Texas Bitcoin Mining Startup Gets $50 Million From Peter Thiel to Steal China’s Crypto Crown


When it comes to bitcoin production, China is the leading power in the world. The people's Republic prides itself on the largest mining companies and dominates the production of chips and other equipment used for bitcoin mining. An American startup wants to change all that with a bold plan to make Texas a global bitcoin mining hub.

On Tuesday, San Francisco-based Layer1 announced It had raised $ 50 million from billionaire Peter Thiel and others to move forward with its plan, which calls for launching its own power plant and acquiring solar and wind power produced in the West Texas plains.

According to co-founder Alex Ligle, the Layer1 facility will consist of dozens of acres that are 150 miles West of Midland, Texas - "literally in the middle of nowhere" - and will rely on new patented chip cooling technology used for mining. Bitcoin.

Bitcoin mining, which consumes large amounts of electricity, usually occurs in colder areas where it is easier to prevent equipment overheating. Layer1, however, believes its cooling technology will make Texas a viable place despite the heat. The state also offers additional benefits in the form of easy regulation and cheap energy.

One bitcoin is currently worth around $ 8,300, a far cry from the record high of $ 20,000 at the end of 2017, but still much higher than in 2016, when it was trading for just $ 300. In the Bitcoin mining system, miners compete to receive a reward that is distributed every ten minutes or so. Currently, the award amounts to 12.5 bitcoins - this figure will be reduced to 6.25 in may next year.

According to Ligle, Layer1 aims to become the world's largest bitcoin miner, controlling all aspects of the process-from chip production to power generation and cooling. In the longer term, the company plans to use its mining services as a baseline for a larger cryptocurrency venture that will include financial services.

Layer1 was launched in late 2018, with Liegl calling it an "activist Fund for cryptocurrencies" that will invest in protocols including a privacy protection project called Grin . At the time, the startup did not disclose mining plans and raised a modest $ 2.1 million from Thiel, Digital Currency Group and late investor Jeffrey Tarrant.

"From an ideological point of view, in order for Bitcoin to turn into its multi-trillion dollar potential, it needs an American company," Ligle says. "This ideology resonates with Peter [Teal] and our other investors."

Despite Layer1's big ambitions, its backers, including Shasta Ventures and undisclosed wealthy cryptocurrency owners, are keeping a decidedly low profile for new investments, giving Layer1 a valuation of $ 200 million. Thiel and other investors declined to be interviewed for this story.

Crypto mining has been a fiercely competitive business in recent years, but tier 1 believes changes in the industry have opened up an opportunity to wrest market power away from China.

New bitcoin mining strategy

In the early years of Bitcoin, from 2009 to around 2013, it was possible to mine cryptocurrency using a home laptop, as ligle did when He started mining Bitcoin in his Stanford University Dorm room. The mining process involves solving random mathematical problems that determine who will build the next block in the Bitcoin blockchain - a tamper-proof transaction register. The first person to solve a math problem also receives a reward in the form of bitcoins.

However, when the cryptocurrency gained popularity and prices soared, companies began to develop special computers optimized for bitcoin mining. This in turn has led to miners joining crypto mining pools - pooling their computing power to share the proceeds whenever a participant receives A bitcoin reward.

China dominates the Bitcoin mining industry - estimated to account for about 60% of production - in large part because its government has given miners cheap access to electricity. The leading company is Beijing-based Bitmain, which operates two large mining pools, and is also a leading seller of specialized chips needed for bitcoin mining.

But Bitmain has stumbled in recent months. While the company's 33-year-old CEO boasted in mid-2018 of Grand plans to use artificial intelligence to further dominate the mining world, Bitmain has since suffered heavy losses and had to lay off half of its 3,000-person staff.

Bitmain's troubles weren't the only factor revealing bitcoin mining's opening to Layer1. Ligl says that the dynamics of production have changed. He thinks buying the latest custom chips used to give miners an edge, but now the technology has become commercialized.

"In 2012-2019, it was mining 1.0 and feature (capital expenditure) and who can get the newest chip first," says Ligle. "We are now in version 2.0, where (operating expenses) are most important."

Consistent with this thesis, Layer1 believes its plans to develop full - stack operations in West Texas will allow it to capture market share-in part because It will not be vulnerable to third-party vendors raising prices when the price of Bitcoin rises.

Industry on the move

When entering West Texas, Layer1 may have to tread carefully, given that the region has been burned by the cryptocurrency industry in the past. In July, Wired magazine published a special article that recounted how Bitmain promised the city of Rockland, Texas, hundreds of good jobs while working in mining funds, but then abruptly refused, despite a concerted campaign of goodwill from local officials.

Ligle, who says his colleagues at Layer1 include veterans of Apple, Google and Goldman Sachs, plans to act differently. He says the company will respect government officials and local sensibilities.

If Layer1 can successfully become a major force in the mining world, the company's presence could shake Bitcoin's geopolitics. In recent years, there have been concerns that China's dominance could lead to collusion by miners in that country to manipulate the blockchain records in which all bitcoin transactions are recorded. According to Ligle, if American companies can seriously penetrate mining, Bitcoin will become more decentralized - a key principle for supporters of the cryptocurrency.

Layer1 is not the only North American company planning a big move in crypto mining. Canada's Blockstream, a consulting company with ties to many bitcoin insiders, has revealed that it is building massive bitcoin mining data centers in Quebec province and in Adele, Georgia.

"There's definitely an opportunity to take market share away from some other firms," says Samson MoE, Director of strategy at Blockstream. "(Specialized chips) have started to reach their limits in terms of efficiency, so the playing field will continue to level out."

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