How Core Scientific is expanding Bitcoin mining operations

0:01i'm ashton addison from event chain for investmentpitch media and fintech news network and today on blockchain interviews we have russell cann the chief customer success officer of core scientific russell welcome to the show and thanks so much for being here today i appreciate you having us look forward to talking to you today likewise i'm really excited to

0:20dive into the world of cryptocurrency mining uh first of all if we could just kick it off with some background on what exactly does core scientific do with regards to bitcoin mining that would be great so we are we consider ourselves part of the infrastructure we have a large uh hosting facilities in three states uh we actually do a lot of mining ourselves

0:41and we host a lot for other folks so i would like um we're integrally part of the bitcoin infrastructure very cool and what would you say makes core scientific competitive and unique in the industry right now so core we really strive to be a a white glove service for those that want to invest in digital assets so we target hedge funds public traded companies family offices

1:07we try to provide all the services needed from the beginning to the end ordering equipment getting that equipment brought into the united states uh getting it set up getting the pool set up getting wallets set up for folks and just making it as easy as possible for people to to get into the industry and how big is your operations right now because i know north america seems to be an up

1:28and coming location but in asia and in china there seems to have been a large majority of of of miners so you are correct asia right now holds the largest percentage of the bitcoin network itself however a new investment is happening right now in north america particularly in the united states and canada because of of the large infrastructure that we do have at core

1:52we have a little over 380 megawatts of power that's ready now for for mining for bitcoin mining particularly and we are able to expand that to 450 megawatts now compared to all of china that's tiny but compared to any individual uh operator we're large we're easily one of the largest not the largest in north america and i think we're on scale with any of the large miners in china

2:16again the vast majority of bitcoin mining in the past generation happened in china but what we're seeing is a lot of movement into north america and we're part of that trend yeah that's really interesting to see this shift and i know that you have different locations in throughout the state strategically located and for those people that aren't really

2:35familiar with bitcoin mining you know can you give a scope on you know how big is 380 megawatts and how big are the facilities so yeah so our facilities right now uh we have facilities in north carolina georgia and kentucky the actual part dedicated to to cryptocurrency is in a square footage-wise is 655 000 square feet so some of the facilities are big enough to

3:02actually you know drive cars in them or golf carts if you want to so they're we're a large operator and in terms of of megawatts uh you know a megawatt will will provide the power for like a super walmart and you're talking about 380 megawatts now so each of our centers even our smallest centers are 50 megawatts which is enough to really provide power

3:24for a small city so wow uh to give yeah they're they're large and we've done tours and stuff and and you know prior to coving we were pretty regular giving tours to clients and and client guests um and most of the time it is it's jaw dropping whenever you're walking and you're measuring your steps and miles whenever you do one of the visits it's pretty impressive

3:43that's really cool uh and with such large facilities i'm sure you're using a lot of power and there have been some other mining companies that have been looking at renewable energy sources or or harnessing that power that's you know being used from the miners are you guys doing anything specifically to help lower your costs or to make more renewable energy

4:04so interesting enough uh renewable energy is green for the environment it's also green for your wallet renewable energy is the cheapest energy you can find when you have a fuel input cost of zero that means your actual energy costs are lower so for ourselves uh we're better than 50 what we call carbon free a lot of our power comes from hydro and solar and

4:26nuclear we do have some some that are coal but for the most part green energy is cheap energy and in order to be efficient and be competitive globally with asia china specifically in russia we have to have you have to have cheap uh steady power and you get that in renewable areas in the southeast very cool and i know that core is also a host so from what i understand you're mining

4:54in your own operations but you're also having other people you know mining on behalf of others is that right so yeah so what we do is is we're first uh you know we're blockchain and ai so we have a lot of blockchain hosting we do also do a lot of ai hosting which is your high compute gpus and i kind of misspoke because some of that megawatts is set aside for those

5:13high compute gpus and some of that make lots of set aside for our rendering gpus but for the most part we actually took on hosting clients in order to grow in order to become a more efficient operator so in order to make our own mining efficient we decided to take on hosting clients uh which makes us more efficient miners but also we will provide a quality service to our

5:35customers that's great and from what i understand bit main is the main producer of you know bitcoin miners and you're working with bitmain and you've purchased you know so many uh mining rigs that are new because they do seem to get create new versions and become more efficient pretty often can you talk about your recent relationship with bit main and where

5:59you're at with your miners absolutely yeah so we actually operate with with several different providers bitmain is the largest producer and we just ordered nearly 18 000 of their newest generation s19 miners we started getting them in test batches in may we've been deploying them throughout june and july and we have some coming in in august and september

6:20and i'll tell you we're very happy with the s19 it's a it's a little tank um they're up 99.8 percent i checked this morning we had a few that had some issues and they go down they get back up very quick so we're happy with that product with that said we also work with what's minor and we work with kanan so we have we have uh bitcoin mining equipment from all the

6:40major manufacturers but definitely bit main is the largest uh by a factor so and we're happy with our production the units that we bought from bitmain came out of malaysia and production in malaysia hasn't slowed down there was you know with the halfing event that happened at the same time as covid there was some supply chain issues at the beginning of the year

7:00and that really slowed down a lot of things between january and april really january all the way through may uh there was some supply chain disruptions around the world not just in bitcoin mining but everywhere and that did affect um it affected us it affected bit main it affected our plans for a roll out but all that is slowly correcting itself as the world returns to normal well

7:24we're a long way from normal but you understand 2020 is crazy so yeah well that's really interesting that you mentioned that and i was going to touch on the fact that the bitcoin having reward you know now miners only get half the reward they do i normally get every 10 minutes how did core plan for that i'm guessing you were in operations just back a few months when it was going

7:43is there any preparation or mindset or i'm sure it may affect the price and that may affect your day-to-day cash flow in and cash flow out affect everything but we plan for it and because it's an algorithm we knew when it was going to happen we knew you know within hours of when it was going to happen in general if covet had not had the supply chain disruption that it had

8:05what would have happened was prior to the the having event we would have started replacing or adding new generation miners and we did add some throughout the fall and into the spring but because of supply chain issues a lot of that old generation equipment stayed on through the having and oddly enough old generation equipment is slightly profitable right now

8:25uh based on the recent runoff of bitcoin price but what is new generation is equipment is so much more efficient that as more new generation equipment comes online it's going to increase the the difficulty level uh for the bitcoin algorithm and that's going to drive out some of that old generation equipment and gonna see with the chinese rainy season

8:46ending the power costs in china are gonna start going creeping back up again so the older generation equipment in china is gonna it's gonna have to start going offline which is also going to decrease the difficulty which is going to increase mining profitability for new generation equipment wow it's such a complex equation on all of the variables right and with the recent increase in

9:07price of bitcoin and last week it went up almost a thousand dollars in a day i'm sure that the miners are are happy about that but at the same time the difficulty would increase because people are seeing that they can get more for those bitcoins so does core have a strategy or a plan in how they manage all of the bitcoins that they mine in terms of you know

9:30paying the expenses but maybe keeping bitcoin for when the price is way higher yeah so we have we do we do both we we mine for revenue to cover operating cost and we also mine for our balance sheet and we store things so we we do both and we'll sell point out to the open market we'll also have hash contracts and we you can there's different hedging and

9:51financial instruments available for those folks like ourselves that are they're long bitcoin because we are a natural long because we mine bitcoin and other currencies so you know we can use those coins uh for financial instruments as well so we do all those things and because we are a large operator uh we have a lot of opportunities to do that but even small operators and small

10:11miners can take advantage of those same same tools that are out there and really part of the next step for the mainstream adoption of bitcoin is getting more institutional interests and institutional investors have you seen a growth this year so far in the institutional interest for the bitcoin mining side so actually actually it's like i planted that question with you that's our target

10:35market institutional investors hedge funds public trade companies family offices we as as the united states capital markets get more comfortable with digital assets we're seeing more and more of those capital markets open up the digital assets and and that's what we target we want to be there for those folks because it's easy when you just get started to

10:55build a few gpu rigs or have a few aces in your garage or even a small operation but if you are an institution if you're a public traded company there's certain imbalances and regulations and things you want to make sure you check all those boxes for instance you know we're audited annually by ernst young we're one of the few cryptocurrency businesses in the world

11:14audited by one of the big four audit firms but we do that in order to provide the transparency that institutional investors and institutional operators uh require really if they're going to get into this space definitely it's good to have that well it sounds like you guys are doing really well with the growth of your operations my last question is what comes next for

11:35core in the next six months or a year you know what are your strategic goals so our ai side of the business is really growing and i mentioned that earlier when i told you about the number of megawatts we actually have a tier three ai center built into our cryptocurrency operations and that's going to continue to grow uh there's a lot of of i think ai and

11:56blockchain are going to converge ai's processing data blockchain is is securing and managing that data and i think as we see that 2020 get somewhat back to normal we're going to see a lot more growth on our ai side of the business also as a supply chain in the asic world gets back to normal we're going to see more growth we're going to see more uh movement into

12:18north america and i do want to point out i don't think anyone's going to close any of their operations in china or asia i just think new operations and new capital spend is going to find its way more into north america versus versus legacy operations so i don't think any of those old things are going to close i just think new money is going to come here

12:39that's great and if there are institutional investors or others that are interested more in mining and core scientific what's the best way for them to reach out and to get involved so you know if you're want to be a big operator go to our website corescientific.com and we'll be glad to help you but you know really even if you're just getting into the game and want to get a gpu and

13:00get it mining ethereum or something jump into it that's how i got started uh really just as a gpu miner and then it's kind of grown into a much larger business so it cryptocurrency is a lot of fun and you can do it as a small operator in your home or you can you can dive into it in a big time way like us and have several hundred thousand square feet of it so

13:19i encourage people to get involved um even if it's just on the trading account on one of the robin hood or somewhere like that uh but for us go to corescientific.com and we'll be glad to help you out great thank you so much russell i will leave the links in the description box below all the best moving forward with core scientific and let's follow up in the near future

13:39all right thanks ashton appreciate it you