Bitcoin Forum

When it comes to producing Bitcoin, China is the pre-eminent power in the world. The People's Republic boasts the largest mining companies, and dominates the manufacture of chips and other equipment used to mine Bitcoin. A U.S. startup wants to change all that with a bold plan to make Texas the global hub of Bitcoin mining.

On Tuesday, San Francisco-based Layer1 announced it has raised $50 million from billionaire Peter Thiel and others to move forward with its plan, which includes running its own power sub-station and purchasing solar and wind energy produced on the plains of West Texas.

According to co-founder Alex Liegl, Layer1's facility will consist of dozens of acres that lie 150 miles west of Midland, Texas—"literally in the middle of nowhere"—and will rely on a proprietary new technology for cooling the chips used to mine Bitcoin.

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

One Bitcoin is currently worth around $8,300—well off its all time high of nearly $20,000 in late 2017 but still much higher than 2016 when it traded as low as $300. Under Bitcoin's mining system, miners compete to win an award distributed every ten minutes or so. Currently, the reward is 12.5 Bitcoins—a figure that will halve to 6.25 next May.

Liegl says Layer1 aspires to be the biggest Bitcoin miner in the world by controlling all aspects of the process—from chip manufacturing to electricity production to cooling. In the longer term, the company plans to use its mining facilities as a base layer for a larger cryptocurrency enterprise that will include financial services.

Layer1 launched in late 2018, with Liegl then describing it as an "activist fund for cryptocurrencies" that would invest in protocols, including a privacy focused project called Grin. At the time, the startup did not disclose mining aspirations, and raised a modest $2.1 million from Thiel, Digital Currency Group and the late investor Jeffrey Tarrant.

"From an ideological perspective, for Bitcoin to grow into its multi-trillion potential, it needs a U.S. company to lead," says Liegl. "This ideology resonates with Peter [Thiel] and our other investors."

Despite Layer1's large ambitions, its backers—which also include Shasta Ventures and undisclosed wealthy cryptocurrency owners—are keeping a decidedly low-profile for the new investment, which gives Layer1 a valuation of $200 million. Thiel and other investors declined to be interviewed for this story.

Crypto mining in recent years has been a ferociously competitive business, but Layer 1 believes changes in the industry have provided an opening to wrest market power from China.

A new Bitcoin mining strategy

In the early years of Bitcoin, from 2009 to roughly 2013, it was viable to mine the cryptocurrency by using a home laptop, like Liegl did when he got his start mining Bitcoin in his Stanford University dorm room. The mining process involves solving random math problems that determine who will build the next block on Bitcoin's blockchain—a tamper-proof ledger of transactions. The first to solve the math problem also receives a reward in the form of Bitcoins.

As the cryptocurrency caught on and prices soared, however, companies began designing special computers optimized to mine Bitcoin. This in turn led miners to join crypto mining pools—combining their computing power in order to share the proceeds whenever a member receives a Bitcoin reward.

China has dominated the Bitcoin mining industry—estimates say it accounts for around 60% of production—in large part because its government has provided miners with cheap access to electricity. The leading company has been Beijing-based Bitmain, which runs two massive mining pools and is also the leading seller of the specialized chips now needed to mine Bitcoin.

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 large losses and had to lay off half of its staff of 3,000.

Bitmain's troubles weren't the only factor revealing an opening in Bitcoin mining for Layer1. Liegl says the dynamic of mining has shifted. He thinks buying the latest custom chips previously gave miners an edge, but now the tech has become commoditized.

"From 2012-2019, it was mining 1.0 and a function of (capital expenditure) and who can get the newest chip first," Liegl says. "Now, we're in 2.0, where (operating expenses) matter most."

Under this thesis, Layer1 believes its plans to develop "full-stack" operations in West Texas will let it capture market share—in part because it won't be vulnerable to third party suppliers raising prices when the price of Bitcoin goes up.

An industry in flux

In moving into West Texas, Layer1 may have to tread cautiously given that the region has been burned by the cryptocurrency industry in the past. In July, Wired magazine ran a feature article describing how Bitmain promised the town of Rockland, Texas hundreds of good jobs operating mining pools, but then abruptly pulled out, despite a concerted good-will campaign by local officials.

Liegl, who says his colleagues at Layer1 include veterans of Apple, Google, and Goldman Sachs, plans to proceed much differently. He says the company will be respectful of government officials, and local sensibilities.

If Layer1 can successfully become a major force in the mining world, the company's presence could shake up the geo-politics of Bitcoin. In recent years, there have been fears that China's dominance could lead miners in that country to collude in order to manipulate records on the blockchain that records all Bitcoin transactions. If American companies can make major inroads into mining, Liegl says, Bitcoin will become more decentralized—a key tenet for the cryptocurrency's supporters.

Layer1 isn't the only North American company to plan a big move into crypto mining. Canada-based Blockstream, a consultancy with ties to many Bitcoin insiders, revealed it is building massive data centers for Bitcoin mining in the province of Quebec and in Adel, Georgia.

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


https://fortune.com/2019/10/15/what-is-bitcoin-mining-layer1-peter-thiel-crypto-investment/

I was hoping to see something in that article talking about them using solely sustainable energy. I see that they're using wind and solar power, would have been nice to see a commitment to them using a % percentage minimum of renewables. I think it's a pretty big problem how much fossil fuels a lot of these large mining operations use up, if we want to stop Bitcoin from having insane negative externalizes we really need to get on top of that (and to be fair, even in China where regulation is quite poor, a good proportion of energy used by mining ops there is renewable).

200 million dollars used in what way is the most important part. If you include the energy required and the solar panels and wind turbines and everything that is not bitcoin related to make it feasible and then spend a lot less on machines it would be different, sure it would still be a HUGE mining operation, that is not even a question but with money like this they could have literally created and manufactured their own ASIC machines if they wanted to and that would have resulted with not a bad business plan neither.

In the end there will be one rival for the Chinese mining operations if they can achieve it and the more decentralized we get on mining the better, I hope there will be a lot more people getting into mining because we need to stop Chinese monopoly on btc mining.

I don't know how this is going to work. For starters, the price of mining rigs in Texas is at least 50% higher than those in China. And more worryingly, the average electricity price is around $0.09 per KWh, which is almost 200% higher than what they have in China. I don't understand how they can compete against the Chinese miners under current circumstances.

I think it's a pretty big problem how much fossil fuels a lot of these large mining operations use up, if we want to stop Bitcoin from having insane negative externalizes we really need to get on top of that (and to be fair, even in China where regulation is quite poor, a good proportion of energy used by mining ops there is renewable).

Good to see that the hashing power of the network will be coming less centralized in China, though.

I don't know how this is going to work. For starters, the price of mining rigs in Texas is at least 50% higher than those in China. And more worryingly, the average electricity price is around $0.09 per KWh, which is almost 200% higher than what they have in China. I don't understand how they can compete against the Chinese miners under current circumstances.

This is actually a good development and a win win for crypto in these trying times. But seriously, mining us kinda cheaper in China than Texas with regards to cost of power. Unless they plan sourcing theur own power via sustainable energy, but that would also cust alot more to set-up things. Hopefully, they have a clear pathway for this, I would love to see this project succeed.

On Tuesday, San Francisco-based Layer1 announced it has raised $50 million from billionaire Peter Thiel and others to move forward with its plan, which includes running its own power sub-station and purchasing solar and wind energy produced on the plains of West Texas.

Liegl says Layer1 aspires to be the biggest Bitcoin miner in the world by controlling all aspects of the process—from chip manufacturing to electricity production to cooling. In the longer term, the company plans to use its mining facilities as a base layer for a larger cryptocurrency enterprise that will include financial services.

So, this is what Thiel was busy with after he left California?


Maybe it's more about preparing for the time that the Chinese government completely stops the operations of mines? The government has mentioned last April iird that they want to phase out mining operations. They haven't given any deadlines and we don't know if they are bluffing but if they do push through, it will be chaotic if it was not done gradually.

Maybe Thiel expect the project in Texas to be operational by then?

I was hoping to see something in that article talking about them using solely sustainable energy. I see that they're using wind and solar power, would have been nice to see a commitment to them using a % percentage minimum of renewables. I think it's a pretty big problem how much fossil fuels a lot of these large mining operations use up, if we want to stop Bitcoin from having insane negative externalizes we really need to get on top of that (and to be fair, even in China where regulation is quite poor, a good proportion of energy used by mining ops there is renewable).

Good to see that the hashing power of the network will be coming less centralized in China, though.

Just noticed that Peter Thiel is involved. It's not just surprising but encouraging as well for the Bitcoin users. That said, we still haven't heard much about the proposed closure of the mining farms in China. As far as I know, all the giant mining farms are still operating without any issue in that country and as per the latest data, more than 80% of the hashpower is still generated in mainland China. And given the size of the mining farms there, I really doubt whether this proposed mining farm in Texas can offer any sort of competition. Perhaps Thiel is expecting the price of Bitcoin to go up drastically after the block reward halving (which is less than 12 months away).

I don't know how this is going to work. For starters, the price of mining rigs in Texas is at least 50% higher than those in China.

Liegl says Layer1 aspires to be the biggest Bitcoin miner in the world by controlling all aspects of the process—from chip manufacturing to electricity production to cooling. In the longer term, the company plans to use its mining facilities as a base layer for a larger cryptocurrency enterprise that will include financial services.

And more worryingly, the average electricity price is around $0.09 per KWh, which is almost 200% higher than what they have in China. I don't understand how they can compete against the Chinese miners under current circumstances.

because China has become the largest mining company

In the longer term, the company plans to use its mining facilities as a base layer for a larger cryptocurrency enterprise that will include financial services

It's a huge environmental issue, fossil fuels are slowly killing our planet and a lot of the problem comes down to companies using only fossil fuels to power their companies.

It's going to be pretty hard for mining operations to power themselves of solely renewable energy sources, but it's good to see them at least try to do something about it - better then nothing I guess.

I was hoping to see something in that article talking about them using solely sustainable energy. I see that they're using wind and solar power, would have been nice to see a commitment to them using a % percentage minimum of renewables. I think it's a pretty big problem how much fossil fuels a lot of these large mining operations use up, if we want to stop Bitcoin from having insane negative externalizes we really need to get on top of that (and to be fair, even in China where regulation is quite poor, a good proportion of energy used by mining ops there is renewable).

Good to see that the hashing power of the network will be coming less centralized in China, though.

I think Texas has the highest amount of solar panels in the USA, so basing the mining operation in Texas is a big start to sustainable bitcoin mining.

National Ranking: 6th
Solar Installed (MW): 3,028.61
Percentage of State's Electricity from Solar: 0.99%.

California
Solar Installed (MW): 25,772.78
Percentage of State's Electricity from Solar: 18.74%

It will take time to build such massive mining plantation, I'm wondering when it will be fully operating, although layer1 startup set up in late 2018. Their plans seem promising with its own power sub-station to utilize solar and wind energy, ASIC chips, and liquid-cooled mining containers.

Of course, such a massive project  and really needs a huge power to run the operation. $200 million dollar investment is magnanimous and glad to see  there is someone that can rival China. Its good that btc miner is scattered much better around the globe,so that when is damaged being ravaged by disaster we have still a backup from other country.

that would mean they could buy literally 47 THOUSAND antminer S17 pro which gives about 50 th per rig which means they would have 2,349,624 TH

That would be like 3% of all hash rates all by itself. That's huge.

They were probably hoping that the Chinese government is going to close down the mining farms located in that country. But that looks doubtful now, especially after the recent comments on Blockchain technology by Xi Jinping. It will be very hard for a mining farm located in the United States to compete directly against a similar setup located in China.

It will be very hard for a mining farm located in the United States to compete directly against a similar setup located in China.

It will be very hard for a mining farm located in the United States to compete directly against a similar setup located in China.

~ I don’t think  ~