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Are you interested in building a commercial Bitcoin mining operation but don't know where to start?
Don't worry, we've got you covered.
In this step-by-step guide, we'll walk you through the process of building a successful Bitcoin mining operation. From selecting a site to diligence and managing risks, we've got all the information you need to get started.
Step 1: Selecting a Site
The first step in building a successful Bitcoin mining operation is selecting the right site. You'll need to consider a few things when selecting a site, such as power source, development requirements, and labor availability.
- Power source: Your source of electricity is critical to the success of your mining operation. You can choose between an on-grid or off-grid power source. If you choose an on-grid power source, you'll need to consider the utility company, power pricing, and curtailment opportunities (or requirements). If you choose an off-grid power source, you'll need to consider hydro, solar, or wind power, which typically require negotiation with an off-grid provider and large loads. You can learn more about these options in this article.
- Development requirements: Like all real estate development, you must understand zoning, permitting, and ordinances. Typically, the more rural the site, the better.
- Labor: Depending on the size and scope of the project, access to quality labor during the development, as well as the operations, may be more or less of a factor. DO NOT buy into the myth that you can run a mine fully remote.
Step 2: Selecting Equipment
The second step in building a successful Bitcoin mining operation is selecting the right equipment. You'll need to consider a few things when selecting equipment, such as containers, miners, and transformers.
- Containers: You can choose between air-cooled and immersion containers. Air-cooled containers are the cheapest option for small to mid-sized mines. Immersion containers are newer, less proven technology, but require additional infrastructure and operational expenses. For a list of reputable container providers check out our verified listings.
- An alternative is to build out your own facility but this is typically higher cost.
- Miners: In our opinion the only two miners worth considering are the Bitmain Antminer S19 or newer model Whatsminers. Whatsminers are generally slightly less efficient J/Th but are more reliable and cheaper.
- Transformers: Go with reputable brands here. You don't want to skimp on critical infrastructure given the total value of what is downstream. We have reputable options here.
Step 3: Power Purchase Agreement (PPA) and Net Cost of Power
The third step in building a successful Bitcoin mining operation is securing a Power Purchase Agreement (PPA) and understanding the true cost of power. You'll need to consider a few things when securing a PPA, such as complexity, structure, and credit risk.
- “You can get [insert wildly low number] cent power here!” - an exclamation you should be wary of because the devil is certainly in the details with power contracts
- PPAs are long-term contracts to consume power. These contracts are highly complex, require specialized knowledge, and are getting more and more difficult to obtain given the credit risk that Bitcoin miners represent. Be very selective about who you get advice from in this area.
- Nailing this upfront during the site selection process is absolutely critical. ERCOT is the only unregulated market for power in the US which offers maximum flexibility for term, structure, and generally competitive on-grid pricing.
- Transmission costs, taxes, curtailment proceeds, and other ancillary services all must be well understood to establish a true net cost of power.
Step 4: Operations
The fourth step in building a successful Bitcoin mining operation is managing the operations. You'll need to consider a few things when managing the operations, such as staffing and training, hosting pricing, and selecting the right technology stack.
- Staffing and training: Finding good talent and training them is challenging, especially if you are remote.
- Hosting pricing and go-to-market: If planning to offer hosting, pricing to ensure you have a healthy margin requires understanding your actual costs
- The most important part of your tech stack: Farm Management Softwares.
Step 5: Budgets
Before you pull the trigger on a site, it is crucial to price out everything, including all development costs. Many financial models have blown up from not understanding the true cost to develop.
To create a budget, you will need to factor in the cost of land, labor, equipment, and power. Other expenses include legal fees, permits, taxes, and insurance.
You will also need to calculate the cost of ongoing maintenance and repairs for your mining equipment. It's essential to build a buffer into your budget for unforeseen expenses and emergencies.
Overall, creating a realistic and detailed budget is key to the success of your commercial bitcoin mining operation.
Step 6: Risks
Starting a commercial bitcoin mining operation comes with risks, and it's essential to be aware of them.
One significant risk is power prices. PPAs and true power costs are complex and hard to assess without experience. You must understand the market and negotiate the best deal possible to keep your operational costs low.
Another risk is permitting. If the permitting process stalls your project or local planning blocks you, it can delay your operation and result in increased costs.
PR issues are also a concern. Locals may protest over noise or environmental impact of your project, or there may be NIMBYism. It's crucial to engage with the community early and often to avoid any potential PR issues.
Critical infrastructure mistakes are a big risk as well and do not mix with well with large power loads - mistakes that result in money printing machines literally up in smoke.
Uptime is also a risk. Your operation may experience lower uptime than planned, hurting profitability. This can easily be mitigated by proper heat optimization which is a function of location and hardware selection.
Lastly, repair costs for hardware may be higher than planned. It's essential to factor in these costs when creating your budget.
Alternative Option: Acquiring an Existing Site
While not a high number of sites are for sale at any given time and are highly complex deals to underwrite, you can significantly bypass some or all of the risks by purchasing an existing site or one further along in development.
Acquiring an existing site can save you time and money on the development process, and it may already have the necessary infrastructure in place.
However, you must still conduct proper due diligence to ensure the site's power source, equipment, and infrastructure are up to par and meet your operational needs.
Check out our plug-and-play sites here.
Conclusion
Building a commercial bitcoin mining operation can be a lucrative business, but it requires careful planning, execution, and management. Selecting the right site, equipment, power source, and team are critical factors for success.
Creating a realistic budget and being aware of potential risks is also essential. By following these steps, you can build a profitable and sustainable commercial bitcoin mining operation.
If you’d like to get started with your own mining operation, check out our listings from verified sellers across the globe.