Digital Currency Mining – Interview with Frank Holmes, HIVE
HIVE Blockchain Technologies Ltd. is a growth-oriented, TSX.V-listed company building a bridge from the blockchain sector to traditional capital markets. HIVE owns state-of-the-art digital currency mining facilities in Canada, Sweden, and Iceland which produce newly minted digital currencies like Bitcoin and Ethereum continuously. HIVE deployments provide shareholders with exposure to the operating margins of digital currency mining as well as a growing portfolio of crypto-coins.
Mr. Holmes is engaged in a number of international philanthropies. He is a member of the President’s Circle and on the investment committee of the International Crisis Group, which works to resolve conflict around the world. He is also an advisor to the William J. Clinton Foundation on sustainable development in countries with resource-based economies. In September 2017, Mr. Holmes was appointed as the non-executive chairman of the Board of Directors of HIVE Blockchain Technologies, the world’s very first publicly-traded company involved in the mining of cryptocurrencies.
HIVE owns state-of-the-art digital currency mining facilities in Canada, Sweden, and Iceland which produce newly minted digital currencies like Bitcoin and Ethereum continuously.
Can you give a little bit of a history of HIVE and how did you come across blockchain technology?
In June 2017, the formation of the company HIVE Blockchain Technologies Ltd. was announced publicly. In September of 2017, HIVE completed the acquisition of its first data centre operation, a green energy-powered facility in Iceland utilizing GPUs to verify transactions on the Ethereum blockchain network, in exchange for rewards/fees paid in Ether, the network’s native token/digital currency. This computing process is typically dubbed “cryptocurrency mining”.
Also in September 2017, HIVE’s common shares began trading on the Toronto Stock Exchange’s Venture Exchange under the ticker symbol HIVE. As the first publicly listed pure-play cryptocurrency miner, HIVE acted as a bridge between blockchain technology and cryptocurrencies to traditional capital markets.
Subsequently, HIVE expanded its Ethereum mining facilities in Iceland and opened a much larger flagship facility mining Ethereum in Sweden. More recently, in April 2020, the company completed the acquisition of a Bitcoin mining operation in Quebec, Canada and has been investing in new mining equipment to scale up that facility.
Green energy has been a part of the company’s strategy since day one. All of the company’s data centres are powered by green energy, primarily through the use of renewable hydroelectricity.
Has it been hard to bring your product to be viable for new customers?
HIVE mines on its own behalf; it does not host customers’ miners at this time or mine on behalf of customers. Our deployments provide shareholders with exposure to the operating margins of digital currency mining as well as a growing portfolio of crypto-coins.
How long did it take for you to reach the current operational status? What’s next?
The company started with its acquisition of Ethereum mining facilities in Iceland in 2017, in partnership with its then strategic partner and service provider. In 2018, the partnership expanded with an Ethereum mining facility in Sweden and Bitcoin cloud mining operations.
For the past 18 months, the current management team has been focused on improving transparency, accountability and profitability across its operations. To that end, HIVE assumed full control of its operations and ceased its strategic partnership:
In Sweden and Iceland, HIVE has recently entered into direct agreements with local providers, which has resulted in a lower cost of operations. The company plans to maximize its capacity and efficiency at these facilities.
It also terminated its Bitcoin cloud mining agreements in late 2019 with the intention of acquiring its own Bitcoin mining operation directly, in preparation for the halving of Bitcoin block rewards for miners, which occurred in mid-May. Pursuant to this, in April, HIVE acquired a Bitcoin mining operation in Quebec with access to low cost, renewable electricity, 30 MW of HVAC and electrical infrastructure that is unique to cryptocurrency mining, triple redundancy systems for power and internet connectivity and operational staff. HIVE has subsequently been investing in next-generation mining equipment that can provide positive gross mining margins post the recent halving of Bitcoin rewards; the next halving is scheduled to occur in four years. The company also plans to maximize its capacity and efficiency at this facility.
How large is HIVE and what is the planned growth in the next 5 years?
HIVE is currently the largest publicly-traded cryptocurrency miner in Canada by market capitalization. It operates GPU-based Ethereum mining operations in Iceland and Sweden with approximately 21 megawatts of electrical capacity. It operates ASIC-based Bitcoin mining operation in Quebec, that it is currently scaling up, with approximately 30 megawatts of electrical capacity. The current focus is on maximizing its existing capacity and efficiency at its various facilities.
How does the cryptocurrency market volatility affect your business or your customers?
For HIVE, revenues are generated by the number of cryptocurrency rewards we receive from our mining operations and the value of these cryptocurrencies at the time we receive them. Therefore, revenues are impacted by external cryptocurrency network factors including the price of the cryptocurrency, the programmed difficulty and value of rewards in mining them, and competition in the form of how much other computing resources globally (network hash rate) is competing to also mine these cryptocurrencies.
Additionally, below the revenue line, we do not sell all the coins we mine, therefore the change in the value of our portfolio of coins will impact our bottom line positive or negatively each quarter.
While we cannot control these factors, we can focus on improving our operational efficiency, including identifying ways to lower our mining costs by operating in stable, cool temperature jurisdictions with low-cost renewable electricity.
What is the mining industry like? Do you have any competitors? How do you see the future of GPU mining?
The mining industry is competitive of course, but we are fortunate to operate at an industrial scale and therefore have lower overhead cost margins than smaller miners along with access to low cost green electrical power.
We are also the most diversified, both geographically and by blockchain network, of the public miners.
A GPU can mine many different types of cryptocurrencies and has the flexibility to switch between them. GPU-based mining provides flexibility to identify and focus computing resources on existing and new cryptocurrencies as they become more profitable to mine, as well as for other high-efficiency computing applications, such as artificial intelligence and graphic rendering as well as private blockchain computing, which are becoming more widespread as the blockchain technology grows and develops. The current proposal for Ethereum’s shift to proof-of-stake from proof-of-work has a number of unknown variables including uncertainty over timing, execution and ultimate adoption. If Ethereum’s shift to proof-of-stake were to occur, it is anticipated to take a couple of years in parallel with proof-of-work. HIVE has a large portfolio of Ethereum coins and as noted has the flexibility to focus its computing resources on other cryptocurrencies or for other high-efficiency computing applications.
How much energy and maintenance does a mining system require? Do you offer warranties?
Over the past two calendar years combined, we have reported an approximately 32% gross mining margin (i.e. revenues less facility operating and maintenance costs notably electricity, service provider fees, and lease costs).
We don’t mine on behalf of customers therefore warranties are not applicable in our situation.
What factors determine the locations of your data centers in the first place?
Typically, you are looking for locations that have green renewable electricity, are in cool temperature jurisdictions to minimize cooling costs and electrical requirements, have access to local employees with operational expertise, and are in politically stable jurisdictions.
How does HIVE contribute to sustainability?
Green energy has been a part of the company’s strategy since day one. All of our data centres are powered by green energy, primarily renewable hydroelectricity.