task to build a trench or aqueduct to the diggings in order to supply the long toms with water.
Such companies proved difficult to organize, and their costs were extremely high, sometimes up to 275,000 dollars per water supply for the diggings. Thus, the initial co-operative model increasingly gave way to separated joint-stock companies formed by entrepreneurs. These companies often acquired a monopolistic position in the diggings. Controlling the water supply, they could dictate prices for the precious liquid in the dry California climate where rain was scarce. Not surprisingly, the miners were outraged by the water companies´ price policies and increasingly went on "strike" or boycotted the source in an effort to reduce the price of water, particularly from 1855 onwards.
The water companies´ transition from co-operative to private capitalistic forms of labor organization was part of the power shift from the individual small operator to companies and corporations with large labor forces, leading to conflicting interests between the capital owners and the miners, thus contributing to a formation of class consciousness and antagonisms.