Let’s be real for a moment here. There aren’t a lot of blockchain companies out there worth your attention. Most are floundering around with business plans that sounded prosperous in 2017, while others have pivoted away in search of greener pastures. Others have diversified—extending past base cryptocurrency mining or blockchain services into artificial intelligence, IoT and cloud computing—all of which are excellent uses of blockchain tech.
Then there are companies like Riot Blockchain (RIOT.Q) which have not pivoted, but instead doubled-down and tried to expand their reach into cryptocurrency, in spite of all the naysayers.
The company exhibited an errant stubbornness throughout the crypto-winter of 2017 that seemed silly to the point of being absurd, riding on the prospect of a turnaround that showed absolutely no hope on the horizon. And then it did, and now with the halving swiftly approaching, their stubbornness might end up paying off. That’s a hard call to make, though. We’ll get into why in a bit.
First let’s have a refresher.
Riot’s concentration has been focused on developing its mining operations and investments in blockchain technologies since 2017. They’re primarily miners focusing on Bitcoin, Bitcoin Cash and Litecoin. They’ve invested in several companies and various initiatives intending on supporting blockchain technologies, such as Canadian crypto-exchange Coinsquare, blockchain-based escrow service Tesspay, and Verady, which offers blockchain oriented auditing services. Now, though, they’re leaning on on bitcoin mining, especially as the halving approaches.
Cryptocurrency mining
Riot’s biggest and most lucrative mining facility is in Oklahoma City. It’s 107,600 square feet of wall-to-wall cryptocurrency mining rigs, and has mined 1,820 Bitcoin, and lesser amounts of Litecoin and Bitcoin Cash since its inception in 2018. The facilities costs are primarily the electricity expended to close Bitcoin’s blocks, like most Bitcoin mining operations, and they’re based around peak demand.
The company gets hourly demand rates in advance so they can be smart with their operational costs. They ease off during peak hours when it’s prohibitively expensive to mine bitcoin, and jack the electricity when it’s cheapest. That’s generally how most Bitcoin miners work. What’s isn’t known is whether or not Riot shuts their Bitcoin devoted ASIC-rigs off when it gets too expensive, and shift to one of the other coins, like Bitcoin Cash or Litecoin. That would be a smarter play.
The company has recently finished a full scale network upgrade at its Oklahoma City facility to increase operational efficiency and performance. They brought in 4,000 S17 antminers from Bitmain during December 2019, and they were operational as of mid-February. Now they’re operating at an overall hashrate of 240 petahashes per second (Ph/s), and consuming 12 megawatts of energy. The company will be providing production level updates for the next three months, beginning after the production totals are in for February.
The halving problem redux
We’ve already covered that the halving refers to the reduction in block reward by half per each block closed in previous articles. So instead of 12.5 bitcoins being released every time one of Riot’s machines solves the equation, they’re only going to spit out 6.25 bitcoins. That’s not the problem. That’s built into the code by Satoshi specifically to control inflation and produce artificial scarcity. It’s also why bitcoin is going to be a lucrative investment basically from here on in as the scarcity reduces the supply of bitcoins being introduced, and inflates prices.
But it won’t happen all at once, and there’s going to be a space between the halving and the price-rise, where the cost of electricity isn’t going to be worth the reward. Bitcoin mining companies are going to get slapped in the face here with higher electrical cost for lower payout until the price readjusts.
Eventually, companies that have some alternative form of payment either via stored cash or maybe another cryptocurrency mining operation (like, say, Litecoin or Bitcoin Cash) will be around when the price becomes worth it again. But when it rises again, it should rise well.
RiotX:
The political climate surrounding cryptocurrency is in a state of flux down in the United States. The big orange buffoon-in-chief hasn’t exactly been reticent about his distaste for digital currency in the past, democratic hopeful Michael Bloomberg has insinuated that he’d come down hard on the side of regulation as president, and Elizabeth Warren is on record as relatively neutral on the topic. On the other side, it’s been suggested that Bernie Sanders would likely end up being Bitcoin’s best friend, so that’s something positive.
What it means for Riot is that it may not be the best time to get involved in the construction and maintenance of an exchange. They started one back in 2018 called the RiotX Exchange, but given the above mentioned problems, as well as certain risks involving cybersecurity, and how competitive the cryptocurrency exchange market presently is, the company is hinting about divesting the assets associated with RiotX in the best interest of the company and its shareholders.
If 2017 showed us anything about this company, it’s that Riot has proven themselves to be stubborn, even in the face of losing long-term money. But in the end, they could be the ones having the last laugh.
—Joseph Morton