Investors Missed Out On $6 Billion Worth Of Bitcoin By Passing On This Startup


&l;p&g;&l;img class=&q;dam-image bloomberg size-large wp-image-40408587&q; src=&q;https://specials-images.forbesimg.com/dam/imageserve/40408587/960×0.jpg?fit=scale&q; data-height=&q;640&q; data-width=&q;960&q;&g; Valery Vavilov, co-founder and chief executive officer of Bitfury, smiles during the Milken Institute Global Conference in Beverly Hills, California, U.S., on Wednesday, May 3, 2017. (David Paul Morris/Bloomberg)

&l;span style=&q;font-weight: 400;&q;&g;Even with the dramatic decline in the Bitcoin price so far this year, those who were early to the party are still sitting on tremendous gains. However, one startup involved in the Bitcoin mining process recently revealed that their profits would have been even greater if more investors had believed in them four or five years ago.&l;/span&g;


&l;span style=&q;font-weight: 400;&q;&g;Bitfury &a;mdash; whose main mining operations can be found in the Republic of Georgia, Iceland, Canada, and Norway &a;mdash; recently had two representatives of the company, CEO Valery Vavilov and Vice Chairman of the Board George Kikvadze, appear on &l;/span&g;&l;a href=&q;http://unchainedpodcast.co/bitfury-on-the-ways-it-collaborates-with-governments-and-why-its-partnered-with-a-public-company&q; target=&q;_blank&q;&g;&l;span style=&q;font-weight: 400;&q;&g;an episode of Laura Shin&a;rsquo;s Unchained podcast&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400;&q;&g;. During the interview, the duo discussed the early days of the company&a;rsquo;s development and how their mining operations work today.&l;/span&g;


&l;span style=&q;font-weight: 400;&q;&g;Eventually, Kikvadze revealed that Bitfury would be sitting on 860,000 Bitcoin (roughly $6 billion worth) if they had been able to find big investors who believed in their technology when they were first starting out.&l;/span&g;

&l;span style=&q;font-weight: 400;&q;&g;Additionally, Vavilov and Kikvadze discussed a new development that should help them gain access to more capital for the acceleration of their mining business over the next few years.&l;/span&g;

&l;b&g;Missing Out on a Bitcoin Fortune&l;/b&g;


&l;span style=&q;font-weight: 400;&q;&g;According to Kikvadze, there are two main factors that decided whether any of the dozen or so Bitcoin mining companies from the early days of the industry would be successful: execution on chip manufacturing and access to capital. Unfortunately for Bitfury, it was difficult for investors to figure out which startups had the best chance at building chips that could one day generate new bitcoin at a sufficiently profitable rate.&l;/span&g;

&l;span style=&q;font-weight: 400;&q;&g;&a;ldquo;I think it was very tough for us to go and convince investors in Silicon Valley and other institutional investors to invest because they would see other companies coming in claiming they had better technology,&a;rdquo; said Kikvadze. &a;ldquo;We now know that all of these companies are extinct or pivoted away, but they have costed us a lot of traction and definitely have costed us a lot of resources in order to accelerate the deployment and global expansion.&a;rdquo;&l;/span&g;


&l;span style=&q;font-weight: 400;&q;&g;One example of this sort of extinct or pivoted company is 21, which eventually changed their name to Earn.com. 21 was originally focused on the mass commoditization of Bitcoin miners, but they pivoted to a service that allows people to get paid cryptocurrency for reading emails from people they don&a;rsquo;t know. It&a;rsquo;s unclear whether Earn.com is still involved in Bitcoin mining in any capacity.&l;/span&g;

&l;a href=&q;https://www.crunchbase.com/organization/21e6&q; target=&q;_blank&q;&g;&l;span style=&q;font-weight: 400;&q;&g;According to Crunchbase&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400;&q;&g;, Earn.com has raised a total of $121.1 million from the likes of Andreessen Horowitz and Peter Thiel&a;rsquo;s Founders Fund (among others).&l;/span&g;


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&l;span style=&q;font-weight: 400;&q;&g;As a result of their inability to attract institutional investors, Bitfury has mainly been funded through angel investors, such as Bill Tai, in addition to bootstrapping the company by selling the bitcoin they&a;rsquo;ve mined and reinvesting the profits back into the business.&l;/span&g;

&l;span style=&q;font-weight: 400;&q;&g;&a;ldquo;We calculated actually that had we found someone with deep pockets that believed in our story and bet on our technology in the same way that Bill Tai has done so but with stash of capital, we would have spent roughly $350 million on chip designs, on wafers, on electricity costs, on the capex of rolling out &a;mdash; but we would be sitting right now on 860,000 Bitcoins.&a;rdquo;&l;/span&g;


&l;span style=&q;font-weight: 400;&q;&g;860,000 Bitcoin would be a little over&a;nbsp;5% of the total supply circulating at the time of this writing.&l;/span&g;

&l;span style=&q;font-weight: 400;&q;&g;&a;ldquo;To all the VCs that didn&a;rsquo;t believe or didn&a;rsquo;t take that bet &a;mdash; I understand it was early in the game &a;mdash; but at the end of the day, that is an outcome,&a;rdquo; added Kikvadze.&l;/span&g;

&l;span style=&q;font-weight: 400;&q;&g;In Kikvadze&a;rsquo;s view, access to capital was a key differentiator between Bitfury and their competitors based in China (namely Bitmain). He compared executing on a business plan properly without access to sufficient capital as moving down the highway at twenty miles per hour.&l;/span&g;


&l;span style=&q;font-weight: 400;&q;&g;&a;ldquo;That&a;rsquo;s the difference between ordering 10,000 wafers or 50,000 wafers,&a;rdquo; said Kikvadze.&l;/span&g;

&l;b&g;Gaining Access to More Capital&l;/b&g;

&l;span style=&q;font-weight: 400;&q;&g;In an effort to gain access to more capital for the purpose of expanding their mining operations, Bitfury has taken a 49% stake in Hut 8, which is a Canadian company that controls or will control 35 Bitcoin mining centers in North America. Hut 8 is publicly traded on the TSX Venture Exchange.&l;/span&g;

&l;span style=&q;font-weight: 400;&q;&g;&a;ldquo;It allows us to go and raise capital from institutions and for us to then take that capital and to deploy that to build out the world&a;rsquo;s largest crypto mining facilities,&a;rdquo; said Kikvadze.&l;/span&g;

&l;span style=&q;font-weight: 400;&q;&g;Learning from their &l;/span&g;&l;a href=&q;https://www.coindesk.com/bitfury-pulls-power-ghash-community-uproar/&q; target=&q;_blank&q;&g;&l;span style=&q;font-weight: 400;&q;&g;past mistakes&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400;&q;&g;, Bitfury intends to limit the share of the network hashrate controlled by a single mining facility to around&a;nbsp;10% to&a;nbsp;15% in an effort to preserve mining decentralization.&l;/span&g;&l;/p&g;

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