What is Hut 8? The Publicly-Traded Bitcoin Miner
McAfee said something I agree with for once, and that was the price of Ethereum is shocking. Less than $700 for a coin that was the beginning of all functional blockchain commerce is just telling me people aren’t actually doing much research at this point. Of course, there are third generation platforms that are highly scalable and transaction fee free. But there is value in being the incumbent.
There are solidity coding camps popping up all around the world, and that just isn’t the case with the meet-up group culture that we see with other coins. The coding community choices cannot be taken lightly. There are so few people who can do it at a high level, and I choose to watch their movements rather than charts. If the Github community is not strong, the pace of innovation and updates will be severely limited to just the project team themselves.
Vitalik Biturin just came up with a scaling solution called Plasma Cash, which is designed to limit the amount of data users have to track within the blockchain, while also providing a sub-layer of smart contracts that enable interaction first in “Plasma” to act as a barrier against hacking the truly valuable coins behind them. He noted after unveiling his new project: “Hopefully when the next multi-billion dollar exchange written by a totally incompetent developer gets hacked, no one will lose any money.”
The Ethereum Foundation just released a wave of funding to DAPP and smart contract start-ups on the network, and is continuing to encourage people to begin working in their environment. At $680, there is still a lot of financial leverage that Ethereum will continue to use over time to entice the best and brightest to work on its chain. Overall, the positives of Ethereum greatly outweigh its shortcomings. The wealthiest projects mean so much more to me than the best tech.
Investing more fiat into cryptocurrency (except for Ethereum, perhaps) is risky right now. The SEC has a meeting on March 14th that I think will cover a lot more on regulation and ICOs. I don’t think this meeting will be as rosy as the last one. While I am waiting to see what this all means for the coins that I own, I turned my attention back to the dark side: the stock market.
While most blockchain start-ups choose to ICO, there are still some companies that have made the traditional model work for them. Hut 8 is a Canadian based cryptocurrency mining company that was just listed on TSX Venture Exchange, and was funded by former hedge fund manager Mike Novogratz. Novogratz established a Canadian merchant bank for cryptocurrency called Galaxy Digital Assets.
Just like medical marijuana, blockchain companies available to the public have made investors go wild. There are iced tea companies changing their names just to take part in it. There is usually a big pump, and then a big dump. Hut 8 dumped, and there has yet to be a pump. I wanted to take a look and see if this was a worthy investment from an equity perspective.
Hut 8 is a project that is being actively managed, co-owned and co-opted with a company called Bitfury. Mind you, Hut 8 is a publicly traded company in Canada, and there is no Wikipedia page. The only information that I could find aggregated was a Wikipedia page in Russian on Bitfury that I google translated poorly to English. So, I guess we start there?
Bitfury was founded in 2011 by Valery Vavilov, a Latvian born developer living in Kiev. Bitfury is a commercial bitcoin mining operation that has facilities and offices across the world. Vavilov was one of the first to begin using computer processors to mine bitcoin at a rapid rate.
Bitfury developed its own ASIC chips for the process of bitcoin mining that has since been updated and developed into one of the fastest and most energy efficient mining tools on the market. The technology was so new during its launch that Vavilov was unlucky with investors believing in the value of mining. He often paid out of his mined bitcoins to fund his operations. He is believed to have mined 800,000 over his career.
With only $110,000 in funding, Bitfury flourished in 2013 when the price of bitcoin went from $30 to $1,200. Money was no longer an issue. In 2014, they built the first industrially designed bitcoin mining facilities in the following countries:
Finland: Their facility is in an abandoned steel plant in the southern island of Chimita. It was eventually shut down in 2015 when energy prices began making it unprofitable.
Iceland: They have three separate buildings on the southern tip of Iceland known for its active volcanoes. An Icelandic IT firm called Avandia developed the buildings, and houses the Bitfury ASIC chip processors that are producing bitcoins at an energy consumption rate that is still one of the lowest around.
Georgia: The facility in Gori was the first mining operation in which Vavilov received funding. The funding came from a Georgian co-investment fund. Headed by a Forbes 30 under 30 recipient, the fund was responsible for investing for Georgian industrial development. The companies largest data center is in a “Special Technology Zone” near the capital. What’s even more interesting is Bitfury is helping Georgia putting its land ownership information on the blockchain for easier access and functionality. Government work is always a good thing.
Worldwide: As of 2017, the data centers in all three countries have been ongoing, and accounting for 11% of all bitcoin network activity. The company’s next innovation is where Hut 8 eventually comes into the picture. They developed a bitcoin mining operation inside a typical shipping container that you would see in a dockyard. Designed for its mobility, the data center can be moved/shipped/operated with ease. The hardware and software within the container are almost all products developed by Bitfury , and with a price tag of over $1,000,000. Once connected to power, these mobile operations will be immediately connected to Bitfury’s mining pool and begin making money. This is truly a one of a kind investment.
Having helped build the now ever-powerful Taiwan semi-conductor company in 1987, Bill Tai has used his profits wisely and resides in Menlo Park. He has invested in almost all of Bitfury’s funding rounds, and clearly has an eye for talent within his other portfolio of investments. There was an article written in 2013 outlining that out of the companies he has invested in: 20 were acquired, 19 went public in their respective countries and only 5-6 failed. This is a good track record. One of his most notable investments is Zoom, which is a video chat software that is gaining traction among crypto meet-up groups.
Lars co-founded Where2 Technologies in 2003, a software company that was bought and re-branded as Google Maps. It was bought for an unknown price, and Lars was retained by Google for its Australia office. He joined Facebook’s GPS systems group in 2010, where he left in 2015 to work on a music start-up with a friend. Since then, he has been an active investor within Silicon Valley and global circles.
Georgian Co-Investment Company
The Georgian Co-Investment Company is $6 billion private equity firm that is focused on investing in Georgia’s infrastructure. It has been an investor in every series of funding since May 2014.
iTech is a Russian-based private equity fund founded by two serial entrepreneurs. Their investment in the third round of funding in Bitfury in 2015 was the first Russian private equity investment into a cryptocurrency company.
Hut 8 is a bitcoin blockchain mining and education company. A consortium of Bitfury and private equity investors bought Oriana Resources, a capital markets firm listed on the Canadian stock exchange in a reverse takeover. A reverse takeover is often described as a shell that another company can move into. Hut 8 moved right in, and has begun trading after a recent series of 8 figure funding.
The purpose of Hut 8 is to own and operate data centers that its partner, Bitfury, will be providing to them. In total, the partnership calls for Hut 8 to buy and control roughly 55 mining centers. The size of the mining centers is unknown, but the processing power is certainly substantial.
Hut 8 “reserves the right” to buy more mining centers from Bitfury in the future. The relationship seems to be very close, as Hut 8 will be exclusively using Bitfury’s equipment holistically. The idea is that the tight partnership with a mining producer of Bitfury’s caliber would be necessary for putting Canada’s blockchain prowess on the map. The overall goal is for bitcoin’s mining network to be dominated by volume from Canada through it’s various mining centers. This means jobs.
Hut 8 is also planning on investing in the next generation with a business plan that includes education. They will be installing “Centers of Excellence” throughout Canada to teach the necessary skills to become a blockchain technologist, and incubate the ideas that come from them.
A serial entrepreneur, Sean has many different blockchain businesses. He is founding partner of BlockOne Capital, an investment firm that is launching a bitcoin trust within Canada that could give regular investors access to the coin through a traditional channel. He was formerly a consultant at Deloitte.
The CFO seems to be an accountant for many people, and may not be full time on the project. He has plenty of experience in accounting.
That is it in terms of employment. The rest of those listed on the website as advisers are also investors within the company.
According to their whitepaper, total bitcoin revenue mined is $29,000,000 per day . That’s 144 blocks mined, yielding 12.5 BTC per block. There is roughly $25 billion left in bitcoin’s hash (equations/un-mined coins), until the reward goes from 12.5 BTC per block to 6.25 BTC per block in June of 2020. They claim they control 11% of the volume, which would be over 190 bitcoins per day under this assumption. There is no way to verify this number, and I am not going to rely on it.
This is a brand new company with a lot of money getting a shot in the big leagues. Hut 8 has very little information, and I am most certainly on a list for the amount foreign translated websites that I visited throughout my research. I would tell you that if you understand mining and believe bitcoin will continue to appreciate, this is a leveraged way of doing so. Hut 8 is in the business of raising money to buy mining facilities from Bitfury.
Bitfury’s technology is continuously getting better, and they have proven over time that their designer Valery Vavilov can make energy efficient miners. This is a rare opportunity to invest in something that is almost more “cryptocurrency-like” than cryptocurrency. Million dollar storage containers and gigantic data centers in the middle of Scandinavia are a large bet on bitcoin.
If there are holes in this story, there is a reason. There is limited information on this listed company. Their purpose is North American blockchain mining and education. Bitfury has plenty of information on them clearly, and that is what I relied on to understand the purpose of Hut 8. Bitcoin mining is never going to be something that is similar to its other publicly listed counterparts. There is going to be a lot of land, energy, hardware and it is working toward a coin whose price bounces like a pin ball if someone says centralization. I think it will be a bumpy ride, but this is the first bitcoin REIT.
This is NOT a recommendation to buy or sell cryptocurrency… or stocks. My research had very few means of sources, and the information was limited to websites outside of my language. Please do your research. I can promise you it is something that you haven’t seen before.
Featured image courtesy of Shutterstock.