One firm is taking its business plan in the direction of bitcoin wastes too much energy argument and has managed to raise $30 million to make it happen.
That’s according Layer1 joint founder and CEO Alexander Liegl, which intends to bring wind-powered crypto mining rigs to West Texas early 2020. The firm is raising a total of $50 million at a $200 million valuation.
The idea that bitcoin crowds out other uses for clean energy reflects a misunderstanding of the industry, Liegel explained:
“Renewable energy is still primarily under-utilized so you don’t actually have a zero-sum game.”
The firm has thus far raised funds for its series A from the likes of Peter Thiel and Shasta Ventures, among other crypto investors that it declined to reveal. This round comes after a previous $2.1 million seed round that also had Thiel and the Digital Currency Group.
In addition, Liegl challenged the entire premise that the utilization of electricity to power the bitcoin network is a waste.
“Bitcoin is the only thing we believe in and that’s what we think can lead to disrupting the financial system,” he said, adding:
“We think electricity directed to the bitcoin mining network is certainly a net positive for society.”
The vertically integrated company plans to run its own crypto mining facilities in the U.S, using mining rigs that the firm designed and built in-house and operating its own power procurement.
“We actually own electricity substations and land-property in Texas already,” Liegl said. “We own everything up to our own power plant, but I can tell you that is certainly on the agenda.”
The company has co-founders with long-term expertise in hardware and mining. As such, they are certain they can execute a sophisticated approach that makes mining in the United States profitable again.
“The last seven years we think of as mining 1.0,” Liegl said, with firms doing little more than racing to deploy the most capital. He added:
“Going forward, the market is shifting to a game of operational expenses.”
Problem with Texas is cooling the miners
Texas has a major advantage as a crypto mining area over other U.S states. The U.S. Energy Information Agency shows that the state has one of the lowest energy rates in the country.
“I love the place. It’s so private-market-friendly,” Liegl said. “Bitcoin mining is pretty compelling to people out there because it’s pretty analogous to how oil and gas works.”
According to the Department of Energy, 16% of power in Texas comes from wind, and more than 25, 000 megawatts have been built with nearly 8,000 currently under construction.
Still, Liegl admits that any such operation will need a backup power supply for times when wind is not powerful enough. His company still believes they can deliver an incredibly high proportion of its hashrate through renewable energy.
Liegl also said talked about the challenge for setting up mining facilities in Texas – cooling the miners. He explained that air-cooled miners in the state would burn up, so they will have to improvise a way to liquid-cool the machines.
That is the same thing Layer1 has created with its innovative mining equipment, with each unit running on two megawatts of power.
The first facility will be established in an open area about an hour-and-a-half west of Midland, Texas.
How large is enough?
“The United States’ hash rate share is currently below 5 percent,” Liegl said. “Our goal is to bump that up to at least over 15 percent.”
As the firm stated in an announcement, 60% of bitcoin’s hash rate and its entire hardware production is in China. The announcement describes the scale of Layer1’s ambition:
“With this funding, we are positioned to own the whole Bitcoin mining stack by designing, producing, and operating our entire mining infrastructure, including proprietary: ASIC chips, liquid-cooled mining containers and power procurement and development.”
By securing a significant amount of funding early, Jacob Mullins of Shasta Ventures said that Layer1 can chase a more ambitious vision than many other startups could, pursuing unit economies that make it appealing as a long-term investment.
Mullins also believes that as a producer of bitcoin in the United States, taking a pro-regulator strategy, Layer1 will have an upper hand when domestic companies eventually move into bitcoin.
“I think that’s another bold way of going at the market and I think over time will create a moat of quality for the business,” Mullins said.
Obviously, it will take so much bitcoin to meet institutional demand. There’s no doubt that Layer1 is going for scale and swiftly, however, Leigl refused to reveal expected wattage used in 2020.
He still expects it to be several hundreds of megawatts, adding:
“Going forward to 2021, we’re talking gigwatts.”