Bitcoin mining has shifted rapidly over the last year from the domain of hobbyists with everyday home PCs to an undertaking that requires significant investment in customized equipment. Today, news emerged that Las Vegas-based bitcoin investment fund CoinSeed made a $5 million investment in BitFury 55 nanometre bitcoin hardware, which are capable of operating at a staggering 1522 GH/s. The deal sets the stage for CoinSeed to be one of the largest mining operations in the US.
Many of the world’s dominant mining operations are based in places like Iceland and Eastern Europe where energy prices and real estate prices offer potential cost savings help offset the high cost and narrow margins of solving bitcoin’s cryptologic puzzles. Other groups operate as distributed networks, banding together the hardware resources of numerous small, independent miners.
CoinSeed is just getting started. The company expressed ambitions to create a bitcoin clearing house capable of processing real-time transactions, functionality that’s sorely lacking in the oft-illiquid bitcoin marketplace. CoinSeed is organized as an investment firm, but aims to generate returns both through mining bitcoin and through building a fee-based platform to serve merchants. The firm also plans to make investments into outside crypto-currency ventures.
The company appears to have a bit of cash remaining after its big BitFury purchase, based on reports that it raised $7.5 million from private investors over the last month. But that likely won’t be enough, given the scale of CoinSeed’s ambitions. It aims to raise $15 million over the next eight months.
The company’s $5 million ASIC purchase is believed to be the largest single-order purchase of bitcoin mining hardware to date, according to the company’s US distributor, MegaBigPower. CoinSeed has entered into a long-term agreement with MegaBigPower to deliver “a stable supply” of state of the art mining gear. This is a meaningful agreement, if reliable, given the limited supply and substantial demand for mining rigs.
CoinSeed was founded Merlin Kauffman, who made his name as the founder of domain name investment vehicle True Magic and was once hired by AOL at 11-years-old as its Youth Tech Community Manager. Kauffman hired LabRatMining founder Zach Dailey to lead the company’s “technical deployment.”
Despite all the buzz around bitcoin, there’s still a very real chance that the current boom will prove unsustainable. That a particularly risky prospect for those investing heavily in mining gear. As their name suggests, ASICs are “application-specific” meaning that they have little use outside their stated purpose – in CoinSeed’s case, bitcoin mining. The other risk is that mining hardware can quickly become obsolete. The rising value of bitcoin means that there’s more incentive than ever for system engineers to develop more and more high-powered mining rigs.
CoinSeed went from relative unknown to powerhouse in the bitcoin ecosystem overnight. But how long it can maintain that lofty perch remains to be seen.