Is there a dime’s worth of differences between the Bitcoin Mining Companies?
13 potential differences in business models of Bitcoin Mining Companies
At its core, one Bitcoin Mining Company should not be that different from another. It’s a comparatively simple business model. Buy rigs, plug them into cheap power and hold on to Bitcoin.
It’s not that simple in practice. As a wise friend once said, “The difference between theory and practice is bigger in practice than in theory”. There are vast differences between the Bitcoin Mining Companies. I have been keeping track of the different Bitcoin Mining Companies. There are a lot, 105 at the latest count and I keep finding more. Then there are the top 13 public (and little 2 that I think are interesting). Also, the answer to the question in the title is an absolute yes.
In sync with the large 13 public miners, I am listing 13 meaningful potential differences in the business models of Bitcoin Mining Companies. In future posts, I will lay out what models they are pursuing. For now, I will just lay out what those different models are. Feels like I could write a post on each of the categories below as they all are important differentiators to the operations.
1. Electricity Cost: Lower is obviously better.
2. Grid vs off-grid: Is the miner reliant on the public grid or are they generating their own electricity?
3. Source of Energy: Is the energy driven by hydrocarbons, and if so what type (coal, oil, natural gas), “renewable” (solar and wind) or nuclear. This may be increasingly important in the future as our collective ESG madness drives scarcity in all power types.
4. How much power: Has the company secured sufficient power, both now and for future use.
5. Location of Power: Where companies source their power is important. There are regulatory issues (NY has a hostile environment) and reliability (Witness the summer 2022 California brownouts).
6. ESG Focus/Bending the knee: Are companies paying lip service to the regulatory insanity of ESG; or worse, trying to run their business with saving the planet as the primary goal. (as if one bitcoin mining company can have the least difference in whatever flavor of the day mandate is in effect).
7. Bitcoin or Altcoins: Some companies are choosing to mine both Bitcoin and altcoins such as Ethereum. Far as I am concerned, it’s silly to mine anything other than Bitcoin, however, there are some firms that do so and even brag about it.
8. Debt: How has the company financed its operations? All of the tradeoffs that other companies face are exacerbated with Bitcoin mining. Some companies took on debt during boom times and are dealing with cash flow issues during Crypto Winter.
9. Cash: Tied to the point above, companies need fiat cash to pay for electricity and other bills. Some companies that converted Bitcoin to fiat at higher prices are better set to weather downturns.
10. MaaS (Mining as a Service): Some companies, with Compass being the most prominent example are providing mining services for others, their client owns the rigs and pays a monthly service fee to Compass. The model allows you to spread the fixed cost of a mining farm over more rigs but has the added expense of providing customer service for thousands of miners.
11. Overhead Expenses: Like many others, I attended the Bitcoin ’22 conference in Miami. A casual walk of the floor showed that there was a bit of excess. There were also stories of yachts and strip bars that called to mind the internet bubble of nineties.
12. Rig Brand: Most mining companies have deployed Antminers, but there are some that are agnostic and use different brands. Others have relationships and feature Canaan or Whatsminer. There are also up-and-comers including Intel, which announced a Bitcoin mining rig.
13. Immersion: The Miami ’22 conference also seemed like the coming out party for immersion mining. There were dozens of companies that featured immersion rigs. Riot has announced that they are big believers in immersion. The logic is that you can overclock the rigs (increase hash rate) and cool the rigs via liquid. However, it’s still an open question as to whether the additional expense of the equipment will really pay off.
BTW the original quote was “There's not a dime's worth of difference between the Republicans and Democrats" by George Wallace in the late 1960s. History won’t be kind to Mr. Wallace as he was a supporter of ignorant Jim Crow laws, but the quote is insightful.