Canadian Mining Farm Thrives After Crypto Winter

Toronto-based Hut 8 Mining Corp. is Canada’s largest bitcoin mining farm. They also happen to be a publicly held company who just recently posted their 2019 Q2 earnings and revenue. The results may surprise you, especially after hearing about bitcoin mining companies having to shut down facilities and lay off employees during the long crypto winter. 

This article first gives background details on Hut 8 and the bitcoin-energy consumption issue. Then we’ll delve into how they managed to turn things around in such a short period of time.

The Symbolic Meaning of “Hut 8”

Before we get into the nitty-gritty, it’s interesting to note how Hut 8 got its name. It all goes back to a building named Hut 8, which was located in Bletchley Park, a nineteenth-century estate in Buckinghamshire.

This prestigious address was home to Britain’s primary center for decryption activities during World War II. It was there that Alan Turing and his team created the decoding machine that cracked the German’s Enigma code, which was being used in wartime communications. 

The work at Hut 8 in Bletchley Park is said to have shortened the massively destructive war by several years, saving millions of lives. It also was a huge part of the foundation for future work in encryption. In 1944, Bletchley Park was at its peak of operations, employing about 10,000 people, 75% of whom were women. So, in honor of this encryption operations center’s historic work, the modern Hut 8 was aptly named.

What is Hut 8 Mining Corp.?

Hut 8 is a mining farm operation which has a partnership with BitFury, a bitcoin mining infrastructure provider. BitFury builds and manages fixed site and mobile mining data centers, called Blockboxes, exclusively for Hut 8. 

Now operating 85 of these Blockbox data centers in Alberta, Canada, Hut 8 strategically chose that area because of the low electricity costs due to abundant wind generation and natural gas availability.

As of this writing, Hut 8 had mined over 10,000 bitcoins, valued today at over $103 million USD.

Hut 8’s unique mining farm investment proposition

Hut 8 is not just a mining farm accumulating bitcoin. It’s a publicly held company that offers its HUT shares to investors. By holding shares in the company, investors have an alternative way to invest in bitcoin. But it’s very different from individually buying and storing the cryptocurrency.

People who buy HUT shares are not holding the private keys to their own bitcoin, so they are not having ownership at all of the cryptocurrency. Instead, they are investing in shares of a publicly held company, thus hedging some of the risks of bitcoin investing. Buying these shares may make it easier for individuals who don’t have the time or technical confidence to deal more directly with bitcoin and other digital assets. In a video on their homepage, Hut 8 recommends dealing with a broker or investment firm to acquire HUT shares. Third party fees are thus a consideration, something that holding bitcoin actually helps to eliminate.

For those interested in researching this type of investment, check out Hut 8’s Investor FAQ Sheet. You can also find all their financial documentation here at Sedar.com

Cost of power: bitcoin mining vs. fiat

Altogether, the Hut 8 mining farm’s operating capacity represents 99.5 Megawatts of electricity. In fact, power has been one of their primary concerns. Bitcoin mining has a reputation in mainstream media for using so much electricity that they’re causing harm to the environment. While it’s true that mining rigs take up a lot of power and run 24/7, there are some very important factors to consider.

Comparing bitcoin with any fiat currency is a very apples to oranges proposition. Yet if you think of the two in terms of power usage, it becomes clear that bitcoin’s power consumption is far less damaging for a number of reasons.

For instance, bitcoin is essentially an alternative economic system that is available to anyone, anywhere. Operations happen worldwide, in real-time, on an open public ledger that is distributed among thousands of participants. Bitcoin enables peer to peer money transactions much faster and more cheaply than with fiat currencies. Additionally, energy-consuming third parties are unnecessary when transacting with bitcoin in a peer-to-peer fashion. 

Compare this with the energy costs of running a fiat currency, complete with treasury departments, mints, banks, payment processors, etc., and you can understand the power costs of running the Bitcoin Network are a mere drop in the bucket. Even so, bitcoin miners have historically sought out areas like Alberta where renewable energy is abundant. 

The end of bitcoin mining

Perhaps the most important factor in the bitcoin electricity debate, one that is often overlooked, is that bitcoin mining is a finite system. It has a clear ending, approximately during the year 2140. That’s when all 21 million bitcoins will have been mined. After that, there will be no more bitcoin mining or bitcoin mining farms. 

This is yet another reason bitcoin miners have been leaders in seeking out alternative power solutions. They know there is a once in a lifetime opportunity to mine bitcoin and the more cost-effectively they do it, the more their longterm potential profits. So they are highly incentivized to find cheap, renewable sources of electricity, right now.

Hut 8’s crypto winter comeback

It’s almost hard to believe that the Hut 8 mining farm managed to come back from the crypto winter. Just back in September 2018, the company, like everyone in crypto, was still enduring a long stretch of bear market prices. They were also battling local power suppliers and regulators during an unprecedented heatwave. 

Around the same time, other big mining operations like Bitmain were shutting down facilities and cutting back on staff. Some miners, like YouTube’s Digital Gold, were heart-wrenchingly documenting the complete liquidation of their entire facilities, ultimately left with next to nothing.

But as one of the world’s largest publicly traded mining company, Hut 8 certainly stands out from the crowd. The proactive initiatives they implemented during the crypto winter are now bearing fruit according to their Q2 financial report. Here’s what they did to not only survive the bear market, but to come out ahead:

Hut 8 strategies for surviving the crypto winter

  • HODLing – Many bitcoin miners must often liquidate their mined bitcoins in order to cover operating costs. Hut 8, however, held on to their bitcoin.
  • Renegotiated deals with energy providers – Hut 8 worked to broker deals and quell inaccurate assumptions about their energy usage. Additionally, they were able to initiate the process of selling excess energy back to the grid in Medicine Hat, Alberta, one of their two big mining hubs.
  • Laid off staff – Layoffs were happening as recently as April 2019, when it was reported that a total of 25% of Bitfury’s’ global staff force had been cut. In Alberta, their mining farm staff numbers went from 40 employees in September of 2018 to a total of 5 full-time people with several contractors at the end of Q2 2019.
  • Cutbacks on PR & marketing

Primarily, the costs to operate a mining farm include the electricity to run hundreds of mining rigs 24/7. Also, they must cover all facility, maintenance and hardware costs.

By the end of 2018, the price to mine one bitcoin cost Hut 8 roughly $4000. The price of one bitcoin at the time was under $4000. But, as they recently reported, Hub 8 had cut their costs in Q2 2019 down to $2700 per bitcoin. And, on June 30, 2019, the bitcoin price was back up to over $10,000.

“Our cost reduction initiatives put in place during crypto winter came to fruition during the 2nd quarter.” 

CEO, Andrew Kiguel

The results?

With those strategies put into place, and with the resurgence of bitcoin, Hut 8’s revenue tripled since last year. Q2 2019 ended up being their best quarter since operations began in 2017. They also gained through the remeasurement of their bitcoin assets, equaling a $22 million gain for the quarter. 

Highlights from the Q2 2019 statement as reported on Yahoo.Finance include:

  • Record quarterly revenue of $28.3 million
  • 2816 bitcoin mined (another quarterly record)
  • Record earnings per share of $0.43 for the second quarter.
  • A gain of $22.4 million on re-measurement of bitcoin inventory
  • A decrease in cash expenses, excluding share-based compensation, to $637k from $747k in Q1-2019 and $994k in Q4-2018.

Cover image – Marco Krohn

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