Hut 8 and Bitfury Team Up to Recentralize Bitcoin Mining to Canada

In an unprecedented North American first, Canada will soon be home to one of the largest bitcoin mining data centres in the world.

The Vancouver-based Hut 8 has announced a partnership with Bitfury to acquire, install, maintain and operate North America’s largest bitcoin mining data centres in Drumheller with possible expansion to other cities in Alberta and provinces including Quebec. Bitfury is a leading full-service blockchain technology company, operating private mines—as opposed to public pools—that are responsible for between 11 to 17 per cent of global bitcoin generation right now. This output firmly places Bitfury as a top three miner in the world.

Hut 8 is a bitcoin mining company led by CEO Sean Clark, a well-known Canadian entrepreneur who founded SHOES.com and now leads First Block Capital, Canada’s first cryptocurrency investment firm. The start of Hut 8 can be traced back to when Clark’s First Block co-founder Marc van der Chijs met Bitfury founder Valery Vavilov on, where else, Richard Branson’s private island in 2013. That relationship would come in handy as the prevalence and worth of cryptocurrency grew over the next few years.

“We knew that capital markets were starving for blockchain deals and to allocate capital into the growing asset class. We formed Hut 8 to negotiate an exclusive services agreement with Bitfury,” explains Clark.

But why doesn’t Bitfury cut out the middleman and expand on their own into Canada?

“There’s a big problem with blockchain companies trying to go public. No global securities regulator will do it because of the nature of bitcoin,” says Clark. “Not only that, there’s proprietary information a lot of these tech companies want to keep close, so filing a full prospectus actually hurts them.”

What’s happening now then is a private offering of just over 13 million Hut 8 shares through GMP Securities, equal to around $33 million. The funding from these proceeds will go towards the immediate control of 22 primed and ready bitcoin mining centres located in Drumheller. In the first months of 2018, a public listing on a Canadian stock exchange will take place, increasing control to an additional 35 data centres, some of which may be in Drumheller, or in various other locations around Canada and potentially the U.S.

In that sense, Bitfury often operates Hut 8 using a reverse takeover, utilizing smaller companies to act as proxies in order to gain access to capital markets and institutional money growth. Hut 8 has a North American exclusivity agreement with Bitfury, meaning the Canadian firm will receive all of the necessary equipment solely from Bitfury.

Clark goes on to explain how an expansion to Canada is the perfect move for Bitfury.

“Right now if you look at the bitcoin mining globally, there’s too much emphasis and hashing power located in China,” he explains, recognizing that over 50 per cent of mining happens in the country where ICOs and cryptocurrency exchanges are banned.

“It goes against the decentralized nature of bitcoin.”

The Bitfury group has over $350 million in revenue and is profitable. Hut 8 is bending in the company’s data centre assets for the company to capitalize and raise money to create a massive mining operation.

“We’re building a utility company,” says Clark. ”We’re not talking about one or two megawatts—we’re talking about hundreds and hundreds of megawatts here.”

Bitfury already has around 172 megawatts operating globally, mining a massive chunk of the world’s total bitcoin. The new capital raised will allow Hut 8 to roll out hundreds more megawatts of mining power and help rebalance the bitcoin mining network to North America, reducing dependency on the volatile market environment of China.

“We are thrilled to be partnering with Hut 8 to establish data centers in Canada. We decided to grow our presence there because Canada is a business-friendly country and has the infrastructure, economy and energy resources ideal for Blockchain and bitcoin companies,” says Valery Vavilov, CEO of Bitfury. “More generally, we believe North America has the potential to be a hub for cryptocurrency mining, so we are excited to be taking a step in making that happen.

Access to electricity is a huge infrastructure challenge, as is evident by the sheer amounts needed to mine bitcoin. One megawatt is enough to power 400-900 homes according to some studies, and Hut 8’s fully operational mining centres will need in excess of 200 megawatts when fully running.

Currently Hut 8 is in the process of negotiating fixed rates for electricity with the Manitoba government, and if they can lock in a 10-year guarantee, they will open locations that will operate for 10 or more years. Right now Hut 8 is leasing land for the mining centres and operating on a contract where power is sold at 3.5 cents per kilowatt-hour. If Quebec or another province can come in and beat that price, Hut 8 will move and establish a fixed location.

The opening and eventual prevalence of mining centres in Canada is only a good thing—Hut 8 and Bitfury are bringing in technology, hiring workers and putting Canada on the map as a blockchain leader. There is potential for more expansion beyond pure power costs and hiring as well.

“The Bitfury group will invest through Hut 8 to create a higher education blockchain learning centre, like they have done in Japan, and we’ll do it in Quebec or Manitoba, wherever we put a fixed location,” says Clark. “This will encourage innovation, train developers, help startups and more. Bitfury is an operating company that holds its values close to the ethos of bitcoin.”

“Now is Bitfury’s time to ramp up through capital market raises and give North America 20 to 30 per cent of the market share of bitcoin mining. At the end of the day, scale wins this game, and scale allows Hut 8 to operate no matter what the bitcoin price. It’s a utility play,” he adds.

Bitfury is the largest shareholder of Hut 8 so they are incentivized to make sure the company becomes a success. With the price of a single bitcoin climbing well over $10,000 USD, the market is primed to become a major player with huge financial institutions. Considering Bitfury has seen over $90 million worth of funding so far, they have the assets to take this Vancouver company led by Sean Clark and flip the traditional China-dominated bitcoin mining model on its head.