Raising $50 million, Layer1, the largest Bitcoin mining company in the United States, plans to launch a "one-stop mining" business

This article is from The Block, the original author is Celia Wan & Frank Chaparro

Odaily Planet Daily Translator | Nian Yin Si Tang

An investment fund backed by Digital Currency Group (DCG) is shifting its focus to bitcoin mining, with venture capitalists including PayPal co-founder and venture capital investor Peter Thiel injecting $50 million into the company, which is valued at $200 million.

San Francisco-based Layer1 announced on Tuesday (October 15) that it has raised millions of dollars in Series A funding from Peter Thiel, Shasta Ventures and crypto industry leaders. Layer1 co-founder Alexander Liegl said the company was originally created as an activist fund to build an ecosystem around the privacy coin Grin, but has now turned to the bitcoin mining business and claims to be the first "large-scale" bitcoin mining company in the United States.

With the move, Layer1 will enter a market where Chinese miners already dominate about 70% of the market, benefiting from lower electricity prices and easier access to mining machines made by Chinese manufacturers such as Bitmain and Canaan Creative. The five largest known mining pools are also based in China, according to Blockchain.com. Still, Liegl hopes the company will stand out by focusing on reducing electricity costs rather than maximizing chip efficiency.

“We want our chips to be competitive in at least eight years… We definitely want to have our own chips. We also have our own substations: in effect, our own power plants,” Liegl said.

To this end, the company has purchased more than a dozen acres of land in Texas to build its own substation, and has partnered with a Beijing semiconductor company to produce its own mining chips. It also plans to build its own mining machine infrastructure. According to Liegl, the company's ultimate goal is to have an entire Bitcoin mining supply chain and vertically integrate mining operations. For example, the company may expand into lending, derivatives, and various segments of the Bitcoin market. Liegl described the company as the ExxonMobile of the crypto space (Note: ExxonMobil is the world's largest publicly listed oil company by total market value).

Texas low electricity prices + unique cooling technology

According to Liegl, while China’s success in bitcoin mining is partly due to its cheap electricity, the profitable model could also be replicated in Texas. In fact, Texas has one of the most competitive electricity prices in the world, and there are many renewable energy plants that Layer1 could tap into to reduce operating costs.

However, the hot weather in Texas could pose a huge challenge to mining. Mining facilities are usually set up in cooler areas or in air-conditioned environments to cool the mining machines. To take advantage of the low electricity prices in Texas, Liegl said they have developed a special cooling technology that only consumes 3% additional electricity.

"Electricity prices in Texas have always been very competitive, and the current situation is that no one in the crypto mining industry has been able to take advantage of this because they lack the proper cooling technology," Liegl said with confidence.

Mining is not easy, so dig carefully and cherish it

To be sure, the upfront costs of building a mining facility from scratch are much higher than buying mining equipment outright and using electricity from local power plants. Last week, Virginia-based bitcoin mining company BCause Mining LLC filed for bankruptcy. In 2018, the company pledged to invest $64.8 million to become "the largest cryptocurrency miner in North America." The company has now lost its ambitions, with a total of 23 creditors demanding that the company repay them $13.3 million.

Odaily Planet Daily Note: In April this year, Bcause Mining LLC initiated voluntary bankruptcy proceedings. According to the filing, Bcause's assets are estimated to be between $1 million and $10 million, and its liabilities are estimated to be between $1 million and $10 million. The bankruptcy filing contains a list of Bcause's creditors. According to the list, secured creditors include Fidelity Labs and others, and unsecured creditors include Amazon Web Services (AWS) and others. Two of the unsecured claims are worth noting: energy and power company Dominion Energy Virginia has an unsecured claim of $1,459,267.38 on Bcause's assets, and another from the US Customs and Border Protection for $737,041.90. Note: Secured claims are considered for compensation first. Secured claims include collateral, while unsecured claims do not include collateral.

Meanwhile, in the past, American towns chosen by foreign investment have often faced opposition from local communities, who question whether these mining facilities can actually provide the jobs they need. For example, Bitmain has said it will build its largest mine in Texas, creating 350 jobs, but according to Wired, even during the price rally earlier this year, the mine only employed less than 15 people.

However, Liegl argues that operating a mine in the United States makes both economic and ideological sense:

“I feel very strongly that you need a U.S. representative to create more symmetrical distribution in the hashrate, which is absolutely a net positive for the community and the (bitcoin) protocol.”